An Error Cost Burlington Electric $1 Million

McNeil Generating Station Credit: File: James Buck

A reporting error discovered earlier this year at the Queen City’s wood-fired power plant has cost the Burlington Electric Department nearly $1 million.

Managers at the McNeil Generating Station are supposed to track how much renewable energy the plant produces, which allows it to qualify for clean energy credits worth millions of dollars. But due partly to staff turnover, a manager last year neglected to document the plant’s third-quarter output and fuel type in a regional reporting system as required for the plant to be awarded the credits.

“It’s an unfortunate error, and I wish it hadn’t happened,” said City Councilor Mark Barlow (D-North District), who was briefed on the issue during a closed-door executive session in February.

The mistake won’t immediately impact rates. And systems have been put in place to make sure it won’t happen again, according to BED general manager Darren Springer.

But the error has raised questions about management at the city-owned utility. Kerrick Johnson, commissioner of the state Department of Public Service, said he met with BED officials and found the oversight troubling.

“Was it a disappointment? Hell, yes, it was,” Johnson told Seven Days.

The utility has outlined for regulators some of the changes it’s made, such as ensuring more than one person is responsible for and able to enter data into the reporting system. The department also plans to provide additional training for staff and use automatic reminders about upcoming reporting deadlines.

Johnson said the “proof remains to be seen” whether those and other changes are sufficient.

“Prudence would dictate, in order to protect ratepayers, you look at the outward signs of effective management,” Johnson said. “It’s by no means the sum total, but this is an important indicator of overall management effectiveness.”

The lapse involves the sales of renewable energy credits, or RECs, that some power generators sell. These are tradable certificates that represent the environmental benefits of generating electricity from renewable sources such as wind, solar or hydro. RECs are a key part of how clean energy is tracked and incentivized. In places such as Connecticut, state officials allow utilities that lack the infrastructure to meet their own clean-energy goals to buy the certificates instead.

Every year, BED brings in between $7 million and $9 million by selling RECs, according to Springer — about 10 to 13 percent of the utility’s annual operating budget.

The error has raised questions about management at the city-owned utility.

About half of that is tied to electricity from McNeil, the state’s largest power generator. Though the plant can be fueled by oil or natural gas, it mostly runs on wood chips harvested from New York and Vermont — a renewable resource.

While a growing number of critics say burning wood chips is not environmentally sound, some states still consider the power produced to be “green” and are willing to buy RECs from McNeil.

In order to ensure the RECs are legit, utilities in the region register them with the New England Power Pool Generation Information System. Every quarter, a manager at McNeil is supposed to enter how much energy the plant produced with wood chips, considered a renewable biomass. Once that is done, the RECs are created and can be sold.

The manager responsible for uploading that information gave two weeks’ notice last summer, Springer explained in a note to Vermont regulators. The manager, who was not named in Springer’s account, “ignored multiple requests by BED management to produce a transition memo documenting key responsibilities for their successor,” he wrote.

That left the second-in-command at the plant “without adequate training or documentation to fulfill this important quarterly reporting task,” Springer wrote.

The individual, who also was not named, “did not alert BED management to this knowledge gap,” Springer wrote.

The result was that BED missed out on being able to sell an entire quarter’s worth of McNeil RECs to Connecticut utilities, which have been buying them consistently for years. That resulted in a loss of about $951,000 for BED, Springer said.

But BED wasn’t the only loser. The utility owns 50 percent of McNeil, while Green Mountain Power has a 31 percent share and the Vermont Public Power Supply Authority owns 19 percent. GMP estimates it lost $600,000; VPPSA is out $260,000.

In a statement, GMP said it’s always concerning when something drives up costs for its customers. “BED has communicated well with us about this and we are evaluating options,” the company wrote.

Ken Nolan, the general manager at the power authority, also said BED had been communicative about the issue and fixes. “It’s never good news to hear that a problem like this has occurred, but reality is that the utility industry is complex and errors do occur,” Nolan wrote in a statement.

When the error at McNeil was initially discovered early this year, Springer informed the mayor’s office, let the City Council know in a closed-door executive session in February and briefed the Burlington Electric Commission in private three times. But he didn’t publicly disclose the screwup until the commission’s May 14 meeting. The five-member body, appointed by the city council, oversees the utility.

Springer said the secrecy was necessary because BED had been “working to settle contract obligations with counterparties,” meaning the McNeil partners. Those have since been resolved, he told the commission. While the RECs from McNeil could not be sold to Connecticut utilities, the McNeil partners were able to use them to help satisfy their renewable energy requirement in Vermont, Springer explained.

The error will not affect rates, which were already scheduled to go up 4.5 percent next year, Springer told commissioners.

A bigger potential problem for BED, Springer said, will develop if Connecticut moves forward with a plan to reduce electricity rates by changing how biomass energy is accounted for in the state’s energy portfolio. BED is still analyzing the possible impact, but under SB4, recently signed by Connecticut Gov. Ned Lamont, some biomass-generated power may no longer qualify as renewable as soon as this October.

The rules in Connecticut’s Renewable Portfolio Standard have “historically propped up polluting biomass generators around the region,” said Chris Phelps, the director of the advocacy group Environment Connecticut.

“Connecticut clearly wants its [renewable] policy to prioritize electric generation facilities that do not emit pollution. This change is a step in that direction,” Phelps told Seven Days.

Local environmental advocates have long pointed out that the Vermont plant, which opened in 1984, is a major source of carbon pollution. BED, meanwhile, says the wood it uses comes from sustainably managed forests that reabsorb the carbon over time.

Springer told commissioners that being unable to sell RECs to Connecticut utilities could have a “significant financial impact” on BED. The department would be out $3 million to $4 million in annual revenue, unless another buyer could be found.

“BED will do all appropriate financial contingency planning to address any market changes,” Springer told Seven Days. BED management and the commission have long discussed whether the utility should scale back the REC sales, Springer said.

BED makes money by engaging in “REC arbitrage.” The department sells the rights to the highest bidder, in this case Connecticut utilities, to call its energy “green.” Then, because Vermont has more lax rules for renewability than other states, BED buys cheaper RECs, mostly from large hydro facilities, to be able to claim its electricity is green.

The system is meant to incentivize new renewable energy. But critics say it’s been manipulated to prop up old generators such as McNeil.

If Connecticut buyers pass up McNeil’s RECs, that could eliminate BED’s access to a market “in a dramatic way in a short period of time, and that’s not ideal,” Springer said. The city will learn more about whether McNeil qualifies for Connecticut RECs this fall, he said.

As for what the mistake says about BED’s management, Springer said, the department handled the issue appropriately. He’s led the department since October 2018.

“What an effective management team does when confronted with an error or mistake is that they transparently and timely communicate about it to their governing bodies and regulators, they seek to learn from it, and they seek to implement reforms to ensure it does not recur,” Springer told Seven Days.

BED, he said, did “all those things.”

The original print version of this article was headlined “Up in Smoke | A mistake at the McNeil wood-burning plant cost the Burlington Electric Department nearly $1 million”