WASHINGTON ELECTRIC CO-OP

Special Member Vote, June 2004

Project Description and Summary:

COVENTRY LANDFILL GAS TO ENERGY PROJECT

OVERVIEW

Washington Electric Co-op will build and own a facility that will generate electricity produced by the burning of methane gas at the state’s largest landfill in Coventry , Vermont . The landfill is operated by New England Waste Services of Vermont, a wholly owned subsidiary of Casella Waste Systems, based in Rutland . The electricity produced will be solely for the use of WEC’s members and will be a major, long-term and economical source of power for 25 years or more.

The project consists of two components:

·        A small generating plant on the landfill itself will use the gas that is required to be collected and is otherwise just burned off (“flared”) into the atmosphere. WEC will be installing engines capable of generating 4.8 megawatts (MW) of electricity. Based on the gas currently being produced at the landfill, it will start generating under 4 MW in 2005 and the output will increase over the next few years as more gas is produced by the landfill. (For an explanation of the “landfill gas to electricity” process, see the attached diagram.)

·        A 46-kilovolt transmission line, approximately 7.2 miles long, will be built from the landfill to a substation in Irasburg owned by the Vermont Electric Power Company (VELCO), the statewide transmission company. From there, power generated at the landfill will enter “the grid” and be available to WEC’s service territory. The project also includes a modest expansion of the VELCO substation. The transmission line will be single-pole construction, and will also carry the local distribution lines serving the members of Vermont Electric Co-op (VEC) in Coventry . VEC will co-own the poles that its lines are attached to.

WHY THE CO-OP IS DEVELOPING THIS PROJECT

WEC’s current demand for power is about 10-12 MW with a peak demand in the winter that can reach 15 MW. This demand is expected to grow gradually and steadily as our membership grows. In 2002, WEC’s supply contract from the Vermont Yankee nuclear plant ended. This source had supplied about a third of our power for many years. In addition, other power supply contracts will be ending in the foreseeable future. WEC’s board and management, after much analysis and deliberation, concluded that we could best meet our future power supply needs by making long-term commitments, including ownership, by investing in renewable resources within Vermont . Our analysis showed that the Coventry Project offered us the most economical power. Just as importantly, it offered us energy at costs that would be very stable and predictable for the duration of the project, which would protect Co-op members from the volatility and unpredictability of fossil fuel prices that are dependent on world events and market conditions beyond our control. Landfill gas generation projects such as this are “baseload” power, meaning that it will be running and available to us well over 90% of the time.

The cost of the energy generated by the Coventry project is expected to start at about 4¢/kWh and will average about 5¢/kWh over the 25-year life of the project. This is below current wholesale prices for short, mid or long-term contracts from any other source available to us.

COST OF THE PROJECT

The project will cost up to $7.32 million. This includes all costs associated with the generating facility, the transmission line and substation improvements, as well as all planning, engineering, legal and regulatory costs. WEC will borrow up to this amount from our principal lender, the Rural Utilities Service, USDA, at a favorable rate and terms. Our loan application is pending and approval is expected. By borrowing this amount and owning the plant, WEC’s wholesale cost of power will be reduced significantly compared to purchasing power in the marketplace. And as stated, our costs will be more stable and predictable than they would otherwise be.

REGULATORY REVIEW AND APPROVAL

On June 4, 2004 , the Vermont Public Service Board (PSB) issued an Order and a Certificate of Public Good approving the Coventry Project. The Order was issued after five months of review by both the Department of Public Service and the Agency of Natural Resources, who are charged with reviewing such proposals that come before the PSB. After considering all aspects of the project including economic and environmental impact, WEC and these two agencies (as well as VELCO and VEC) jointly asked the PSB to issue a Certificate of Public Good and the PSB agreed. (The Certificate of Public Good is included in this information package; the PSB’s complete Order is available on WEC’s website or by contacting our office.) There were no objections from the Towns of Coventry or Irasburg or from the area regional planning commission, and no members of the public or local residents voiced any objections to the project.

The owner of the landfill has requested Act 250 approval for an expansion of the landfill and for renewal of their operating permit. These approvals are expected shortly and WEC will not begin construction until they are granted, as the analysis of the benefits of our project assumes that they will be granted.

Before WEC can begin construction, certain environmental permits must be issued. These are expected very soon. In addition, as discussed further in another section of this summary, the PSB authorized WEC to get started on construction before two additional permits are issued, with certain conditions and understandings.

NEXT STEPS

In the case of an electric cooperative, Vermont law requires member approval of generation projects after the PSB issues a Certificate of Public Good. Results of the vote will be announced on June 29^th.

WEC has selected a contractor to build the generating facility and will soon select a contractor to build the transmission line. Upon member approval and after the additional permits noted above are issued, we expect construction to start in July. We plan to have the entire project complete and to begin generating electricity in early January 2005.

WEC has formed a wholly owned subsidiary, Coventry Clean Energy Corporation, whose sole responsibility will be operating the facility and providing the electricity output to the Co-op.

RENEWABLE ENERGY

Electricity generated from landfill methane is considered a renewable form of energy, and WEC is pleased to develop this project for this reason as well as for its economic benefit. It has long been a desire of our board, management and many Co-op members to decrease dependence on polluting and unsafe energy sources and to support cleaner and renewable sources.

In order to promote the development of new renewable generation, the New England states in collaboration with the operator of the New England regional transmission grid have created a market for “Renewable Energy Certificates.” All renewable electricity available in our region now also has these certificates (RECs) associated with it. Through this system, the renewable attributes are accounted for separately from the actual energy being generated. The additional value of these RECs provides an incentive for new renewable energy plants to be built. In those New England states that require power companies to sell a certain percentage of renewable energy to their customers, ownership of these RECs is how these companies certify what they are providing. 

WEC will own the RECs for the energy generated at Coventry . We will then have the option every year of selling all or some of the RECs in the market to companies in New England who need to be able to claim more renewables in their mix. To the extent we sell all or some of our Coventry RECs, we ourselves will not be able to claim the renewable characteristics, even though the Co-op will continue to take, and our members use, all of the electricity the project generates. Although we cannot predict what the market value of RECs will be in the future, this is another potential benefit of the project, an additional tool to help keep members’ rates in line.  

RISKS ASSOCIATED WITH THE COVENTRY PROJECT

This is a major undertaking. There is some risk to our Co-op in going forward with this project, as there would be with building any generating facility. Your elected board of directors and management, aided by a team of knowledgeable and experienced technical, economic, business and legal consultants, have worked for over two years, carefully analyzing and negotiating to make sure the Coventry project works for us. We have been very conservative in our assumptions and believe that the risks of going forward are very small, compared to the costly and very likely risks of not having this long term, economic and stable power supply source.

The Public Service Board has requested that we inform you of one specific area of risk. The PSB’s Order of June 4^th authorizes WEC to begin a certain amount of construction before receipt of two additional environmental permits: a “takings” permit that allows us to save two endangered plants by moving them out of the VELCO substation expansion area; and, an air quality permit for the engines that will generate the electricity.

WEC is in the process of obtaining both permits and we do expect that they will be granted. WEC requested this authority to begin construction as soon as possible. The Department of Public Service, the Agency of Natural Resources and the PSB agreed that it was reasonable because it is very important for WEC and our members to have this facility completed and operating by January 2005, when one of our existing major power supply contracts ends. Every month of delay means that we will have to purchase a very significant amount of much more expensive power until the facility is operating.

It is therefore possible that WEC could incur some construction expense (not including the cost of the generating equipment itself), and then fail to get these two permits. Were that to occur, it would not necessarily have a direct impact on your rates, but it would have a negative financial impact on the cooperative that you are a member/owner of.

Again, we feel this possibility is remote, but we do wish to disclose this risk to our members. While there are some risks in going forward, we believe the risks and costs of not completing the project as soon as possible are far greater.

MORE INFORMATION ABOUT THE PROJECT AND ABOUT LANDFILL METHANE

Check WEC’s website, www.washingtonelectric.coop, or contact the Co-op office for the following:

·    Co-op Currents. WEC first announced the Coventry Project in the August/September 2003 issue of our newsletter, and we have had further information and discussion in most issues since then.

·    The Public Service Board’s Order approving the project contains detailed findings and discussion supporting the PSB’s decision.

·    A link to an Environmental Protection Agency website devoted to Landfill Gas to Energy projects.

Please feel free to contact General Manager Avram Patt or members of your Board of Directors with any questions you have before voting.