Vermont’s power transmission company, VELCO, is preparing for another phase of development as it migrates to the smart grid. CEO Chris Dutton and VP external affairs Kerrick Johnson talk to Gay Sutton about the challenges of becoming a telecommunications company.
In April this year, longstanding energy expert Chris Dutton was called in from retirement to take over as president and CEO of Vermont Electric Power Company, Inc. (VELCO) to see it through one of the most challenging periods of growth in its 60-year history.
Owned by a consortium of electricity utility companies across Vermont, VELCO is unique in being the state’s sole transmission company, and until 2005 it had enjoyed a relatively stable and peaceful existence. Its original purpose during the 1950s was to construct a power transmission backbone for the state. Gripped in a post–World War II boom, the demand for power looked set to outstrip the supply generated, and it was perceived that a single state-wide transmission system would enable the state to import much-needed power from a hydroelectric plant in neighboring New York State. Thus, VELCO was created.
After the initial construction period, the company settled down to its role as a freestanding transmission company, in some ways a precursor of the current disaggregation of the industry whereby supply, transmission and distribution are performed by separate entities. Its main role for many years was maintenance, though it went through several minor phases of construction that enabled the company to import power across the Canadian border from Quebec and from other areas of New England.
This comfortable state of stability continued until the middle of the current decade, when the transmission system began to come under pressure. Interestingly, the strain was not created by a rapidly increasing population or industrialization, nor has demand outstripped supply as it did before. It was precipitated by peaks in demand caused by the increasing use of air conditioning during the hottest parts of the summer months, and heating during the winter. “It then became clear that, even though we had enough power supply to meet the needs of the state, the increased peak demand was putting strain on the transmission system and putting its reliability in peril,” explains Dutton. “We have therefore had to make substantial improvements to the infrastructure of the transmission system simply to keep the lights on.”
To some extent taken unaware by this rapid change in public habit, the company had to act quickly. Working in conjunction with ISO (Independent Systems Operator) for New England, which is responsible for overseeing the security of the power supply for the six-state region, the company identified several projects that would strengthen the transmission system. In 2005 work began on the first of these, the Northwest Reliability Project.
Costing in the range of $220 million and reaching completion in 2009, the project entailed the construction of a completely new transmission line some 75 miles in length. The southern portion of the project consisted of a 345-kilovolt line linking Rutland to New Haven, where a new substation was built to step the power down to 115kV. A second transmission line of 115kV was then constructed to carry power north to Burlington, the largest city in Vermont. Concurrent with this, a number of smaller projects were also undertaken in the Burlington area to connect outlying towns to the grid.
The second major project, the Southern Loop Coolidge Connector, began in 2007 and is now nearing completion. Costing slightly less than the Northwest Reliability Project, it includes the construction of a new substation in the town of Vernon in southeast Vermont and 52 miles of 345kV transmission line linking it with the Coolidge substation in the town of Cavendish, a major substation that is currently undergoing expansion to handle the extra capacity.
These projects—in addition to the many smaller works that have strengthened the network at a local level—have resulted in a considerable expansion of the transmission network. “In the past five years, we’ve gone from a company with an asset base of about $120 million to close to $1 billion,” Dutton says. “And more than half this increase can be accounted for by these two projects alone.”
The internal strain imposed by this migration from what was essentially a maintenance company to one initiating and overseeing major construction projects has also been enormous. “You can imagine the logistical challenge that kind of growth has presented to a small company like VELCO,” Dutton says. “We had to increase our employee population significantly, our people have had to acquire new skill sets, and frankly we’ve had to instill a new culture to deal with the exigencies of the construction contracts. It has certainly been quite a contrast to our former 30 years largely as a maintenance organization.”
Although Dutton did not hold an executive role at VELCO during this busy period, he was closely linked with executive decision making as a serving member of the board of directors. Moreover, right up until his retirement in 2008, he was CEO of Green Mountain Power, the electric utility company that supplies power to around one-quarter of Vermont’s population and one of VELCO’s largest shareholders. However, Dutton’s retirement didn’t last long.
When VELCO’s CEO resigned in April this year, Dutton was asked to step in as president and CEO and see the company through what is likely to be one of the most exciting and challenging periods in its history.
The power industry is moving forward to embrace three fundamental new technologies: the implementation of fiber optic communication across the system, the development of the so-called “smart grid” system, and the connection of new renewable energy generation technologies to the grid system.
When Dutton took over in April, the company had a number of smaller construction projects in progress. But planning was already under way for several major projects that will move the transmission system into the 21st century.
The first of these is the installation of fiber optic communications across the transmission network. “Planning for the project had been going on for some time, but we began work on it six weeks ago, and we foresee finishing the entire ring in the first quarter of 2013,” Dutton says. It’s a massive project costing around $56 million, and it entails connecting the vast majority of Vermont’s 290 substations across the state via 1,100 miles of fiber optic cable.
Once completed, the new system should significantly improve the company’s ability to communicate with substations across the grid. The aim is to make data such as amperage and flow—right down to community and neighborhood level—available to the utility control centers in Vermont and to the New England control center in Massachusetts. By receiving such information in real time, the control centers will be able to see what is happening within the system and to respond quickly to situations that might threaten the stability of the power supply. Such quick reaction will improve the reliability and integrity of the entire system and prevent catastrophic failure.
Not only does this benefit the communities of Vermont but, because the grids across all of New England are interconnected and interdependent, and a failure in one state could initiate catastrophic failure throughout the region, the project has considerable significance for the reliability of power delivery across the region as a whole.
Once again, the planning was undertaken in conjunction with ISO New England. “But there have been all kinds of challenges,” Dutton says. “First and foremost was aligning ISO New England and the various parties inside the state to agree on the scope and intentions of the project and how it should be financed.”
The importance of the system to the integrity of power supply for all six New England states has, of course, played a significant part in the negotiations for funding for the project. As a result, 80 percent of the $56 million will be paid for out of the ISO New England tariff—which means the cost will be borne throughout New England—and 20 percent of the cost will be paid for by the energy consumers of Vermont.
The transformation of the network into a fiber optic communications system is an essential element of the long-term eEnergy Vermont plan to install the smart grid system throughout the state. The aim of the smart grid is to enable the energy utilities to communicate directly with their customers, not only to install statewide automated metering but also to control appliances within consumers’ homes and facilities in order to save energy, reduce cost and increase reliability and transparency. “It also gives the utilities the capability, for instance, to control air conditioning, heating and industrial uses in times of peak demand so that system costs are reduced and system stability is assured,” Dutton explains.
VELCO has played a key role in coordinating the applications across the state for federal stimulus funding and has successfully brought together each of the state’s 20 power utilities along with the regulators and the Vermont legislature to create a single application and a single vision and strategy.
“I believe this was a unique picture in our nation,” says vice president, external affairs, Kerrick Johnson. “Other states had competing applications. Vermont had one application and everybody gathered behind it. There were 400 applications in total, out of which the department of energy awarded 100 Smart Grid Investment Grants. We were awarded a grant of $69 million in October last year, which is the 16th highest by value.”
Bringing together so many disparate interests—and indeed political views and perspectives—was no mean feat, and must have been a powerful advocate on behalf of Vermont’s bid. Meanwhile, the strategy to implement the smart grid is structured around four plans. The first is a very detailed overarching project execution plan that includes a step-by-step timeline detailing exactly what activities and initiatives will be undertaken by whom and when. This has been accepted and approved. The second is a cyber-security plan, which has also been finalized and adopted.
“The last two plans are still outstanding,” Dutton says. “We’re currently in discussions with the Department of Energy to finalize exactly what should be included in a consumer behavioral study, and we’re discussing a metrics and benefits plan that will gauge how successful we are with the project.”
The consumer behavioral study is one of nine to be undertaken by selected schemes nationwide and will involve running pilot schemes to analyze what works and what doesn’t work, and what customers like and respond to. Information from these schemes will then be shared nationwide and will drive subsequent smart grid investments across the country.
Finally, national concern about climate change is driving the national policy to increase the percentage of power being generated from renewable sources. “In Vermont this is largely wind power. Wind turbines, of course, need be sited where the wind resources are greatest—on mountaintops, well away from areas of population currently supplied by our transmission grid. Bringing power from these remote locations to the grid requires a new transmission infrastructure,” Dutton explains. “We’re currently working on some relatively small projects in Vermont, but we believe there will have to be some significant investments in transmission lines in the future to bring this power to the consumer.”
Dutton sees two main challenges ahead as the company gears up for these major changes. “With the rollout of the fiber optic project we’re clearly entering an area where we have little experience: telecommunications.” So there is another period of learning, expansion and culture change ahead. “Then there will be the challenge of dealing with the cyclical nature of construction,” he continues. “Six years ago VELCO's construction budget was $15 million. This year we will spend more than $200 million. Four years from now we may be spending $50 million. To be able to expand and contract like an accordion to deal with those swings in project construction is going to be a challenge.”
With Dutton at the helm, VELCO has a leader with considerable experience and knowledge of the industry. But it’s inevitable that the lure of retirement will one day become attractive again. “I think it’s safe to say I won’t be here in 10 years,” he concludes. “Part of the responsibility of any CEO is to find a successor, so how long I stay will in part be dictated by that. It will also be dictated by how interesting I find the work. And right now I find it very interesting.” www.velco.com