Fractals of Change

Should Vermont Pay for Broadband Deployment?

"Does extending broadband access to the last unserved 5% of Vermonters really stimulate economic development?" one Vermont senator asked.

"Why should the State provide money to make that happen?" asked another senator.

Two good questions at a time when Vermont is struggling to close a $153 million budget gap and will have to stop doing some of the things it has traditionally done. Should we really be doing something new?

It was my job to answer these questions since I was testifying before a senate committee in support of Governor Douglas' proposal to use $3.17 million of federal stimulus money for a program called Backroads Broadband designed to make sure that the hardest to reach last 5% of Vermonters do get broadband access in the near future. (More about Backroads Broadband is at http://cto.vermont.gov/blog/backroadsbroadband. Currently about 85% of Vermonters have access to broadband; we think programs under way including some luck with competitive stimulus grants'll get us to 95%; that's why we're planning for the last 5%).

So does serving the last 5% really make a difference to economic development?

In my opinion, yes.

First of all, the unserved people are not spread evenly around the state; they're in clusters. In some areas there is no broadband availability at all. Who's going to open a new business in a place where they can't go online? How can potential workers in these areas work from home or learn from home if they can't go online? Given broadband, though, these are often places where housing is cheap and space is available at a reasonable price for new businesses. These are places where economic development is needed. These are places where economic development can occur – but not without broadband.

Second, economic development depends on an educated workforce and schools to which potential new employers want to send their children. If even a small percentage of the kids in class can't get online at home to do their homework, then teachers won't be able to give online homework. If teachers don't give online homework, kids won't be prepared for the world they're about to enter. Potential immigrants to the State, who might start home businesses or larger ones and want to live in this beautiful place, aren't going to come if the schools aren't good enough for their kids.

Third, the State needs lower taxes and a higher tax base to succeed economically AND socially. Like a business which must cut prices to stay competitive, Vermont must find ways to cut costs to support a lower price for government services. E-government, delivering state services online, makes it possible to deliver better services at a lower cost. But, if any significant part of our population can't get online, we'll have the cost of developing new web-based service delivery systems PLUS the cost of maintaining traditional office-visit-based systems. We've got to be able to assume in the near future that the same percentage of people who can make a phone call from home (by cell or landline) can also go online.

But should Vermont spend money –even if it came from the feds it's still our money – in order to accelerate broadband penetration?

Again in my opinion, yes.

Government needs economic development to generate tax revenue to support government – and, of course, the people of the state need jobs. Government does all sorts of things to encourage job creation including tax breaks, low interest loans, and direct grants to individual businesses. Many economic development policies depend on government being able to pick the "right" businesses to invest in – a dicey proposition at best. But we do all these things because we need economic development.

What government does best is build or incent the building of the infrastructure needed to attract economic development. This was and is true for railroads, canals, ports, electrification, telephone, and roads and much, much more. Often government doesn't have to invest as much in infrastructure in urban areas where the economics are good as in more rural areas; but a whole nation, state, or region benefits from good infrastructure and a good economy throughout. Government investment in infrastructure DOESN'T require being right about which business'll succeed; infrastructure creates opportunity and private capital comes in to take advantage of the opportunity. The good businesses succeed, the bad ones fail – but our investment in infrastructure is a winner.

You know the old saying about how it's better to teach a man to fish than to buy him fish sticks. Well, especially when times are tough, we need to make sure Vermonters can fish for opportunity online – all of us.

Challenges for Change

Vermont has a $150 million hole to fill in its fiscal year 2011 general fund budget. State revenues are at a five year low with no immediate prospect of a return to bubble-highs; there is a recession-fueled increase in caseloads for social services; federal stimulus money is running out. Short term fixes and deferral aren't going to solve the problem because the prospect for FY12 is even worse. And property tax rates are going from unaffordable to absurd. Are you ready for good news, yet?

Challenges for Change is an intentionally broad brush agreement between the Douglas Administration and leaders of the Vermont House and Senate to save $38 million in general fund expenses and $12 million in the property-tax supported education fund in FY11. The promised savings are $72 million in the general fund and $26 million in the education fund in FY12 and at least that much annually in future years. This doesn't solve the whole budget problem, obviously; the Governor will present a proposal for a fully balanced budget on January 19; but the Challenges are a constructive way to close a substantial part of the gap.

The plan was developed by a joint legislative and executive branch steering team as a report to the Join Legislative Government Accountability Committee (JLGAC) chaired by Senator Diane Snelling. Public Strategies Group (consultants from Minnesota hired by JLGAC) played a key role in providing information on what has worked and not worked in similar (but less ambitious) efforts in other states, in writing the actual report, and as a catalyst between the two branches of Vermont government. Although I was not part of the team which wrote the report, I am now on the steering team and part of my assignment with state government is to coordinate executive branch actions in meeting the Challenges.

Will the Challenges be met?

One criticism of the Challenges plan is that, although it specifies from which agencies savings will be made, it doesn't say which line items in those agency budgets will be reduced. John McClaughry, who has been prescient about the fiscal crisis the State is now facing, writes: "Based on the PSG's 32-page report (net of padding), explained at a January 6 news conference in the Governor's office, one would do well to harbor considerable skepticism about the prospects of the purported savings…. How are these magic percentages [of savings] arrived at? There isn't a hint."

Actually, the devil is in the LACK of detail. Too often programs are passed by legislatures in Washington or Montpelier which specify minutely how to spend money but don't define measurable outcomes all this spending is supposed to produce. For example, there might be a program to pay for emergency room visits (in fact, there is). Once a stream of payments is available, we get what we pay for: more emergency room visits. We don't necessarily get healthier people; we don't measure the success of the program by health outcomes; in fact, we don't know exactly what outcome was intended when the program was passed.

Challenges for Change first challenges the legislative process to come up with measurable outcomes to be achieved from money spent, to define precisely what "success" means. The Challenges bill, which legislative leaders have promised to pass right at the beginning of the 2010 legislative session, will define WHAT outcomes legislators expect from the executive agencies in eleven specific areas and will specify the amount of money available to the agencies to achieve those outcomes. The promise already made is that general fund money available will be $38 million less than in FY10 (with some adjustment for increased caseload). The bill will NOT contain instructions to the executive branch on HOW to obtain the specified outcomes, no micro-management.

The next challenge is to us in the executive branch: we need to come up with programs and processes which achieve the desired outcomes within the limit of the amount of money available. Although we will report to the legislature on plans to meet the challenges, we will not require legislative approval for how we actually obtain the results unless some existing laws must be changed to enable us to meet our objectives. In fact, we will have to straighten up bureaucratic obstacles that we've put in our way and make much better use of information technologies than we have in the past to meet this challenge. Note, however, that we can't make detailed plans to produce the outcomes until we have legislation saying what these outcomes are supposed to be. That's why no detail now. That's why there shouldn't be any detail now.

We believe that we can achieve better outcomes while spending less money. Is this a pipe dream? Not really. There is no magic here; we're not really doing more with less funding. We will stop spending money on activities which do not contribute to the desired outcomes (which means that some programs will probably be cut, eliminated, or combined); we will be free to organize and build processes aimed at the outcomes rather than having the legislature (whose skill is not management) tell us how to operate. More money will be delivered on target than otherwise because we'll know what the targets are. We, management, will be accountable and responsible for meeting the outcomes specified in the legislation. The legislature, having defined the outcomes desired, will be responsible for monitoring our progress and accomplishments; and we will have to deliver the proof of outcomes to them and to the public. The Challenges' savings goals are net of the investments in information technology and other areas that we will have to make in order to be more effective.

Iowa undertook a similar effort with the help of PSG. You can see many of the outcomes that were set and reports on meeting them at http://www.resultsiowa.org/department_performance.html.

Another criticism of the Challenges report is that it ignores early reforms and plans for reforms. Bill Schubart, who is a keen observer of things Vermont, writes: "…Secretary of Human Services Hogan's mantra was 'if you can't measure the effects of a social program, you can't improve it.' Under his leadership, the Agency of Human Services put in place objective measurements in partnership with sixty Vermont community catchment areas to track and measure the effectiveness of their programs." Schubart points out that much in the Challenges is similar to what Hogan recommended and did. He's right; it's a strength of the current Challenges plan, I think, that it builds on some of the best of what has gone before. Some of the people who contributed to the plan worked for Hogan and certainly learned from what happened under his leadership. Mary Powell and David Coates headed a Citizen's Commission on State Government five years ago. Their findings also helped frame the new plan. Best of all, Con, Mary, and David are all still in Vermont and I hope we can get their advice going forward.

We have a unique opportunity. The depth of the national and state fiscal problems make it clear that we have to work across political boundaries to preserve the essential missions of government even at the expense of traditional programs and processes. There's bipartisan agreement in Vermont that further taxation is not an option and will only further erode the tax base needed to support government services. Technology needed for more efficient (and measurable) state government and programs is now cheap; communications are getting better and better. There is no guarantee that we'll succeed in meeting the Challenges for Change; but failure really isn't an option.

Backroads Broadband

We ARE going to get there from here. The Backroads Broadband Program, which was proposed by Governor Jim Douglas in his State of the State address to the legislature last week, is aimed at making broadband available to the last most-difficult 5% or so of Vermont residences, which are sparsely scattered along remote dirt roads or on the wrong side of signal-blocking hills and mountains. The proposed plan helps the economics of telecom providers that serve the very difficult to serve by accelerating the signup rate so that these providers can get a faster return on their investment than they would otherwise and so Vermonters get the advantage of being online sooner rather than later.

We currently estimate that about 85% of Vermont addresses have access to reasonable broadband (satellite doesn't count!). That number could rise to as much 95% assuming that FairPoint and Comcast complete the buildouts they are legally obligated to do and assuming that most of our broadband applications for stimulus money are granted (that's probably optimistic).

It's frustrating but the feds have been very slow to announce winners of the broadband grants. First they said they would do so in early November, then December. Come December they announced just a few percent of the national total and have only dribbled out a few announcements since then. Many telecom projects have been delayed this year as carriers wait to find out what they can get grants for. Stimulus announced but delayed has a contrary effect; it costs jobs and its costs progress. Soon there is supposed to be an opportunity to apply for a second round of broadband stimulus, but the rules for that haven't been announced. It's also hard to plan for the second round when we don't know the results of the first.

But, complaining aside, we need to move ahead to make sure broadband is available and adopted everywhere in the state. Rural economic survival depends on affordable broadband access as do the ability to deliver e-health, e-education, and e-government. Backroads Broadband proposes to use $3.17 million of flexible stimulus money (technically state fiscal stabilization fund or SFSF) that we know we have to assure that we're moving ahead in our most difficult areas.

Up until now providers who want to serve Vermont's rural areas have faced three obstacles:

1. Lack of affordable highspeed wholesale connections to the Internet in rural areas (like not having any Interstates or even state highways);
2. The high cost per residence of deployment due to the low number of residences per mile and difficult terrain;
3. Relatively slow signup in areas that have not previously had service both because of setup fees required for some technologies and because, when a whole community has gotten by without Internet, immediate signup is not as compelling as when all your neighbors are already online and posting stuff you want to see to YouTube.

Problem #1 is well on its way to being solved. VELCO, our statewide electrical wholesale transmission utility, is in the process of building 1200 miles of high-capacity fiber to pretty much every corner of the state. This is being done without state or federal money and should be done within two years. The $69 million Smart Grid grant awarded to Vermont and the $69 million of utility money that will match it will further improve our data backbone. A collaboration the Vermont Telecommunications Authority (VTA) is managing with wholesale providers to use this capacity should result in wholesale and commercial rates for Internet access in rural Vermont which are competitive not only with our own little cities but also with major metropolitan areas in the US.

Problem #2 isn't going to go away. We don't want Vermont to be either over-populated or flat. We've got to live with sparse population and tough terrain but we can't let these stop us.

Backroads Broadband addresses problem #3. As proposed, money will be available as an incentive to formerly unserved households to hook up quickly. The incentive is only available through providers who agree to cover 100% of an area; we don't want to leave even smaller and less economic scraps of unserved geography behind. Providers who do agree to full coverage will be able to offer qualified new subscribers either deeply discounted (maybe even free) first year service or a big break on setup costs; financing for this incentive will come from the VTA funded first by the SFSF money and, assuming the program is successful but a little more is needed, up to $1.83m of general funds from fiscal year 2012.

The Backroads Broadband Program is over after two years; the deadline itself will create a sense of urgency. Both for consumers and for providers, the message is use it or lose it. In two years, broadband should be everywhere. We should reach a critical mass of people online so that there is a compelling reason for almost everyone offline to actually get connected and so Vermonters can count on broadband for their own purposes and so the State can count on broadband to deliver services and for e-education.

Right now this program is just proposal although initial reaction to it has been positive. Legislation will be introduced to appropriate the federal money for this purpose (under Vermont law, the Governor cannot spend this money without a legislative appropriation). Hearings will indubitably be held by the relevant committees. You'll have a chance to comment for, against, or something else. Suggestions for improvement are welcome.

We are going to get there from here.

Vermont Yankee - Is The Price Right?

Vermont electric utilities promptly pronounced Vermont Yankee's offer of an initial 6.1 cents per kilowatt-hour(kwh) for 115 megawatts (Mw) of capacity inadequate. They are bargaining, as they should be, and are likely to end up with a better deal than Yankee's public offer which the plant's owners made clear was subject to negotiation.

The fact that we will probably end up paying LESS than 6.1 cents/kwh is a tribute to how cheaply power can be produced from an existing nuclear plant, even though it is a big increase over the 4.2 cents/kwh we're paying Yankee now. As I'm sure Yankee intended, this offer makes clear why petroleum-independent, CO₂-free, made-in-Vermont nuclear power belongs in our energy mix and why we should get on with relicensing the plant subject to all the usual safety constraints.

Mary Powell, CEO of Green Mountain Power and one of those negotiating for a better deal, is quoted in the Burlington Free Press: "Now with Entergy making their offer public, others can weigh in. We hope that this conversation will lead to a reasonable conclusion that supports the relicensing of Vermont Yankee."

As part of the conversation Mary calls for, let's look at some of the alternatives:

The price of spot power changes every five minutes and daily highs can easily be many times daily lows. The recession has driven spot prices down; but, at the moment at noon on a cold Sunday with a blizzard to our south, spot price are running about 11 cents/kwh (if you like numbers, you can watch the prices in realtime at www.iso-ne.com). During the last few months the average spot price has been below 5 cents/kwh, however. When the economy recovers and/or the price of natural gas increases, these prices will go up as well. If Yankee's 540Mw of capacity were to disappear from the mix, it is reasonable to assume a substantial increase in local spot prices. Making a long term contract is always something of a gamble. Typically utilities buy some of their power under long term contracts and some on the spot market.

We currently pay Hydro-Quebec about 6 cents/kwh for clean power under a contract which is coming up for renegotiation. This is also clean, petroleum-independent, reliable baseload power and originates in a friendly place even if not made here. Like Yankee, Hydro-Quebec supplies about a third of the electricity we use in Vermont. No telling yet what price we'll be able to renegotiate that contract at; but you can be sure that, if Yankee is not relicensed, the power from HQ will cost us more per kwh than if Yankee is in the competitive mix. We may be able to get more power from HQ since they're building more capacity; that would be a good thing.

Last year the Vermont legislature passed something called a "feed in tariff" meant to accelerate the growth of renewable power sources in Vermont. This tariff guarantees builders of certain types of renewable energy plant rates for the next 20 years which are supposed to be high enough to make building these facilities (which already receive other substantial subsidies) economically feasible. Utilities must buy the power from the producers at these rates, no negotiation allowed. Here are the prices as set by the legislation and affirmed and calculated (for now) by the Public Service Board (PSB) as necessary to incent the development of generating capacity:

• Solar photovoltaic: 30 cents/kwh
• Wind: 20 cents/kwh from generators of under 15 kilowatts of capacity; 12.5 for larger capacity
• Methane: 16 cents/kwh from a farm; 12 from a landfill
• Biomass: 12.5 cents/kwh
• Hydro: 12.5 cents/kwh

The prices above are all wholesale. At retail most Vermont residences pay around 15 cent/kwh.

Although some people are opposed to nuclear power under any circumstances, what's clear from all this is that there is no economic reason NOT to relicense Yankee now that we know the asking price for the power. It is likely to remain the cheapest source we have for both energy independence and CO₂-free electricity and keeps competitive prices (but not legislated prices) down as well. Nor should or will Vermont utilities quickly agree to a deal – the issues are actually more complex than just starting price and quantity.

The legislature threatening to withhold relicensing is not an effective negotiating tactic, both because we are holding a gun to our own heads as well as to Yankee's and because a legislature of 180 people has too many different agendas to negotiate effectively.

Also from The Free Press: "State Public Service Commissioner David O'Brien said while the offer released Friday could be better, this should be enough to spur legislators to take a vote and leave the details up to the Public Service Board, which has greater expertise and the ability to take sworn testimony."

Why We Can Succeed

After Governor Douglas' press conference last week, there was the usual scrum of reporters and administration officials in the hallway of the fifth floor of the Pavilion Building in Montpelier. The Governor had just said that Vermont cannot and must not sit around waiting for another Stimulus Bill (which would be a bad idea nationally) but can and must address its own structural problems in order to succeed in the post-bubble, post-recession (and post-stimulus) economy. In fact, he said, we are working towards a much more effective state government and have seen some early bipartisan support for some of the tough stuff we must do. Vermonters, he said, realize there's a problem, know there's no painless way out, and expect and will support action.

The reporters were, as reporters should be, skeptical. Is this just one more reorganization of government? If so, why do we think that it will be any more helpful than past reorganizations? Anyway, what are the specifics of the things we intend to do? What are these changes? What does a much more effective state government look like?

We administration officials didn't give the reporters the specifics they'd like to have – and I'm not going to do that here. Plans are not done; legislators not briefed; specific legislative proposals not written; and we have to propose a budget to deal with a anticipated gap of $150 million or more in fiscal year 2011 while figuring out how to permanently make state government more effective at lower cost to match revenues which will remain lower than in bubble years (and were being outstripped by expenses even then).

"So," a reporter asked me, "what is your role as Chief Technology Officer?" That is a question I can answer and helps answer why I believe we CAN succeed.

Part of my responsibility is to assure that we're using technology broadly-writ to make state government not only more efficient but also more effective. With a vast wave of retirements coming up in the state work force, there's an obvious opportunity to do the same work with less workers if we provide those workers the proper tools. But that's not enough; we want the work to be qualitatively better in terms of outcomes. Just for example: it's a good thing in itself if we can deliver needed benefits to needy beneficiaries with less overhead and fewer mistakes (efficiency); but it's even better if those benefits help more of the beneficiaries become independent (effectiveness).

Turns out that technology can be a big part of gaining both efficiency and effectiveness. Things are very different technically then when prior attempts at change fizzled or partially fizzled. We now have examples of how industries like airlines have used the web to dramatically change customer service both to reduce service costs AND to empower customers. Some readers may remember when you went to a travel agency to get paper tickets which were written by hand before you could fly anywhere.

Here's what's changed:

1. The web exists and most people know how to use it to get service (but not all, of course).
2. Even in Vermont broadband adoption is growing rapidly.
3. The SmartGrid project by Vermont utilities and the VELCO fiber build (almost $200 million between them) will bring high-capacity data-carrying fiber into every corner of Vermont. This "backbone" capacity is necessary to get all our institutions online with very high bandwidth and to take us closer to meeting our residential availability goals even though the fiber itself won't stretch all the way to every home.
4. We plan to up the goal from 100% broadband availability to 100% adoption (the Governor has proposed that over $3 million of remaining stimulus money be used for this rather than as a short-term bandaid). This assures that government services delivered electronically will be accessible to almost all Vermonters.
5. The cost of computing resources continues to follow Moore's law down (50% reduction in cost for the same capability every 18 months) so that many computing and communication dependent projects have gone from impossibly expensive to very affordable just in the last five years.
6. We can now afford to gather the data we can't afford to govern without (but, as of now, don't have). 

So, from my nerd's POV, the realm of the possible is greatly expanded, especially if we don't let ourselves be bound by current organizational constraints. We not only have the means to quickly implement 21st century government in Vermont, we are ready for change and all its attendant discomforts, confusion, and fears. 

1. No alternatives to much more effective government other than a drastic cut in benefits to those who can't afford a drastic cut, raising taxes which will quickly get us less income as taxpayer flight accelerates, or the fantasy of more and more "stimulus" forever from a federal government whose credit is running out.
2. A much better realization from at least some lawmakers of the situation we're in. The Governor talked in his press conference about the very real cooperation and good thinking coming from Joint Fiscal Chairman Michael Obuchowski and others.
3. The acceptance (subject to ratification) of a paycut by state employees. That makes them part of the solution rather than part of the problem. We now owe it to them to give them better tools (technology, again).

It's going to be a very tough year in the legislature and in the state; but I'm optimistic that we'll be able to focus on the right issues, make the right choices, and do more than just "recover".

We Need to Use More Electricity

What percentage of your home energy comes from electricity? Take a guess.

If you're like me, you way over-estimated. A typical Vermont household gets about 16% of its energy from electricity, 53% from home heating oil, and 31% from gasoline. The estimate is based on annual use of 12,000 kWh of electricity, 1000 gallons of home heating oil, and 15,000 miles of driving at 25 mpg. In order to compare, I changed all the energy sources to BTUs (conversion factors here if you want to check me). Overall, only 18% of the energy used in the state including commercial use is from electricity, almost all the rest from fossil fuels (not counting our wood stoves).

So why so much concentration on saving electricity?

In some states much of the electricity used comes from coal. You might be worried about CO₂ emissions from coal burning. But in Vermont approximately a third of our electricity comes from HydroQuebec, another third from Vermont Yankee, and only the final third (peak load) releases any CO₂, most of that from relatively clean natural gas. If you keep track of your carbon footprint, under the above assumptions only 8% of the 42,663 lbs of CO₂ your household is generating annually comes from your use of electricity, 61% comes from heating, and 31% from driving.

The major source of CO₂ in the state is home heating. And that's a problem. 73% of the households in Vermont heat with either oil or propane (an oil-based product) compared to a national average of only 15.5%. In the rest of the country 30.3% of houses are heated with electricity and 51.2% are heated with relatively clean (and cheaper and more secure) natural gas.

We can't all switch to natural gas for home heating or our cars because there is only one natural gas line in the state and it covers only some of the northwest corner of the state. Parts of an intelligent energy strategy for Vermont on both environmental and economic grounds are to increase the use of natural gas where it is available and to extend the pipeline so it is available in more places.

We do have electricity everywhere. The smart grid that we'll be building with $69 million of federal stimulus dollars and $69 million of utility dollars will help assure that we can use clean off-peak electricity for electric cars and home heating. Electric home heat in Vermont has long been politically taboo (only 5% of us do it); but it now deserves a resurgence. Electric geothermal heat is very efficient and makes good economic sense even at today's electric rates in most places in Vermont but requires a well and a relatively high initial outlay of at least $20,000. Electric storage heat using offpeak electricity is environmentally sound and only requires about $3000 of capital cost in most cases; but it is only cheaper than oil heat where there are deep reductions for offpeak use. We'll see more of these in the future as the smart grid lets utility customers pick and implement rate plans that make sense for both the customers and the utility.

The initial cost for electric cars makes them economically unattractive despite the fact that they're good for the environment and cheaper to fuel even at today's electricity and gas prices than conventional cars. The price of electrics'll come down. The smart grid'll help cars sip electrons when they're very cheap. And we'll reduce our carbon footprint for transportation.

Much of the road to a future with lower total energy costs and less CO₂ emission is MORE use of electricity. That's why it's important to make sure we have more electricity to use at a reasonable price.

Some of that extra supply'll come from new renewable sources; the smart grid helps integrate wind, solar, hydro, and biomass more efficiently.

Some of that extra supply'll probably come from expanded contracts for Canadian power. HydroQuebec is building new capacity.

However, we will have less supply, burn more fossil fuel, and pay much higher prices if Vermont Yankee is not relicensed. We need the new capacity from renewables and HydroQuebec to EXPAND the use of electricity, not to fill the huge supply hole that closing Yankee would leave.

Vermont, Challenged and Stimulated

Now, when recovery from the worldwide recession is beginning, Vermont has an opportunity to emerge with a stronger economy, a cleaner environment, a broader tax base, and better jobs than we had before the downturn. We also face the enormous challenges of far too many Vermonters out of work, a state budget which was expanding at an unsustainable rate even before the recession, declining state revenues which will not return to bubble highs anytime soon, unfunded pension liabilities, the looming loss of hundreds of millions of dollars of budget bandaid from the Stimulus Bill (aka American Reinvestment and Recovery Act or ARRA), and a country whose national debt won't allow it to bail out the states (or anyone else) much longer. Oh yeah, our dominant telecom carrier is in bankruptcy too.

In my new job as Vermont's Chief Technology Officer (CTO), I'll be working on ways to use technology to seize the opportunities to overcome the challenges. Here's some of what we have going for us. Note that the opportunities go way beyond creating short term jobs; they build the infrastructure for a permanently stronger economy.

1. Most Vermonters are tough, resilient, and hard working.
2. ISO New England (the New England Power Grid) is financing a $53 million dollar buildout of high capacity data-carrying fiber by VELCO (Vermont's wholesale power transmission utility) as part of region-wide grid improvement. This fiber is not only the "state highway" path for the information which makes the smart grid smart, it also brings ultra highspeed Internet backbone affordably close to even the most rural parts of the state.
3. The Department of Energy recently announced a nearly $69 million competitive grant to Vermont utilities. This money will be part of a $138 million project, which, at its completion at the end of 2012, will give Vermont the nation's first statewide smart grid, smart meters for almost everyone, a very competitive cost of electricity, and opportunities to use clean electricity to supplant petroleum as both a transportation and a heating fuel. Just as the VELCO network and other fiber already in place are the state highway system for data, the information needs of the smart grid project should provide substantial funding for "town highways" bringing high speed Internet access all the way to our homes and businesses.
4. Vermont has already received one of the four first competitive broadband stimulus grants announced so far and may well receive funding for more projects when the rest of the grants are announced starting in December.
5. Regardless of future stimulus funding, a newly-revitalized Vermont Telecommunications Authority has $40 million of revenue bonding which it should be able to deploy quickly to achieve our goals of universal cell coverage and high speed broadband availability. The smart grid projects listed above and any stimulus broadband grants make a tough job much easier (but not easy).
6. There is $135 million of stimulus-funded low interest bonding available through the Vermont Economic Development Authority for credit-worthy businesses that want to expand in a state which is about to have both excellent telecommunications and relatively low cost energy – and is also a great place to live. The bonds must be issued by the end of 2010!
7. There are $90 million of low interest stimulus bonds available to Vermont municipalities through the Vermont Municipal Bond Bank to make needed upgrades at lower cost. Again bonds must be issued by the end of 2010!
8. A very high percentage of our state government workforce is due to retire in the next few years. This can either result in poor service and high costs if we don't prepare or substantially lower cost of government and better outcomes IF we use technology and the universal broadband adoption to improve the way state services are delivered in a way which was never possible before.

 

As CTO, it's my job to coordinate to assure that we actually do get the synergies between smart grid, broadband, and cellular coverage that are theoretically possible. It's also part of the job to assure that state government is using new technologies like smart grid for lower energy costs and broadband and the web to provide better state government at much reduced cost.

What The $69 Million Smart Grid Grant Will Mean to Vermont

The nearly $69 million dollar stimulus award Vermont utilities received from the federal Department of Energy (DoE) this week will have a much greater and long lasting effect on the Green Mountain State than hundreds of millions of dollars in stimulus band aids that we are also receiving. When the supplemental Medicaid and educations dollars are gone, we will have bought some much-needed time but still have a huge budget hole to fill. When the utilities finish building a smart grid statewide in the next few years, Vermont will have a stronger economy, a better job market, a cleaner environment, better broadband, a lower cost of living, and a stronger tax base to support the cost of government services with lower tax rates than would otherwise be possible. Almost sounds to be too good to be true but it isn't – assuming we do a good job with this money and the additional $69 million of investor and ratepayer money with which the utilities will match the grant.

By the end of 2012 Vermont will be the first state in the nation with a smart grid stretching border to border and from almost every consumer, through the transmission network, and back to generating sources. It's likely that DoE awarded us more than 2% of the total amount of money in the nationwide pool precisely because our size allows us to complete the project quickly and because we submitted the only application in the country which included every electric utility in the state in a massive and ambitious collaboration. We did promise to make detailed reports available on what worked and what didn't to the rest of the country.

We would have eventually done all this work and paid the whole cost ourselves. The way we distribute electricity is antiquated and wasteful. We consumers have neither the information nor mechanism for adjusting our usage to avoid high cost peaks. Now we will sometimes actually be paid for avoiding peak use because that's cheaper for the utility than buying peak power on the spot market. Only businesses the size of IBM have been able to afford sophisticated ways to keep peak usage and bills low; now the smallest businesses in the state will be able to have pretty much the same control. We pay for and build transmission and generation capacity for anticipated peaks. The more we can avoid the peaks, the less we have to build. Mass adoption of plug-in cars is unthinkable with a dumb grid; it would just collapse when they are all plugged in at 6PM.

If we had done the job ourselves with the amount of money the utilities can prudently raised, it would take us eight years instead of the three years we plan with the addition of the federal grant. We'll be leaders and we'll make mistakes; that's part of what the federal money is paying us for. But we'll also get the benefits five years earlier and we'll lead rather than lag the nation in this crucial technology.

Our utilities took a chance in banding together for one big ask instead of applying for smaller amounts separately as most other utilities (which bothered to apply) did. Only 100 out of more than 400 applications got funded. The answer could have just been "no". But they did envision a fast lane to the future; they did work together; the Department of Public Service, The Office of Economic Stimulus and Recovery, and the state's Congressional Delegation and the Governor all strongly supported the application, which is an excellent and persuasive document. The Governor took me along on a visit to Vice President Biden, who advised us that a unified application was the best way to assure that a whole coordinated program got funded – but pointedly and properly couldn't assure us that it would be accepted.

And we got the grant, phew. Now we have to deliver.

Vermont’s Broadband Recommendations

Which broadband grant applicants does Vermont like or not like? That's the question the National Telecommunications and Information Administration (NTIA), which is the part of the US Commerce Department and is charged with distributing some of the stimulus funding for broadband, asked the Economic Stimulus and Recovery (ESR) office, which has the responsibility for answering such questions in Vermont.

   

The American Recovery and Reinvestment Act (ARRA or "the stimulus bill") requires NTIA to consult with the states. Originally NTIA said it would do a preliminary screen of applications, then give the screened list to the states. When they saw how many applications there were, however, they decided to give the whole unscreened list to the states – which is what we'd asked them to do in the first place. Trouble is we're not sure how much attention they'll pay to our recommendations. They made clear that they would neither accept nor reject an application purely on our say so.

   

Just to make things a little more confusing, we are only asked to look at those applications submitted to NTIA. The stimulus bill also gave money to Rural Utilities Service (RUS, part of the US Agriculture Department) to finance broadband. RUS is coordinating with NTIA and many, but not all, applications were made jointly to RUS and NTIA. However, RUS is not required by the law to consult with the states so it isn't going to do so.

   

Vermont ESR was well positioned to look at the applications since we had coordinated the preparation of a set of applications statewide which could, at best, result in broadband coverage in Vermont expanding to at least 95% of the residences in the state. We recommended those applications when they were initially submitted. However, only four of these coordinated applications were applications to NTIA (two other were RUS only); so we only got to opine on the four (but we snuck in a good word for the RUS applications just in case).  These four applications span the three separate categories in which NTIA plans to fund projects:  Infrastructure (including both last mile and middle mile applications), Sustainable Broadband Adoption, and Public Computing Centers.

   

The four applications which got our highest recommendation because of their importance and synergy were:

1.  A last mile application from local carrier VTel to offer Wireless Broadband to serve unserved areas of southern and central Vermont and to upgrade its existing service in the Springfield area to very modern fiber. (Note: VTel proposes to use newly-available 700 MHz spectrum, which is old UHF TV spectrum now available due to the transition from analog to digital broadcasting.)
2. A last mile application by FairPoint to serve unserved portions of the very rural Northeast Kingdom. Even though FairPoint is having financial and other difficulties, the assets they propose to build are badly needed by the residents and businesses of this area.
3. A sustainable broadband adoption application by The Vermont Council on Rural Development. Their proposal is to help overcome obstacles to broadband adoption in newly-served communities such as lack of training, lack of equipment, lack of money, and lack of relevant local content. Greater adoption obviously means more benefit from any deployment; a higher adoption rate also improves the difficult economic of rural broadband deployment.
4. A public computing center proposal by the Vermont Department of Libraries aimed at assuring that libraries are well-equipped in areas where broadband is not widely available. This both helps mitigate (but doesn't solve) the availability problem and builds a user base for broadband when it does arrive.

   

We recommended two other applications as well: 

1. A middle mile application by TelJet Longhaul, LLC which, if funded, will improve backbone connections to and from Boston and within Vermont and significantly increase bandwidth, redundancy, and wholesale and commercial broadband competition in parts of the state.
2. A sustainable broadband adoption application by Health Care and Rehabilitation Services of Southeastern Vermont, Inc that proposes to use broadband resources to mitigate the chronic shortage of mental health professionals in the area.

Although we like to be positive, we recommended AGAINST many applications including all proposals to use satellite service to provide broadband. Although satellite is better than dialup, it's not good enough to meet the broadband needs of Vermonters and other rural Americans. We don't think Hughes Network Systems and EchoStar should be grabbing off the available grant money to build substandard solutions. Most of the rest of the applications we recommended against were national proposals that claimed to bring benefits to Vermont but didn't substantiate that claim.

   

You can read our full recommendation to NTIA at http://recovery.vermont.gov/broadband#staterecommendation.

How Many Jobs Were Stimulated?

There's going to be a lot of controversy and confusion nationwide on October 30 when stimulus reports from states are made public on recovery.gov. The reported numbers for "jobs created or retained" will be particularly contentious since they will be much lower than the job forecasts by state which used to be posted on recovery.gov (I can't find them in the new and excellent redo of the site) and the total reported by the states won't come close to the total jobs forecast to be created by the stimulus bill (aka American Recovery and Reinvestment Act or ARRA).

Actually, the numbers SHOULDN'T match but that's tough to explain. Nevertheless, in the interest of transparency, I'll try an explanation here.

The original forecasts were made using an econometric model. In English, that means that a bunch of economists decided how a computer should make an estimate of how many direct, indirect, and induced jobs will be created or retained by each dollar of government spending. You'll find all of the details of the methodology at http://www.recovery.gov/Documents/Jobs_Report_Final.pdf.

Direct jobs are the people working directly on a project; think of the crew that you see fixing a bridge. Indirect jobs are the jobs created or retained at suppliers to the project; think of the people who made the steel that goes into the bridge. Induced jobs are the jobs created when people spend the money they earned or received as benefits; think of the people working in the mall where the road crew spends the money they wouldn't have if they didn't have jobs.

The economists go on to estimate that one job can be created for one year by $92,136 of federal government spending, $145,351 of tax cuts, or $116,603 of state fiscal relief (which presumably saves us from either having to cut services or raise taxes at the state level). There is no mention in this paper on current or future job loss caused by the increase in federal debt or the need to pay it back (I'm not opining, just reporting).

OK, now you understand where the projections came from. There's roughly $787 billion allocated by ARRA so the economists just have to divide this into spending, tax cuts, and state tax relief to figure out how many years of jobs will be created or retained. Their answer is 6.8 million job-years through the end of 2012. They estimated 8,000 jobs for Vermont with this methodology. That's a big number since we lost about 10,000 jobs total in the recession.

Let's look at what the states are going to report:

1. We report only the jobs created by the money that flowed to or through the state government – not the tax cuts, not the direct grants to companies, cities, and counties and other recipients. That's "only" $246 billion out of $787 billion total.
2. We report (this time) only on money spent through September 30, 2009. "If you look at the Recovery Act as a two-year marathon, we're at the nine-mile mark," says Vice President Joe Biden.
3. We report only the direct jobs created by that money – the people building the bridge but not the ones who made the steel or sold goods to the crew. In most cases we report prime contractors but not subs. 80% of the money that came into Vermont through mid September was for Medicaid ($105 million). None of this created or retained DIRECT jobs so no jobs are reported for this although we would certainly have been in a pickle without this money and have a huge hole to fill when it's gone.
4. We're not really reporting job-years but rather an estimate of the number of full time equivalents that were hired for the period (usually one quarter this time).

The truth is that we'll never know how many jobs were saved by ARRA; the economy is simply too complex to give us a simple answer. A woman from the Federal Reserve Bank of Boston called our office the other day and asked "If you didn't have the ARRA Medicaid money, would you have raised taxes, cut benefits, or cut somewhere else?" We answered "probably all of the above" but we'll never know in what proportions those three things might have happened or what the effects of them might have been.

We'll report a job number as required by law. When we report it, we'll give even more detail on how we calculated it. You now know why the state numbers won't match the federal estimates.

Even though you should look at both the federal job estimates and the state reports with several grains of salt, the right questions to ask are, I think, "was our money spent well?" and "what are we going to do in a year when most stimulus dollars will have been spent?"