Economic Report: Well-Constructed

A year ago, the Senate ordered a panel of economists to write a report on the economic effects of closing Vermont Yankee. Two months ago, President Pro Tem Shumlin forced a vote about Vermont Yankee before that report was ready. Many senators were upset that they were forced to vote before they had received and reviewed it.

A few days ago, the legislature's consensus report on the Economic Impacts of Closing Vermont Yankee was finally released. Since then, I have gotten emails and notes from all sorts of people: have you seen this? Why haven't you blogged about it? Why indeed.

I have seen it. Let me sum up my understanding of it. Some of it is good, and some of it is pretty questionable. I don't know why nobody else has mentioned this before. I feel like the little kid pointing out the nakedness of the Emperor. I feel like...well, enough about me. Let's talk about the report.

I'm concentrating on the good parts in this post. However, I believe the legislative report had some serious weighting against Vermont Yankee, but Vermont Yankee still came off as a strong contributor to the economy. Because Vermont Yankee IS a strong contributor, and you can't hide that, even if you try.

It will take me several posts, over a few days or maybe weeks, to do this analysis fairly completely. This is the first post, concentrating on the simplest options in the consensus legislative report.

I apologize for the length of this post. Imagine if I had tackled all four scenarios, instead of just the first two!

Three Economic Reports

I can't review the consensus report without comparing it to two other relatively recent economic reports. The electric workers union (IBEW) funded a report issued in February; this IBEW report reviewed the economic effects of shutting down Vermont Yankee.

Another report, issued last summer by VPIRG, cannot be called an economic report because it is not very firm on dollar figures. However, VPIRG's Repowering Vermont describes the "green" options VPIRG recommends. These options are similar to some of the options in the legislative consensus report. (You have to register at the VPIRG site to download the full report, but you can read the executive summary at the link above.)

The Four Scenarios

The legislative consensus report on closing down Vermont Yankee has four scenarios, also described by Rod Adams in his recent post.

The four options are:

1) Shut down VY and continue other business-as-usual

2) Relicense VY and continue other business-as-usual

3) Shut down VY and start an aggressive Green Energy building program (Green Scenario)

4) Relicense Vermont VY and start an aggressive Green Energy building program (Hybrid Scenario)

This post discusses the first two options: simple shut-down and simple relicense.

Relicense or Shut Down: The Economic Impact

Comparing Shutting Down versus Relicensing, with business--as-usual otherwise, the Legislature's report concludes (page 8) about the overall economic impact:

Total VY Shutdown scenario impacts, relative to the Relicense scenario, result in about 1,100 fewer jobs per year and real disposable personal income levels more than $60 million per year (in 2012 dollars) below VY Relicense levels between 2013 and 2031

The IBEW study has similar numbers. On page i, the executive summary, we read this about the economic impact:

In 2009 the disposable income of Windham County residents was $64.5 million higher due to the presence of the VY Station than it would be otherwise. Elsewhere in the state, disposable income was $14.0 million higher due to the VY Station. In total, disposable income of all Vermont residents was $78.5 million higher in 2009 than otherwise due to the presence of the VY Station

The Fiscal Impact

On page 11, the legislative report describes the fiscal impact (impact to state revenues) of VY Shutdown as $4 to 6 million per year below the base-case of relicensing, with a total fiscal impact of minus $110 million over thirty years.

On page ii of its summary, the IBEW report also describes the fiscal impact: In 2009, VY station and the economic activity it generated resulted in $7.67 million to Vermont's General Fund and $4.94 million to Vermont's Education fund.

Assessment Comparison

These both seem to be well-constructed assessments. Econometric models answer certain sorts of questions very well: "What effect will shutting this plant down have on the local economy?" Or "How will raising gas prices affect economic growth in America?"

To me, it looks as if both the legislative report and the IBEW report used reasonably standard economic models to assess the effects of closing Vermont Yankee, and they came up with very similar results.

• For general economic impact, IBEW gives somewhat more credit to the stimulating effects of Vermont Yankee on the general economy than the legislature's report does: $78 million a year( IBEW) versus $60 million (legislative) for total economic effect.
• For fiscal impact (tax revenues to the state), IBEW lists $7 million general plus $4 million educational ($11 million total) while the legislature assumes $4 to $6 million a year. I don't know if the difference between IBEW and the legislative document is due to methodological differences or not. Perhaps the legislature's report doesn't count the educational fund?

Methodologies Compared

There were significant differences between the report methodologies, however.

• The IBEW report used existing 2009 data without manipulating it excessively or projecting far into the future.
• The legislative consensus model projected far into the future (2040).
• The IBEW model did not consider the (as yet undefined) power agreements after 2012, but evaluated past experience.
• The legislative model made assumptions about the future, including the extent of the Revenue Sharing Agreement and load growth to 2040.

Models Depend on Inputs: Load Growth

The legislative report used an advanced econometric model, the La Capra model. This sounds great, except that the economists determined load growth by consensus assumption and then sent this information to the La Capra model.

Page 5 of the report contains this statement above a boxed set of assumptions used in the econometric modeling.

Energy supply assumptions, including VY purchases by Vermont utilities, in-state renewable energy development, and modified peak and average load forecasts were developed through a consensus process with the group and provided to La Capra as model inputs. (emphasis added)

The boxed set of assumptions includes the following (for the regular, non-Green scenarios)

• By 2040, there will be 1,568 GWh per year saved through efficiency.

Since Vermont only uses 6,800 GWh per year now, I question this assumption. However, if you assume load growth to 10,000 GWh per year by 2040, perhaps this level of efficiency will occur. The total electricity requirement for Vermont in 2040 is not in the legislative consensus document that I have downloaded (the executive summary). 10,000 GWh? 5,000 GWh? Certainly, however, if Vermont needs less electricity in the future, relicensing any particular power plant will have a smaller economic effect. This assumption works against Vermont Yankee, in my opinion.

Revenue Sharing Inputs

On page 4, the legislative report states that it is making a conservative assumption about the revenue sharing agreement. I do not know enough about this assumption to evaluate it here, but I thought I should point out this statement. With a more liberal (or perhaps more realistic) assumption about revenue sharing, the economic benefits of Vermont Yankee would be higher. Coupled with the 1,500 GWh demand decrease, this assumption helps stack the deck against Vermont Yankee.

(As a matter of fact, if they had made only this assumption about the Revenue Sharing Agreement, I would be okay with it. It is this assumption PLUS that huge "efficiency" savings that looks bad to me.)

In contrast, IBEW assesses existing conditions which include a Power Purchase Agreement, but not revenue sharing. Since this assumes less income to the plant, and therefore probably less taxes and a tighter rein on the payroll, it is also a conservative assumption.

Green and Hybrid

When the legislature's report discusses the Green and the Hybrid options, things get considerably more confusing and less believable. But that is a post for another day.