Variable Pricing and Vermont Yankee: Another Reason the Hydro-Québec Deal Shows Legislative Desperation

Variable Pricing and Vermont Yankee

Recently, I published a post called A Bad Deal with Hydro-Québec. This post was later featured on the Energy Collective, where it had many readers and some interesting comments.

DaveL made several comments, and I would like to answer one of them in this blog. He asked (paraphrase): "Why are you attacking the HQ deal because it is a variable price contract? After all, variable price contracts save the ratepayers money when the price of electricity goes down, which is more than a fixed rate contract will do."

Here's an expanded and edited version of my response.

The Legislators of Vermont Hated Variable Pricing

DaveL: I need to put my remarks about variable pricing for HQ power in context. The Memorandum of Understanding (MOU) for Vermont power purchases after 2012 with Entergy was signed in 2002. It says that for ten years after 2012:

• Entergy will sell at the market AND
• If the market goes above 6.1 cents, Entergy will split the extra money with the utilities.

The MOU agreement with Entergy was a variable price contract with revenue sharing. If the market was below 6.1 cents, Entergy would just sell at the low market price. If electricity prices went up, there were estimates from the DPS (Department of Public Service) and others of Entergy returning tens to hundreds of millions of dollars to the utilities over the length of the contract. This money could have improved transmission lines, implemented the smart grid, or been returned to ratepayers in the form of lower prices.

The Senators and Representatives in Montpelier said this agreement, though signed, was totally unacceptable. That lousy Entergy wasn't giving Vermont a fixed price! Those Entergy scumbuckets were trying to get away with just stonewalling them! The newspapers were full of statements such as: "Negotiations stall as Entergy refuses to name price."

The Legislature was trying to pressure Entergy into changing the MOU. However, a contract is a contract, and it takes agreement from both sides to change it. Entergy preferred the MOU, and the MOU was a good deal for Vermont. If the price was electricity was low, that is the price Vermont utilities would pay Entergy. If the price went up, Vermont utilities got partially re-imbursed.

However, the legislators wanted a fixed price. Entergy has now given them a fixed price, and they don't like that, either.

Comic Relief

In one of the legislative committee meetings I attended in Montpelier, one of the legislators asked a utility consultant: "Why can't Entergy give us a fixed price AND keep the revenue sharing agreement?" The consultant had to explain that: "You can sell a kWh at market price and share the revenue, or you can sell it at a fixed price. You can't do both. A revenue-share on a fixed price is just a lower fixed price."

This question was a wake-up call for me about the level of knowledge of some of our legislators. In fairness to this legislator, VY currently has a fixed price agreement for most of its power, and a sort-of revenue sharing agreement for the power involved in a recent plant uprate. However, the legislator's follow-up questions did not show any knowledge of the uprate power contract. It was clear she thought 1) a low price fixed-cost power agreement is good, and 2) revenue sharing is good, so why can't we have both?

Capitulation to Hydro-Québec

Despite this hatred of variable-priced contracts, the legislators of Vermont were willing to buy market-price power from HQ. By doing this, they support HQ profits and HQ jobs while letting Vermont people hit the unemployment lines. These are Vermont people whose company offered a better deal for Vermont than HQ did.

The Memorandum of Understanding (MOU) is a much better deal for Vermont than the HQ contract. The MOU is public, it includes revenue sharing if the price rises, it's transparent, it's cheaper power, if only because of transmission costs at the same ISO price. End of story.

Instead, the Legislature chose to roll over and play dead for Hydro-Québec. Let's face it. The Legislature was desperate, as I noted in my blog post about the HQ contract.

As my Canadian friend said: Don't you guys realize that we only want your money?

Addendum: Some interesting links

I recommend Guy Page's op-ed in the Burlington Free Press about the future of Vermont Yankee and the consequences if it closes.

I was a participant in the latest Atomic Show podcast, led by Rod Adams of Atomic Insights blog.