Utilities in Vermont: Whom Do They Serve?
In a previous blog post, I described the flap that ensued when Entergy announced that they had completed negotiations with Vermont Electric Cooperative (VEC). Entergy made this announcement before the VEC board had approved the contract. I suggested that the announcement wasn't about the VEC deal as much as it was about signalling other utilities that Vermont Yankee would sell power below market rates.
Who were these other utilities? There are two big utilities in Vermont: Central Vermont Public Service (CVPS) and Green Mountain Power (GMP). These utilities basically provide transmission and distribution services, and are regulated by the Public Service Board.
Rate Relief for Utilities
About two years ago, I attended a hearing about Vermont Yankee at one of the legislative committees. GMP and CVPS representatives testified. The legislators asked the GMP and CVPS representatives what would happen if Vermont Yankee would go on a prolonged outage before March 2012?
The utilities answered they carried "outage insurance" (for unexpected outages) on Vermont Yankee, and they would use this insurance to pay the differential between Yankee rates and grid rates. However, the insurance covered only a fixed time. If Vermont Yankee stayed off-line for a longer period, the utilities would have to appeal to the Public Service Board for "emergency rate relief." They would ask the Public Service Board for permission to raise rates to their customers, with very little warning.
I expect such a request for rate relief would have been granted.
Since the Public Service Board can give rate relief to the utilities, the utilities do not have to worry overmuch about being squeezed between high-cost providers and low-paying customers. Consequently, the utilities do not have a bottom-line requirement to get the cheapest rates possible.
However, the utilities are supervised by the Public Service Board, and the Board has the best interests of the ratepayers at heart. At least, I hope so.
CVPS and Vermont Yankee
In recent days, the two major utilities in Vermont have said they do not plan to buy power Entergy. As quoted by Shay Totten in the 7days blog, Bob Young, CEO of CVPS said:
"We concluded that there were four conditions if we were to sign a deal: NRC approval of relicensing; the sale of the plant to a new owner; an agreement for Entergy to sell 20 megawatts in Vermont in addition to sales to CV and GMP; and state approval of the decommissioning and any other issues of interest to the state...It has been our position that we would not enter into a formal contract absent a sale and tacit state approval of any proposed deal."
I have been following the story of Vermont Yankee pretty closely, and this is the first time I had heard of CVPS saying that Entergy needed to sell the plant before CVPS would buy power from it, or that Entergy needed to sell 20 MW in Vermont to groups besides CVPS and GMP. If anyone can tell me an earlier time these requirements were announced, I would be grateful. I had heard that CVPS and GMP preferred if the plant had another owner, but not that CVPS required the sale before buying power. In my opinion, by stating that "we won't buy from THAT company, no matter how cheap and reliable the power is" CVPS is abandoning their duty to obtain low-priced reliable power for ratepayers.
Green Mountain Power and Vermont Yankee
On the other hand "we won't buy" is exactly what I would have expected to hear from Green Mountain Power. After all, they are a wholly-owned subsidiary of a Canadian gas company, GazMetro. Governor Shumlin wants to close Vermont Yankee, but he strongly supports wind turbines and the expansion of natural gas pipelines into Vermont. Green Mountain Power's parent company will undoubtedly make more money from selling Canadian gas to Vermont than Green Mountain Power would make by selling less-expensive Vermont Yankee power to Vermont.
By the way, while it was relatively easy to find a "we will not buy from Entergy" quote from the president of CVPS, I have not been able to find an equivalent "we will not buy" quote from the president of Green Mountain Power. However, I saw an email from the president of GMP which said GMP had found other sources of power through 2016.
Out of State?
If the Entergy press release was signaling low prices to Vermont utilities, the utility statements above make it clear that Vermont utilities don't care about low prices. Maybe they get granted "rate relief" a little too easily?
The statements from CVPS and GMP have been new to some of us, but I am sure they weren't new to Entergy. I believe this attitude of the Vermont utilities is the background to Wayne Leonard's statements, made in a conference call in February. (Emphasis added by blogger.)
In an investor conference call on February 08, 2011, Entergy's CEO, Wayne Leonard, made these comments: Efforts also continue to secure a new power purchase agreement with the Vermont Utilities. Negotiations had been ongoing for some time now, and we have made progress toward reaching agreement on key terms and conditions that would provide citizens of Vermont continued access to clean and affordable power. However, while we would certainly prefer to sell power in state, that is not a necessary condition, of course.
None of this is good for Vermont. Utilities that don't care about price. A big in-state provider that is looking out-of-state for customers.
I think the Vermont legislature has now put Vermont rate-payers in the odd position that even if the plant continues to operate, people in Vermont will not get the financial benefits of the low-cost power.