Thursday, April 7, 2011

Entergy, Vermont Utilities, and Methane from Canada

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.


Meredith Angwin said...

I was out of town for a few days, and the blog received some anonymous comments, which I discourage. Still, I have mostly published anonymous comments.

Well, while I was still out of town, this anonymous commenter, who apparently thinks the entire world revolves around him, left a final comment. He asked why I had not published his earlier comments which had "taken me to task" about this or that. Two days and they are still not up!

If he had looked at my blog, he would have noticed things like...I haven't blogged much this month, my last tweet message was four days ago, and so forth. But his view of the world seems to be that I am obligated to post his anonymous comments and post them right-quick! No travel for me, if HIS comments are in the offing!

He was wrong. Anonymous comments are strongly discouraged on this blog, (as you can read right above the space for leaving a comment.) His comments are in the bit-bucket and will not appear on the blog.

Tom Murphy said...

Can Public Utilities reflect the values of their customers or is the lowest cost power is the only acceptable criteria for selection of power purchase agreements? If Public Utilities may reflect the values of their customers how do they determine want the customer want? I am looking forward to the debate over whether Vermont must grant an operating license to VY. It seems to be a different argument from when New York prevented the Long Island nuke from opening.

Meredith Angwin said...

Public Service Boards and PUCs must take many factors into account, including cost. They may also consider environmental effects (I think it would be hard to get a new coal plant licensed) and other factors.

All of which is basically irrelevant. Act 160 says that the Public Service Board cannot grant a CPG to Vermont Yankee unless the legislature says it can grant a CPG. The PSB's findings (for the plant, against the plant) are moot, unless the legislature says they can release the findings.

In my opinion, there may be a lawsuit about Act 160, but there isn't going to be a debate.