Press Releases and Signalling: Entergy and Vermont Electric Cooperative

On March 30, Entergy announced that it had finished negotiations on a contract with Vermont Electric Cooperative. The title of the Entergy press release was Entergy, Vermont Electric Cooperative Complete Negotiations on Power Contract and the first two paragraphs of the press release were as follows (emphasis added by blogger).

NEW ORLEANS, March 30, 2011 /PRNewswire/ -- Entergy Corporation (NYSE: ETR) today announced Entergy Nuclear Vermont Yankee, LLC has completed negotiations on a 20-year agreement to sell power from the Vermont Yankee nuclear plant to customers of Vermont Electric Cooperative, Inc., the third-largest electric distribution utility in Vermont.

The agreement is subject to approval by VEC's board of directors, and is contingent on the plant running after March 2012.

I added the emphasis, but even without this addition, you could hardly say that Entergy was hiding the fact that they had completed negotiations on contract terms (if we get a contract, it will look like this) and there were still major hurdles before the agreement became a contract. These are the first sentences of the press release, designed to be the nut graph of any article based on the release.

Vermont Electric Cooperative Reacts

As I noted in a earlier blog post, the CEO of Vermont Electric Cooperative (VEC) , Dave Hallquist, said that he found the Entergy press release misleading and planned to "do a lot of interviews tonight." My first indication of VEC's unhappiness with the press release was a tweet by journalist Shay Totten. The next day, Totten posted Entergy: No Sale of Vermont Yankee in his blog. Here's Totten's quote about Hallquist:

VEC's CEO David Hallquist said Entergy's press release was "misleading," noting there is "no agreement." VEC presently purchases 10 megawatts of power from Entergy at a much higher prices than contemplated in the deal.

"Even with this as a backdrop, the VEC Board of Directors is struggling with any decision to take power from Entergy after 2012, even if Vermont agrees to allow Entergy to operate," said Hallquist in a statement. "A number of the VEC Board of Directors have voiced concern with Entergy's poor relationship with Vermont, the fact that the Fukushima reactor in Japan is the same design, and there is one million pounds of radioactive waste at VY with no plans on what to do with it.

The VEC's board will take up this contract again at its April 26 meeting, and it will likely be a topic at VEC's annual meeting in May, added Hallquist.

Also, as noted in the Rutland Herald, reprinted in Boston.com, (the Herald is behind a paywall) Despite the favorable rate, David Hallquist, VEC's chief executive, said he did not believe the utility's board would accept the deal with Entergy. He said the board was concerned that Vermont Yankee shares the same design as the stricken plants in Japan. "That is really causing some stress to our board," Hallquist said.

Okay, that seems pretty clear. As I noted above, the press release was reasonably straightforward. It was optimistic, but press releases usually are optimistic: "We completed THIS, though there is still THAT to do." Still, the VEC board felt slighted that the deal was announced before they had voted to finalize it. The board may not choose to finalize the deal.

So why did Entergy announce the deal early? Why didn't they wait until after the VEC board meeting?

Signaling

I can only guess, and I have no inside knowledge. Most people will probably assume this press release was Entergy once again shooting themselves in the foot about communications. I don't agree.

I think Entergy is signalling. Signalling can be sort of fancy word for advertising. However, advertising is often comparatively simple: "Strawberries now available at $2.50 a quart." Signalling can be much subtler. For example, a potential employee shows his dedication to his career by going to night school, therefore "signalling" to the potential employer that he will be a very good employee. In my opinion, this press release signals: Entergy Vermont Yankee intends to be open for business after March 2012, and they are willing to give very good power purchase agreement rates.

A signal can be a complex thing. For example, the employee going to night school may or may not be learning a skill that helps him be a better employee. It's not about the skill or even the school. It's about the signal his activity gives to potential employers.

Similarly, I think that the question of why Entergy sent this press release at this time cannot be answered by looking at Entergy's relationship with VEC. This press release is a signal to a wider market. Also, this is an upbeat way of signalling: we're ready to sell power to a buyer! If the VEC board turns down the agreement later this month, Entergy's signal would not be as effective.

Whether the VEC board signs the agreement or turns it down, Entergy sent the signal it chose to send. As I said before, it's about the signal, not about Entergy and VEC.

I don't know if this type of signalling will be effective in helping Vermont Yankee be relicensed. However, advertising a low power price can't hurt. Utilities who ignore this signal will have to justify to their rate-payers why they aren't interested in low-cost power.

Do We Need Vermont Yankee in Vermont?

I think so. If you want to see the situation in Vermont, look at the chart of "committed resources" for Vermont power that heads this post. It was prepared by Dave Lamont of the Vermont Department of Public Service. The chart was part of Lamont's presentation during a March hearing on Vermont's energy future. (As usual, double-clicking on the image will expand it.)

There's a big gap in power supply on that chart. There's a lot of open space between 4000 and 6000 GWh after 2012. The electricity that isn't there would need to be made up with "grid purchases" at whatever price is on offer.

Vermont Yankee raised the stakes with this signal that they are willing to sell power at below market rates. Now the people in Vermont know what is at stake, and what it will mean if Vermont Yankee is voted off the island.

Image from Presentation by Dave Lamont of Vermont Department of Public Service, March 2011

Mortarboard image from Wikimedia