Tuesday, January 10, 2012

The Sixth Lawsuit about Vermont Yankee: Suing for the Cost of Replacement Power

I never should have done it. Four days ago, I published a post Five Legal Wrangles About Vermont Yankee.

I counted five, but lo and behold! Today there's a sixth lawsuit! You just can't keep up a count around here.

The Cooling Tower Problems

In August 2007 and July 2008, Vermont Yankee had widely-publicized collapses of a part of the cooling tower bank. The first incident happened because it happened. Vermont Yankee has rather old wooden cooling towers, and there was a maintenance problem on one of them. The second incident happened because of an incomplete repair of the first incident. In both cases, the plant stayed on-line, but de-rated power. It lowered power output for 11 days (first incident) and 12 days (second incident).

On the basis of these incidents, Central Vermont Public Service (CVPS) and Green Mountain Power (GMP) are suing Entergy. They had to buy more expensive replacement power during the time of lowered output from Vermont Yankee. They say that the plant was negligent about maintaining the cooling towers, so they deserve the money in recompense. You can read their press release here and it has been widely reprinted as a news article. Albany station WAMC had a short program on the lawsuit, hosted by Pat Bradley. Don Kreis of Vermont Law School gives his opinion, and I give mine. (The program is three minutes long.)

If Everything Isn't Perfect, We're Suing

Briefly speaking, this is a ridiculous lawsuit. There are all sorts of utility contracts out there, and CVPS and GMP did not have a contract in which Entergy had to pay them for replacement power. That is the end of the story. GMP and CVPS didn't have a contract that required reimbursement.

The utilities are claiming that Entergy's plant maintenance was so bad that the de-rating was due to Entergy negligence. I have one word for that: Ridiculous! Vermont Yankee has a high capacity factor, and has had a series of breaker-to-breaker runs (from one refueling to another without a stop). In this case, it wasn't even off-line for the repairs. It had just powered down.

If utilities sued every time a plant powered down or went off-line unexpectedly, there would be no end to it! Of course, if a plant is not operating at full capacity, something went wrong. I suppose this could have been prevented if everything had been done perfectly. Let's look at coal plants, for example. They have to keep testing the coal they receive. Let's say they receive some coal and they don't get the chemistry analysis quite right and boom...their boiler is coated with slag and they are off-line. (Most coal plants test coal extensively and blend coal to avoid this situation. They don't always manage to avoid it.) Should a coal plant be sued on the basis that they should have done a better chemical analysis?

Utility Contracts

There are all sorts of utility contracts out there. Bob Hargraves and I visited seven plants when we led the ILEAD course on Energy Safari. If you read the posts on the Energy Safari blog, you will read about power plants that:
  • sell power at the market price when the price is high enough
  • sell power at a fixed price, and have to reimburse the utility when they have promised power but can't deliver
  • sell power at a fixed price, and don't have to reimburse anybody if their power isn't available
  • don't want to tell us the terms of their contracts
If a utility wants to buy power that is available without interruption at a given price, it writes a contract saying that the power plant must reimburse the utility for any power that is not provided. Of course, the utility can expect to pay more for power on that basis, just as you can expect to pay for an "extended service contract" on an appliance. Insurance against failure costs money.

Insurance

The utility can also pay money for insurance. If the utility buys insurance against having to buy higher-cost power, it doesn't have to put any terms in the contract with the power plant.

For example, I attended a hearing at the State House when GMP and CVPS testified that they actually have insurance policies which would reimburse them for replacement power costs if Vermont Yankee power was not available to them. The policies began to pay if Vermont Yankee was off-line for more than about 30 days. I am sure the utilities could have bought other insurance: insurance against three-day outages, twelve day power reductions, anything. Insurance companies love to sell insurance! However, insurance against small events would have been expensive, since such events are very likely. Most companies self-insure for small problems.

Money or Harassment?

I can never know anyone's motives, of course. However, to me this lawsuit sounds more harassment than like a business situation. Surely the utilities know what kind of contract they have with Vermont Yankee? Surely they know that they don't have the sort of contract that includes reimbursement for replacement power? Surely they know about the various types of contracts? Surely they know that accusing a plant of negligent maintenance won't fly, when the plant is running from fuel loading to fuel loading (breaker to breaker), 500 days or more, without unplanned shut-downs? Surely they know they could have purchased insurance against the costs of replacement power? Surely they know they actually have purchased insurance against the costs of replacement power due to long outages?

GMP and CVPS are acting as if they don't know any of this.

Interestingly, the utilities want to have a jury trial on this subject. I think they are hoping to capitalize on the "Entergy Louisiana" and "strontium fish" rhetoric of the Vermont administration. They hope to win their case by pounding on the table.

Washing Machines

The Entergy lawyers can argue their case without any table-pounding.

"Ladies and gentlemen of the jury. CVPS and GMP had opportunities to insure themselves against paying the cost of replacement power. They could have stipulated that we pay the cost of replacement power as a requirement in their contract with Entergy. Or they could have bought third-party insurance for their costs during power derates or outages. CVPS and GMP did not taken any such action.

"Instead, these utilities are in the position of someone who does not buy the extended warranty on the new washing machine, but expects to get free service anyway. We at Entergy are pleased that they expected perfect operation of the plant. We are pleased our general excellent maintenance and breaker-to-breaker runs may have led them to expect perfect operation. However, they took no steps to protect themselves if operation was imperfect. Though we are flattered at their expectations, we must point out that expectations of perfect operation are unrealistic, and are certainly not enforceable through the courts."


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Picture of the Comerford Hydro plant from Energy Safari blog. Picture taken by Bob Hargraves. All other graphics from Wikipedia..

13 comments:

Martin Langeveld said...

C'mon, Meredith. This is just about filing a lawsuit before the statute of limitations runs out, because if you don't file before that, you can't sue and you're just out of luck. Did the contracts require the utilities to buy insurance? Or did they give Entergy the right to dial down power whenever their cooling towers collapsed? If not, there's an argument for reimbursement here, which Entergy is obviously stonewalling. You'd sue, too, if it happened to you and they refused to talk to you about it or settle up.

You write: 'CVPS and GMP did not have a contract in which Entergy had to pay them for replacement power." Do you have a copy of that contract? Can you quote backup for that? Are you saying that Entergy was not negligent in allowing the cooling towers to degenerate to the point of collapse? Most people would be careful enough not to allow their similarly-constructed deck to collapse! But you say that the utilities should just have bought appropriate insurance. That's like saying, if I'm sitting on your deck, and it collapses and I'm hurt, you're not liable and I should have just insured myself against falling through your deck. Think about it.

Meredith Angwin said...

Martin. The contract that the utilities and Entergy are working under right now is the Memorandum of Understanding, from 2002. It does not include reimbursement for costs of replacement power. I have linked to it many times on this website.

All power plant owners have the right and duty to take a plant off line or lower power output for maintenance activities, whether scheduled or not-scheduled maintenance.

I hate to say this, but your deck analogy is just plain silly. It has nothing to do with utility operations. Every time a plant goes off-line for anything except scheduled maintenance, you could say, I suppose that that showed their scheduled maintenance was inadequate!

So why are plants so proud of it when they do run 500 days without an unplanned outage? Because it is not the common thing to run so consistently. No court of law can enforce that a power plant will run without a hitch, because power plants generally can't do so.

If you ran a power plant, perhaps it would work perfectly and your scheduled maintenance would prevent any and all problems. I'd like to see you try! Meanwhile, utilities will write contracts that require reimbursement for power costs during unscheduled maintenance, or write contracts that do not require such reimbursement. Their choice, and they accept the consequences of their choice.

Except in Vermont, where they chose a non-reimburse contract, then sue for reimbursement.

Jeff Schmidt said...

Meredith,

This article seems a little outside the scope of your normal blog postings. What do I mean? Well, this seems a little "Inside Baseball" to me. This is a contract dispute between two utility companies, which doesn't bear upon whether VY will remain operating or not, or the bigger picture of nuclear power in America.

I mean, it's your blog, you can post whatever you want, but it just seems a little bit outside the normal scope.

Meredith Angwin said...

Jeff. You are probably right. It is just a contract dispute. But...

i just get tired of some of the things that go on around here with the utilities. For example, CVPS said they would not buy VY power (after 2012) unless Entergy sold the plant to another company. Like...the electrons change with a change in ownership? GMP is planning a gas pipeline and to supply gas for new, moderate-sized gas plants to be built in the center of Vermont. These utilities also pressured for lower rates to them because they are...in-state. That is unconstitutional, and currently in front of the judge.

I have all this in my mind when I read about this particular lawsuit.

Meredith Angwin said...

Jeff. There's anoter dimension, also. Expectations of perfection from a nuclear plant, unlike expectations in any other walk of life.

Martin Langeveld said...

Expectations of perfection are one thing. Allowing something to happen to a nuclear power plant cooling "tower" that you would not permit to happen to your own wooden deck is another.

Failure to exercise that kind of reasonable care is negligence, and negligence is certainly a reasonable basis for a claim of compensation by an injured party. And that's the basis of this lawsuit: VY's failure to maintain, repair and improve the cooling towers.

Jason Kobos said...

The negligence of a single employee is the negligence of the company they work for. At the end of the day the company is on the hook to fix whatever said person broke.

It is possible that the utilities have information that shows someone at VY knew the cooling towers were is severely degraded state but decided to do nothing about it (for whatever reason).

Or its possible that VY didn't know about the condition of that section of the cooling towers and this lack of information is the basis for negligence.

I can't say either way since I wasn't there.

Travelogue for the Universe said...

Well written article and welcome balanced view of the actual issues being litigated. I still favor buying Vermont nuclear power over NH nuclear power. Was that what this was also about? mary

Pete said...

This link from the Energy Information Administration regarding average capacity factors is interesting.
http://www.eia.gov/cneaf/electricity/epa/epat5p2.html

Nuclear has the highest capacity factor of all of the energy sources listed. Renewables have actually gone down over the years. Where is that lawsuit?

Meredith Angwin said...

Thank you all for your comments.

Martin, since you don't even acknowledge the various types of utility contracts, I realize more and more why the utilities want a jury trial in a contract law case.

If a refueling outage lasts for three days longer than expected, would that be negligent outage planning? Oh, I forgot ;-) The utilities actually DO insure themselves against extra-long refueling outages! They do this because their contract with the power plant does not reimburse them for purchased power. I guess in your world, Martin, they wouldn't bother with such insurance. They would simply sue the power plant. If the outage is longer by a day, you messed up and you must pay! (Rhymes go over well with juries.)

Jason, you are correct about negligence, but in general, negligence means pretty-bad-stuff. Otherwise people would sue for it constantly. I thought of writing a whole post on "what is negligence", but decided not to. People who think the cooling tower collapse was negligence won't be convinced.

Mary. Yes. I would rather buy power from Vermont Yankee also.

Pete. Thanks for the great link. I have a pretty good idea why renewables have gone down in capacity factor. Basically, back when I was in renewables, we really tried to site them in the best places. Nowadays, the word "renewable" is like sprinkling fairy dust, and they will put them anywhere they can build them, good site or poor site.

Howard Shaffer said...

Mr. Langeveld has forgotten the VSNAP meeting where the cooling tower collapse was reported and discussed.

The plant was doing maintenance on the towers all along. They switched to using a remote tv camera to save money, because inspecting some of the inner supports requires removal of the "fill" in the area. (The fill is the slats that the water drips over while the air is flowing up over it.) From inside information, they had scheduled maintenance of the area that failed for that fall, when the tower went out of service. This is not negligence. It was a judgement call with a new inspection method.
I was inside the towers as a Startup Engineer, so can vouch for some of the supports being inaccessible with the fill in place.
Of course the antis forget that they were doing maintennace and get away with calling it negligence.

Pete said...

Meredith- The biggest reason why renewables have gone down in overall capacity factor is that back in the 1990s, most renewables were either biomass or geothermal. Those plants work on the same steam cycle as nuclear and fossil, and generate power 24/7. Today, however, wind is a much larger percentage, which drags down the overall capacity.

http://www.eia.gov/cneaf/electricity/epa/epat2p1a.html

Meredith Angwin said...

Howard and Pete. Thank you both for your comments. They added a lot to this discussion!