Gaz Metro: What's in it for Vermont? What's in it for Governor Shumlin?

Not Returning the Money

The legislature will not force Gaz Metro to return $21 million dollars they borrowed from the ratepayers of Vermont. CVPS (soon to be part of Gaz Metro-Green Mountain Power) will be able to keep the money, and even receive interest on it.  The AARP has a serious campaign to make Gaz Metro give the money back.  However, Governor Shumlin has persuaded the legislature not to insist on such quibbles about the funds, not to pander for votes, and not to give the money back.  I have most of the sordid story in my blog post: Money Settles Into Gaz Metro Pockets, Dust Settles Under the Dome.

Rob Roper of True North reports wrote a very telling interesting story on this issue in WTF?! (Why The Flip?!) Twenty members of the Vermont House publicly changed changed their votes. They had sponsored the bill to give the money back, or they had declared for it, and then-- presto chango--they voted against it.  Shumlin lined up his ducks (legislators), and they obeyed.

This is amazing.  Shumlin and the House Democratic leaders persuaded legislators to reverse their stated positions that utilities should refund money to voters.  The legislators supported the utilities against the ratepayers, despite the AARP, despite their own publicly stated stands, and so forth.

The utility cover story (we are going to use that money for Good Things like insulating houses) has also been broken, by the fact that the utilities expect to get interest payments on that money.

Yes, indeed, the money has been taken out of ratepayer pockets and put into Gaz Metro pockets, and House members publicly voted for it.

People Have Noticed

State Senator Randy Brock noticed this. Brock is running against Shumlin for the governor's office.  Brock has started an on-line petition to refund the ratepayer money, therefore identifying himself clearly with ratepayers and the AARP, and distancing himself from being seen as defending the interests of Gaz Metro.

Similarly, Gerry Silverstein wrote a very funny op-ed Vermont Energy Policy--a Play in Three Acts (So Far) in which he describes how the Wizard (Shumlin) makes money disappear from Vermont pockets and reappear in Canada.

Gaz Metro Has Noticed

Ratepayers aren't the only ones who have noticed that Shumlin will protect the Canadian utilities.  Gaz Metro has noticed also.  They have become much bolder in their demands.

In recent days, Gaz Metro has requested a "compressed process" for after-merger rate setting. This will be a process to set rates without having to hold all those annoying public meetings.  They have also announced that the Lowell Mountain wind project will cost $11 million dollars more.  Apparently, they hadn't looked ahead to the need to upgrade the grid to accept this intermittent energy.   They still claim the total costs of the project will be the same.

In other words, the Governor is on Gaz Metro's side, and Gaz Metro knows they have nothing to fear.  No public meetings on rates, higher costs for their renewable project--no problem!

If you simply substitute "Gaz Metro" for "Lola" and "little state" for "little man"-- this video says it all.





What is in it for Vermont? What is in it for Shumlin?

At this point, I must admit that the questions at the top of this post are completely unanswered.  I have no reason to believe that this merger will be good for the state.  Okay.  The merger and so forth are a matter of energy policy.

BUT,  I also have no understanding about why the Governor is pushing Gaz Metro's interests so hard. Gaz Metro yes, AARP no? Why??  Members of the AARP vote in this state. Canadians don't vote.  There are also laws about campaign contributions from foreign entities (it's a no-no).

What is the governor getting out of this pro-Gaz Metro stance?  It puzzles me and I admit it.

Meanwhile, however, Lola is doing very well.

Gaz Metro: Who Owns the Vermont Infrastructure

The Merger

The two major electric utilities in Vermont have asked the Public Service Board for permission to merge. The two utilities are Green Mountain Power (GMP) a wholly-owned subsidiary of Gaz Metro of Quebec, and Central Vermont Public Service (CVPS). Public Service Board docket 7700 has been opened to consider this merger, and public comments are still accepted.

In the proposed merger, Gaz Metro (the company that owns GMP) would buy CVPS, putting both utilities under Canadian ownership.

This merger may not be good for Vermont. With this merger, 72 percent of Vermont’s electric utilities would be under Canadian ownership. The transmission line companies (TRANSCO and VELCO) that are jointly owned by the utilities would also be Canadian-controlled. Also, Gaz Metro owns Vermont Gas Systems (VGS) and VGS owns the only gas pipeline into Vermont. After the merger, one Canadian company would own most of Vermont’s electric utilities and all Vermont’s natural gas pipelines.

Problems with the Merger

Issues with the merger can be classified into three main categories:

1. Foreign Ownership of so much of the energy infrastructure in Vermont.
2. Consolidation of Ownership by one powerful company.
3. Weak Regulatory Control by Vermont, including conflict-of-interest issues.

This blog post will discuss the first two issues. Later posts will consider other issues.

Foreign Ownership

It is not popular to make too much of the foreign ownership question, because it appears xenophobic to do so. Nevertheless, when countries export electricity or gas to other countries, they attempt to make a large part of their profits from the exports. The profits from the exports allow the country to sell energy (electricity or gas) more cheaply at home.

For example, according to the 2010 HydroQuebec annual report, HydroQuebec sold 7% of its electricity outside of Quebec, but made 17% of the company’s net income from those sales. According to Thierry Vandal, President of HydroQuebec (in the annual report):

…tight control over our energy market transactions and risks meant that every kilowatthour exported was highly profitable.

A graphic about profits heads this blog post: it is from the HydroQuebec annual report. You can click to enlarge it.

Gaz Metro Profits

Gaz Metro does not break out its profits sources so neatly, and a careful reading of its annual report shows its GMP and VGS investments to be less profitable compared to its Canadian sales. Still, Gas Metro profits from GMP and VGS increased 40% between 2008 and 2009. One factor in the increased profitability was an increase of $3.8 million in GMP’s share of TRANSCO’s earnings. Since total Gaz Metro profits (all divisions) were $160 million dollars, this increase is quite significant. A United States Federal tax credit of $40 million dollars for the Lowell Mountain wind farm project will also be highly significant to the Gaz Metro bottom line.

In other words, Vermont sales are becoming a growing and profitable business for Gaz Metro (To review the financial material more closely, go to the Management Discussion and Analysis section of the Gaz Metro Annual Report.)

Canadian Regulators and Vermont

Gaz Metro will make a profit by entering the Vermont market: that is to be expected. They would not begin business in Vermont if they did not expect to be profitable. Still, no matter how physically or emotionally close Vermont may be to Canada, we should be aware that Canadian regulators often require companies to supply Canadian customers with energy at lower prices than foreign customers. Gaz Metro is required to supply natural gas at cost to most of its Canadian customers.

If Canadian companies are a modest part of Vermont’s energy supply, Canadian regulatory constraints are not too much of an issue. If a single Canadian company owns most of Vermont’s electric distribution and all Vermont’s gas distribution, the requirements of Canadian regulators can have major impacts on Vermont’s customers.

Consolidation of Ownership

Consolidation of ownership issues tend to be the issues most discussed by commentators. So much of the infrastructure being owned by one company has been heavily discussed and challenged. In a recent article in Vermont Digger, Avram Patt, general manager of Washington Electric Cooperative, explained that whoever controls VELCO will make all of the major infrastructure decisions in the state. Because of this, municipal and cooperative utilities (including Washington Electric) have intervened before the PSB, hoping to protect their interests.

John McClaughry echoes this concern in an article in Vermont Tiger entitled Senator Illuzzi and the Utility Merger Case. Vermont State Senator Illuzzi has also intervened in the merger hearing. As McClaughry writes: Illuzzi argues, rightly in my opinion, that VELCO is the big prize here, because the Canadians want to ship a lot of hydro power south to the major US markets in New York and Boston. VELCO essentially owns the transmission corridor.

Illuzzi has also intervened about the merger at the federal level, at FERC. Once again, Illuzzi’s intervention rests on the fact that the combined utility will own the VELCO’s transmission corridor. In their application to merge, GMP and CVPS tried to address this concern by saying that some of the VELCO stock will be placed in a new trust fund, the “Vermont Low Income Trust for Electricity.”

Illuzzi’s intervention filing rejects this as a solution: Apart from a pro forma share transfer agreement that appears as part of Exhibit I to the Application and some vague assertions, the Applicants’ claims about the “VELCO Conveyance” do nothing to remedy the concern that this merger, between the two largest utilities in the State of Vermont, would give them effective control over the decision making of the State’s only owner of high voltage transmission facilities.

The Gas Pipeline

At the same time as the electric utility merger, Gaz Metro is planning to expand further into Vermont as a gas company. Right now, Gaz Metro only supplies gas to the Burlington area, but they hope to extend their pipeline to Rutland. Guy Page of VTEP reviewed the proposed Vermont Energy Plan: the plan supports Gaz Metro extending its pipeline south.

Once the Gaz Metro pipeline is built, natural-gas-fired plants can make electricity. As Page said on VPR: "Well, it (the plan) talks a lot about building natural gas plants in Vermont, medium sized natural gas plants."

Right now, there are no natural gas power plants in Vermont. However, after the utility merger and the pipeline extension, there may be many such plants. Gaz Metro may build the plants, GMP may build the plants, or other entities might build them. Gaz Metro will certainly own the pipeline, and profit by the existence of the new natural gas plants.

In other words, natural gas or electricity, Vermont’s energy supply and energy transmission will depend heavily on Gaz Metro. This would be a major consolidation of energy supply sources in one foreign company.

Vermont and Regulation

Vermont has regulated utilities. The Department of Public Service (DPS) is the consumers’ advocate when utilities come before the Public Service Board (PSB) in a docket about service and rates. After the merger, no matter how concentrated their holdings are in Vermont, Gaz Metro still must submit to the rulings of the PSB.

People in favor of the merger point this out, and say that the DPS and PSB will protect consumer interests. So far, this is not happening. In later posts, I will discuss recent DPS and PSB actions, and on-going issues about conflict of interest.

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This post originally appeared at True North Reports. I am grateful to Rob Roper for permission to repost it here.

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..

Power Purchases in Vermont: Not Really Replacing Vermont Yankee But Adding Greenhouse Gases.

The chart above comes from the Vermont Department of Public Service website. Dave Lamont of that department drew this chart in March of this year. It shows the "committed resources" for Vermont's electricity supply. Vermont uses approximately 6000 GWh electricity per year. The chart shows power plants and utilities that have agreed to sell power to Vermont.

We can see the more-than-2000 GWh from Vermont Yankee (bottom left gray area) coming to an end in 2012. We can also see old Hydro-Quebec (HQ) contracts coming to an end in 2016 and new HQ contracts starting around that time frame, for slightly less supply than the old contracts.

The most noticeable thing on the chart is all that white space to the right of 2012--the who-knows-where-it's-coming-from part of Vermont's electricity supply. Roughly half the electricity supply after 2012 on this chart is white space: it simply isn't there.

Recently, new announcements of power purchases by Vermont utilities have re-assured people in Vermont that there's going to be plenty of electricity anyhow, if Vermont Yankee closes. However, there is less in these contracts than meets the eye, in my opinion.

The New Contracts

The big new contract is GMP (Green Mountain Power) with Seabrook Station Nuclear power plant in New Hampshire. GMP is going to buy 60 MW of power from Seabrook. That is about 1/3 of the power that Vermont obtains from Vermont Yankee. To see this amount on the chart above, draw a line at about 700 GWh above the existing lines. As you will note, the big supply gap is still there. For example, adding 700 GWh in 2017 (when the current HQ contracts phase out and we are on the new HQ contracts) moves the total supply to around 3600 GWh out of 6000 GWh required. Okay. So that's only 40% white space now. When we factor in the Seabrook purchase, only 40% of the electricity is "who knows where it is coming from?"

However, today's news included more announcements of power purchases, this time by Central Vermont Public Service (CVPS). CVPS bought 0.57 GWh through the end of 2012. The new contracts are opaque: CVPS said they held a "structured auction," and got a good price (4.75 cents per kWh). However, CVPS won't release the names of the auction winners. Nobody knows what kind of power CVPS bought. It's probably fossil based, because the Northeast grid is fossil based.

CVPS also had to get ready for the Vermont Yankee outage, and needed to buy power for that. As the Reuters article says: The contracts will also fill Central Vermont's energy needs during the planned Vermont Yankee refueling outage this fall, the utility said.

The Seabrook power purchased by GMP is available for many years, but the agreements announced today by CVPS are only for power through 2012, when the old and new HQ contracts are also both available. It's a short-term power purchase agreement.

That Chart Again: The Short-Term Power Purchase Agreements

Looking at that Committed Resources chart again, at the head of this blog, we can notice two new things.

• First, look at the medium blue area called Vermont PPAs. These are various short-term power purchase agreements set up by the Vermont utilities. With a PPA, the utilities hopes to get a better deal than they would receive from the spot market. PPAs are never arranged too far in advance, or for very much power. These CVPS deals announced today are just more PPA deals, which are usually not accompanied with such hoopla. Of course, anything that claims to replace Vermont Yankee power will be a major announcement, nowadays.
• Second, these CVPS contracts extend only through the end of 2012, so they could only be covering the small amount of white space at the top of the chart, through 2012. They have no effect on the big white space to the right of the chart.

It's hard to see what all the excitement was about.

Time for Perspective: Greenhouse Gases

Up until now, I have been describing the Committed Resources chart at the top of this blog post. It's not the only chart the Department of Public Service prepared for their March presentation.

Below is a companion chart, showing the sources of greenhouse gases for Vermont. While Vermont Yankee is running, the electricity section of the greenhouse gas emissions is low. However, after 2012, look at those emissions grow! By 2015, the electricity sector in Vermont is making more greenhouse gases than all the heating of all Vermont buildings (RCI fuel use). By 2020, with autos and home heating emissions steady, the electricity sector has grown to be the biggest emitter of greenhouse gases.

I have noticed that the emission chart says "electricity supply high-emission scenario" but I don't see a low-emission scenario in the presentation. I can think of a low-emission scenario, though.

If Vermont Yankee keeps operating, that is a low-emission scenario, and a very good one.

Notes: You can double-click on the charts to enlarge them.

I also blogged about the Committed Resources chart at ANS Nuclear Cafe.

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.

Bunsen burner flame types from Wikimedia