Wednesday, December 29, 2010

A Bad Deal with Hydro-Québec

Vermont Yankee Might Close, and Vermont Was Desperate

In recent years, Vermont bought 10% of Hydro-Québec (HQ) power. In return, Vermont gave HQ 40% of its profits. Not good for Vermont.

New power agreements with HQ were announced this year. Are they better? No. They were deals struck by a desperate Vermont legislature, who saw both Vermont Yankee and HQ power in jeopardy. If the state couldn't do a deal with HQ, and Vermont Yankee closed, then Vermont would lose 2/3 of its power within about two years. The legislature had to do a deal with HQ. "Having to do a deal" is not the best negotiating position, and the negotiation results were exactly what you would expect in that context.

Here's the mess they made.

1. We Hereby Anoint Your Power "Renewable"

In a previous post I explained how HQ sold 10% of its power to Vermont, but made 40% of its profits on that sale. I also quoted a Canadian friend: Don't you guys realize that we only want your money?

Actually, the Canadians wanted more than our money. They wanted acknowledgment that their dams provide "renewable power." Renewable power will find buyers in many states, because many utilities must fill a "renewable energy portfolio." Large hydro projects have rarely been labeled renewable though small hydro has been.

To be able to purchase Hydro-Québec power, the Vermont legislature passed a special bill labeling HQ power renewable. This has not made environmental groups within Vermont happy. As reports: Jake Brown with the Vermont Natural Resources Council calls the legislation "a dangerous precedent." Brown says it'll undercut any efforts to grow small renewable projects in state. As one environmentalist blog noted: Ginny Lyons (D-Chittenden) went so far as to say the contract would be “in jeopardy” without the change (that is, the contract with HQ would be jeopardy if we didn't call their power renewable).

In other words, HQ didn't just want our money. They also wanted our honor. They got it, too. I believe little "green" Vermont is the only state in the Union that labels big hydro renewable.

2. This Deal Has to Stay Secret

Vermonters will never know much about the deals with HQ. Transparency is not part of the package.

HQ is selling power to Green Mountain Power (GMP), Central Vermont Public Service, and Burlington Electric. VPR reported that Burlington Electric was faced with a problem with the HQ deal. Burlington Electric is supposed to have all major power purchases put to public vote. However, HQ has been adamant that price information not be disclosed. It is not clear how Burlington Electric is going to get around its own transparency requirements. I am sure Burlington Electric will think of a way to please HQ by not revealing what it is required to reveal. After all, Burlington needs the power.

Green Mountain Power hasn't been happy with this secrecy either. VPR also reported that Robert Dostis of GMP said public disclosure of the contract terms has been an issue. However, HQ is standing firm on keeping the terms of the deal quiet. Hydro-Quebec spokeswoman Ariane Connor said the company would not disclose certain competitive price information..... "From our point of view it's not an issue. Commercially sensitive information will not be made public."

In other words, don't bother to ask. HQ won't tell.

3. It Isn't Really A Deal. It's Electricity Bought at the Market. It's An Adjustable Rate Mortgage.

But maybe it's a good deal, right? I mean, the Vermont legislature had to vote HQ a special green label, and the deal is secret, but maybe we are getting really cheap power. Or maybe it's power at a guaranteed rate, at least. Not cheap, but steady.

Well, no. It's market-price power, with some smoothing. As the Montreal Gazette explains:

Although the details of the contract were not made public, Hydro-Quebec president and CEO Thierry Vandal said the initial price in 2012 will be 6 cents a kilowatt hour -the same price Vermont pays now.

A price-smoothing clause will keep the price in the middle of the going market rate for the duration of the deal. Vermont consumers, officials argued, get protection from price swings while Hydro gets a higher return when prices slide.

So, the deal with HQ is like an adjustable rate mortgage. The power prices go up and down with the grid prices, but move a little more slowly. Adjustable rate mortgages are often considered to be the mortgage of choice for buyers that don't quite qualify for a fixed rate mortgage.

Vermont couldn't qualify for a fixed rate contract with HQ. We couldn't qualify for a better deal. We had to take whatever they would give us, and they are giving us market price power. (By the way, HQ says they will give us more of the same, if we shut down Vermont Yankee and need more of their power. You can take the words "give us more of the same" any way you choose.)

The Legislature and the Prices

All last year, my local Vermont representative kept saying that he couldn't vote to relicense Vermont Yankee unless it was a really good deal for Vermonters, and he hadn't heard a really good deal yet. (He sometimes scowled at me at that point. He made it clear that he was protecting the pockets of the people of Vermont, and I was just a nuclear advocate.)

Yet I am sure this same man voted for the bill that calls HQ power "renewable" and agreed with the secret deal for HQ power at market prices.

Wow. If they would just give Vermont Yankee, with its local payroll, the deal they are giving HQ!

It won't happen, of course, because Vermont Yankee is our in-state provider, and its regulators can push it around. In summary, to quote my earlier post:

We will never get as good a deal from Hydro-Québec as we get from Vermont Yankee. We're the Export Market for Hydro-Québec and the In-State Market for Vermont Yankee.

Addendum: Power Price Context
I thought I should give a little background here, to show the deal in perspective.

Vermont Yankee is currently selling power to Vermont at 4.2 cents per kWh. According to its original Memorandum of Understanding, after 2012 it could sell power at the market rate, but would share revenue with the utilities when the market price of power went above 6.1 cents. As I write this, the ISO -NE price for power is about 5.7 cents, but it will vary--the ISO-NE day ahead price map shows an average price of 7.4 cents. HQ sells power to Vermont at about 6 cents. Feed In Tariffs for renewable power range from 12 to 30 cents.

Looking ahead:
Vermont legislators objected to the market price of power/revenue share deal that they signed in 2002 (Memorandum of Understanding). They have pressured Entergy to give a better deal. The negotiations are on-going, and nothing has been formally announced. According to both plant proponents and plant foes, the word-on-the-street is that Entergy has offered 6.1 cents as a fixed price. In contrast, HQ has offered only market pricing, and of course, without revenue sharing.

Image of Spillway of Robert-Bourassa Generating Station from Wikipedia.


Author said...

I have to take exception. There's a limit to political fights when redefining words in the English language becomes a rhetorical weapon. But of course Hydro Quebec electricity is "renewable" -- and clean too -- it is hydropower, and that it is clean and renewable is beyond all reasonable semantic disagreement. If anything it's disturbing (if not surprising) that extant state law defined large hydro as "not renewable", much like Indiana defined pi as "4" (or was it it "3"? Heck, let's make it "50", to honor the 50 states in the Union).

Legislating a counterfactual out of perceived ideological concerns is really, really dumb.

“For purposes of this chapter, the only energy produced by a hydroelectric facility to be considered renewable shall be from a hydroelectric facility with a generating capacity of 200 megawatts or less.”

Not only is this a perversion of plain English, it's also dumb and destructive policy: the cheapest, most efficient hydro plants are the large ones. It's the ignorant luddites who are have turned against "large" hydro, for the same irrational reasons they've turned against "large" nuclear (they're "industrial" and they actually work).

By the way, that CTO site has a nice comparison of costs by source:

Anonymous said...

@uvdiv: Just a note about that Indiana Pi thing - it should be noted that Indiana never actually passed that bill. It was discussed, and rejected.

As for the renewable thing, yeah, I have to agree that any seemingly reasonable definition of renewable would include hydro, since hydro is really just another form of solar power, and solar is renewable, at least until the Sun dies. As long as the Sun burns in space, and the energy from the Sun hits the earth, it will evaporate water, and that water will condense out, rain down, and collect behind dams.

As an aside. . . there's (probably) been another Gas explosion. . .

I know this is a point that Meredith, Rod Adams, and, well, everyone who advocates nuclear energy keeps trying to get through to the public, but every time we turn away from nuclear power, we are effectively turning *to* Methane Gas.

The more we use Gas, the more pipelines we build, the more Gas Turbines we build, the more frequent the gas explosions will likely become unless there is some dramatic technological change which makes gas a lot safer.

I don't want to sound like I don't care about the people in Michigan who are affected by this tragedy. My heart really aches for them, and everyone who's been affected by Gas explosions.

I don't simply want to use their tragedy as political gain, but we should remember that these are happening with increasing frequency over the years. I think this is like the 3rd or 4th big gas explosion this year?

Nuclear in the U.S. definitely has a much better safety record than gas - despite all the naysayers decrying how dangerous nuclear is, the death toll and property damage just keeps adding up for gas, not nuclear.

Anonymous said...

Just an additional thought, more on-topic for this post. . .

If Vermont does force Vermont Yankee to shut down, the next fight would be to make it so that the plant doesn't get decomissioned. . .

After a year or two of higher electric rates (if you're right, which I think you probably are based on the evidence), as long as they haven't started ripping Vermont Yankee down, you might find a lot of Vermonters demananding that Vermont Yankee be restarted. As long as VY is put into some sort of 'offline' state from which it can be brought back online without too much expense, that is an entirely plausible outcome.

Would be interesting if a 'new wave' of pro-nuclear (probably Republican, but hard to say) state legislators were voted into office on the Vermont Yankee issue.

If you can't save Vermont Yankee from being shutdown, logically the next best thing is what I describe above - keep it from being destroyed too quickly, and allow reality enough time to assert itself upon the voters. Then, make sure there are some pro-VY candidates ready to step into key races.

Howard Shaffer said...

Two great posts on Hydro Quebec. Remember when the deal was signed last spring? There was no price. Vermonters were told that they would know later and it would be "market based."

All this at the same time the antis were beating up on VY for not having a contract with an exact number!

And the media swallowed it whole.

It looks like the Legislature is determined to go ahead with VPIRGs experiment in doing away with nuclear power first,and buying from the grid while building alternatives. No matter how much it costs the rate payers!

How much it might cost has been estimated for the Legislature by their consultants, and its on Joint Fiscal Office page of the Legislature's website. The number is $100 million over 28 years, at least.

Meredith Angwin said...

I want to thank everyone for commenting! And the links were very helpful!

uvdiv. I agree with you about hydro big and small. However, my objection was not really about "big hydro bad, small hydro good" but about the way the Vermont legislature rolled over and played dead for HQ, while constantly hassling VY about everything.

Jeff and Howard. Thank you for the thoughtful comments. I agree.

This blog post was also featured on the Energy Collective site. Someone named DaveL who knows a great deal about power contracts in this area, me, and Rod Adams all commented on that blog. DaveL's comments and my response are as long as blog posts, really. The Energy Collective version post has almost 1000 readers as I write this. I think you would enjoy reading the comments.

Happy New Year to Everyone!