Vermont
faces choices over the future of its electric supply
Burlington Free Press, April 13, 2003
By Sue Robinson
Free
Press Staff Writer
Vermont has no giant hydroelectric dams,
paid for by the federal government, like those out West.
Vermont lacks the cheap, coal-fired power plants of the
Plains states.
What this state does have are miles and miles
of transmission lines strung out over mountain- tops delivering
power paid for with expensive long-term contracts to a small number
of people. Thus, Vermont's electric rates are the sixth-highest in
the nation.
What can Vermont do about what it pays for
electricity? The answer depends on whom you ask.
Businesses
and some state regulators argue that the perfect opportunity to
squash Vermont's reputation as a high-priced-power state will arrive
in a decade when nearly three-quarters of the state's power supply
contracts expire. Other industry experts say certain, unalterable
facts will keep Vermont's rates high.
Rating the rates
The reasons for Vermont's high power costs -- according
to industry experts and state regulators -- include:
--
Vermont lacks the geography for large-scale hydroelectric plants.
The federal government paid for giant dams out West decades ago.
Utilities continue to draw electricity from the dams without the
debt associated with building new power plants. Vermont failed to
take advantage of long-term contracts for power from such dams back
in the mid-1900s, said Chairman Michael Dworkin of the Vermont
Public Service Board.
-- Vermont has no coal-fired power
plants. Coal is abundant and cheap, but pollutes the air. About half
of all America's power comes from coal, which costs about half as
much as other sources of energy.
-- Vermont signed a
long-term power contract with Hydro Quebec in Canada a decade ago
just as electric prices plummeted. The contract locked the utilities
into buying power at above-market prices.
-- About a third
of the state's power comes from the Vermont Yankee nuclear power
plant, whose debt, building and other expenses have generally meant
more expensive power.
The Hydro Quebec contract is the main
culprit for the rise in the state's average electricity rate from 28
percent above national average to almost 50 percent higher over the
last decade, according to data that IBM compiled from the U.S.
Department of Energy.
But it is the first two reasons why
Vermont will never have electric bills that approach the national
average, industry experts say.
The national and regional
averages are skewed lower by states whose utilities were banned from
raising rates while their electric markets went through
deregulation. State regulators gave the utilities permission to
delay paying for cost increases, assuming that deregulation would
end up lowering costs for all.
Now deadlines are nearing for
those companies to pay up, and many are applying to their state
regulators for giant increases. New Jersey is trying to figure out
now how it will pay the $1.2 billion in costs it deferred during
restructuring, Dworkin said.
Other states have banked on
short-term buying on the wholesale market, whose volatility is also
starting to catch up to prices. Massachusetts Electric, for example,
is asking for a 44 percent rate increase.
"That's going to
make Vermont's rate's look pretty good," said Dorothy Schnure,
spokeswoman for Green Mountain Power Corp., the state's
second-largest utility with 87,000 customers.
Meanwhile, the
Hydro Quebec contract ends around 2015 and the Vermont Yankee
nuclear plant ends its relationship with Vermont in 2012. Together
these contracts account for 72 percent of Vermont's power supply.
When these supply contracts expire, the state will have an
opportunity to seek power elsewhere.
One option is for the
state or its utilities to build their own generating plants in
Vermont. The choices include:
-- Nuclear. Vermont just spent
several years trying to sell its sole nuclear plant, Vermont Yankee.
Nuclear power is expensive and controversial because of the
radioactive waste it produces. The state has the option of renewing
its power contract with Vermont Yankee in 2012. Power from Vermont
Yankee costs about 4.5 cents per kilowatt, according to the electric
utilities.
-- Hydro. Vermont's contract with Hydro Quebec
expires in a decade. The Canadian utility has said it wants to get
out of long-term contracts. However, the company is expanding its
generation capacity in Quebec, a move that might provide an
opportunity for new contracts for Vermont utilities. Hydro Quebec
accounts for a third of the state's power -- over dependence on a
single source, some state regulators say. Electricity from Hydro
Quebec costs about 6.6 cents per kilowatt, according to the electric
utilities.
-- Coal. Vermont has rejected this option in the
past because of the air pollution associated with burning coal.
Power from coal-burning plants costs about 2 to 3 cents per kilowatt
hour, according to energy consultants.
-- Natural gas. These
plants have proliferated across southern New England in recent
years; few power generators are willing to build more for a
saturated market. Electricity from natural gas-powered plants costs
about 5 to 6 cents per kilowatt, according to energy consultants.
-- Renewable energy. Electricity from windmills, solar
panels and the like are still 5 to 20 percent more expensive than
power from more traditional sources. Power from windmills cost about
5 to 7 cents per kilowatt, according to energy consultants.
A new natural gas power plant would cost around $240
million, and open the utilities -- and their Vermont ratepayers --
to risks they are trying to get away from with the Yankee sale.
Risks include breakdowns, fuel cost volatility, long-term debt and
pollution. Such a plant would also mean revenue and a guaranteed,
nearby power supply.
The utilities -- or the state -- could
buy existing power plants.
Hydroelectric dams on the
Connecticut River are for sale. Buying the dams could cost as much
as $1 billion. The state also would have to convince the seller -- a
California company -- to sell just the dam, separate from the rest
of the generating capacity it is selling. However, this option would
allow Vermont to attract and retain large companies with discounted
power, for example.
The state government could spend money
making Vermonters conserve energy, thereby lessening the need for
more generating capacity.
Previous reports by the Vermont
Electric Power Co. have pegged the cost of conservation programs at
$540 million over the next decade to pay for equipment upgrades such
as efficient furnaces and conservation education. Vermont already
uses less electricity per person than most states because of an
active efficiency program and an environmentalist mind-set. That is
why the average consumer's electric bill is lower than in most other
states despite higher electric rates. Most experts agree more energy
could be conserved.
State regulators and the utilities could
look into a mix of short- and long-term supply contracts with
private companies such as Hydro Quebec or straight from the
wholesale market on a daily basis. If done right, the contracts
could contain prices.
If Vermont followed a path that would
give it diverse power sources, Vermont electric rates could
realistically fall by 1 to 1.5 cents a kilowatt hour -- from almost
11 cents to around 10 or 9.5 cents -- said Rich Sedano, who stepped
down as public service commissioner in January 2001 to become an
energy consultant in Montpelier with the Regulatory Assistance
Project.
Such a decrease in rates would save the average
Green Mountain Power Corp. homeowner about $97 a year, for example.
Or, in the case of IBM, it could mean about $3 million in savings a
year.
Sedano cautioned against forming a policy that gives
Vermont the cheapest rate possible at the expense of price stability
or the environment.
Some businesses say perhaps now is the
time the state should rethink its policies with a nod to economic
development.
Any policy will contain uncertainty. When
Vermont utilities signed the Hydro Quebec contracts in 1987, even
the regulators gave their stamp of approval to a move they believed
would provide the state with a stable supply of electricity at
reasonable prices. Instead, changes in the market's electric demand
and supply prices drove several Vermont power companies to the brink
of bankruptcy.
"A few options are theoretically possible
that would theoretically give you lower rates," Sedano said. "But no
option is going to give you the best rate out there all of the time.
That is just the nature of the electric business. You just never
know what is going to happen."
Contact Sue Robinson at
660-1852 or srobinso@bfp.burlingtonfreepress.com