By Candace Page
Free Press Staff Writer

MONTPELIER -- Water trickles off the hills of eastern Vermont into hundreds of little brooks. The brooks swell to bigger streams, eventually flowing into the wide Connecticut . Headed south, the river thunders over six hydroelectric dams.

Water becomes power, flowing to homes and businesses far from Vermont . Water becomes money, pouring into the pockets of the dams' out-of-state owners.

Some Vermont legislators want to reverse that flow.

The Senate this week will consider spending $250,000 to explore the possible purchase of the Connecticut River hydro system and a smaller set of dams on the Deerfield River in southern Vermont .

The dams' owner, USGen New England, defaulted on loan payments last year and is for sale by its parent company, PG&E National Energy Group.

"Once, we considered the Connecticut our 'white coal.' Hydropower built colonial Vermont and ran the Vermont economy until the 1900s," said Rep. Steve Darrow, D-Putney. "Now we have a once-in-a-lifetime chance to own 20 percent of the electricity we use every year."

Not all policymakers are so enthusiastic about the idea, daunted by the size of the potential investment and the idea of public ownership.

The debate shaping up in the Statehouse renews a 70-year-old Vermont argument over the best way to provide cheaper power in a state where electricity comes dear.

Does government belong in the power business? Should Vermont generate more of its own power, or rely on faraway sources? How high a premium should public policy put on renewable and clean energy?

"Vermont more than any other New England state has a history of fights over policy choices dealing with energy," said Stephen Terry, an executive at Green Mountain Power Corp. and a former aide to the late Sen. George Aiken.

"Since at least 1930 most of the debate has been over ways to make it as cheap as possible and to see that our resources are not used for the advantage of people down country," he said.

'Cheap energy'


Vermonters never have owned the Connecticut River dams.

"In the early 1900s Massachusetts companies came in and bought up all the little mills and water rights on the tributaries in Vermont and New Hampshire . They ripped out those small dams and ran the water into the Connecticut , where they built large dams," said Darrow.

" Vermont thought we'd get the power, but they exported it all down the valley," he said.

The dams stayed in Bay State hands until 1998, when PG&E National Energy paid $1.6 billion for the Vermont dams, plus dams and fossil fuel plants in southern New England . Energy deregulation was in the air and electric prices were up.

USGen New England sells Connecticut River power on the spot market. The company releases water from its reservoirs to make power when demand and prices are high, then slows or stops generation when demand falls.

But when wholesale energy prices fell in this decade, the new owners couldn't meet their debt payments.

PG&E National Energy promised its creditors last fall it would sell its New England subsidiary within a year to pay off debt. The company also wrote off a $767 million loss on its investment.

All those factors have raised hopes in some people that Vermont might be able to acquire the dams for an affordable price.

"This could be a guaranteed source of cheap energy for the long-term," enthused Senate Institutions Chairman Vincent Illuzzi, R-Essex-Orleans.

"This is a buyer's market," said former Public Service Board Chairman Richard Cowart, now a utility regulation consultant.

"These dams are very well-known assets. They are close at hand and a renewable source of energy. Vermont really ought to take a very close and careful look at them," he said.

High hurdles


Formidable obstacles would stand in Vermont 's way.

First, PG&E National Energy is selling USGen New England in a single piece, not dam by dam. Vermont only would be interested in buying the hydro stations within its borders.

Second, the utility already is negotiating with potential buyers. Vermont would be coming late to the game, and might not find the depressed price some people are hoping for.

"It's unlikely the state would be the only potential purchaser, so we would have to pay a market rate for any assets we purchased," said John Sayles, deputy commissioner of public service. "We need to dispel the 'fire sale' mentality."

Until a purchase price is set, there would be no way of knowing whether such a deal would provide "cheap" energy for Vermonters, or not, utility experts say. While most experts believe USGen New England will sell for much less than it sold for in 1998, no one knows what its price will be.

"How cheap? That depends on the cost of the plants," said Richard Saudek, another former Public Service Board chairman. "But the cost of running them is very low. I would think they would have the potential of being lower cost than most of our present sources."

Together, the Connecticut and Deerfield dams have a capacity of just under 500 megawatts, though the actual amount of power available at one time depends on how much water is being spilled over the dams.

It's estimated the dams could produce 20 to 30 percent of Vermont 's annual power needs.

Politics of power


The highest hurdle any deal might face is a political one.

If the state could buy just the Vermont dams -- from PG&E National Energy or a subsequent owner -- the price still would mount into the 10s or 100s of millions of dollars.

Proposed legislation also calls for the state to establish a public power authority to finance the purchase, manage the dams and sell the power to retail utilities.

Gov. Jim Douglas, a former state treasurer, first recoiled from the idea, fearing such a sizable debt and its possible impact on Vermont 's credit rating. He has since agreed that Vermont should at least investigate a potential sale.

His support is tepid, at best.

"Who knows whether it would be a good idea without adequate analysis?" he said of a potential purchase. "I'm interested in reducing our reliance on foreign oil and remote sources and it might be helpful in that regard."

In past debates over public power roles have been reversed -- governors from George Aiken on down have urged reluctant legislators to intervene on behalf of electrical customers. Terry recalled that history Friday:

In the 1940s, Gov. Ernest Gibson tried to sell lawmakers a plan for a state power authority to provide cheaper power to homes and farms. They said no.

In the late 1950s, Vermont again debated a public power authority, this time to build and own big transmission lines to carry inexpensive, public hydro power from New York . Instead, policymakers decided to create VELCO, a transmission company owned by Vermont utilities but with public members on its board, Terry said.

In 1965, Gov. Philip Hoff waged a titanic battle with the Vermont Legislature over his plan to import cheap hydro from Newfoundland .

Hoff promised "4 mill power" -- power costing only 4/10 of a cent per kilowatt hour. Vermont 's private utilities fought back, countering with plans to build the Vermont Yankee nuclear plant. They promised Yankee's power would be "too cheap to meter."

Gov. Richard Snelling took the lead in negotiating the first purchase of Hydro Quebec power, warning if private utilities didn't buy the power, the state would. Under Gov. Madeleine Kunin, lawmakers gave the state Public Service Department authority to buy wholesale power for Vermont consumers.

Douglas ' instincts run against government interference.

"My predisposition is that generating capacity should be privately owned," he said. He also fears if a public power authority defaulted on its debt, state government would find itself left with the bill.

It's likely Vermont could pull off such a complicated political and financial deal only with Douglas ' leadership, backers of the idea concede.

"We can't do it without his strong support," Illuzzi said.

Contact Candace Page at 660-1865 or 229-9141 or cpage@bfp.burlingtonfreepress.com