Anguin on Energy: Secrecy in Hydro-Quebec negotiations led to “bad deal”

By Meredith Angwin

Vermont Yankee Nuclear Power Plant

Back in late-December I pointed out in a blog post several ways that the Hydro-Québec contract was a bad deal. One bad thing about the deal was the required secrecy – secrecy despite the fact that Burlington Electric’s transparency requirements call for all major power purchases put to public vote.

Since then, John McClaughry of the Ethan Allen Institute sent a letter to James Volz, chair of the Public Service Board, which, to summarize in my own words, states: You are giving an unfair advantage to HQ compared to VY, by putting the HQ contract terms under seal of secrecy. What law allows you to set this kind of advantage for one party over another?

The response came on January 4 and was signed by Kurt Janson, General Counsel. Again my “nutshell” translation: We know that markets are more efficient when they aremore open. However, the greater good is to help Vermont utilities with theoretical new out-of-state contracts. Thanks for writing.

A few days after this exchange, HydroQuebec announced that it’s going-in price to Vermont would be 5.8 cents per kWh instead of the current price of 6.6 cents. In Vermont, rejoicing was general. Wow, did we get a good deal! Wow, now we have transparency!

And also. “Wow, now Entergy knows the price it has to beat!”

I, for one, am not impressed with the new information. The HQ price still floats with the market price. The price is still tied to the “clearing price” which is set by natural gas. Entergy was offering a fixed price, and the HQ is still a variable rate mortgage.

As a matter of fact, I am less impressed now than I was before. My life experience says that only the slippery mortgage brokers and credit-card companies offer too-good-to-be-true teaser rates, going in to the contract. This 5.8 cents business is a teaser rate IMHO.

I am going to go out on a limb here an make a suggestion to Vermont Yankee. (Of course, they don’t ask me for advice.)

VY should go to the utilities and say: Our going-in rate is 5.3 cents. Half a cent below what HQ has offered. However, our tracking system for rate rises must be exactly the same as HQ. So, if the price of power goes up to 8 cents and HQ is getting 8, we get 7.5. Etc. We’re always below them, but we get the same market-based deal as they got.

This would be a great deal for Vermont Yankee. They would make a fortune. It would be the lowest price producer, and still make a fortune. Of course, some regulators might object that ratepayers would be soon paying more than if they had taken VY’s 6.1 cent fixed price offer. To which Vermont Yankee could answer: you had your chance, friends. You missed it.

Aside: I expect electricity rates to rise, rather steeply, in a year or so. The rise will start when the hoopla about the Marcellus shale dissolves into the reality that most shale wells are expensive wells that don’t produce much gas. (Yes, I know. This assertion is worth its own story. I’ll get to it.)

Meredith Angwin is a member of the Energy Education Project, and undertaking of the Ethan Allen Institute