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A Bad Deal with Hydro-Québec

Meredith Angwin's picture
Carnot Communications

Former project manager at Electric Power Research Institute. Chemist, writer, grandmother, and proponent of nuclear energy.

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  • Dec 29, 2010

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Vermont Yankee Might Close, and Vermont Was Desperate

As I pointed in in a recent post, in previous power agreements with Hydro-Québec (HQ), Vermont took 10% of HQ power, and in return, 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 negogiations 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. Historical interest rates from Wikipedia.
Meredith Angwin's picture
Thank Meredith for the Post!
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Meredith Angwin's picture
Meredith Angwin on Dec 31, 2010


Thank you for your thoughtful post.  I am glad to hear that the HQ partnership has had renegotiation room and HQ has been a good partner in renegotiations. Thank you for the information.  

On the other hand, I believe that using 2009 or 2010 as the example years for electricity prices is a bit misleading.  These have been the lowest-price years for at least a decade. (There’s been this recession happening.)  Your forward prices are more interesting.  Apparently, the market doesn’t think we are going to get over the recession very quickly, or perhaps it thinks there will be abundant natural gas.  If I had money to speculate, I would bet against this estimation and bet for rising electricity prices.  However, I do not mean to dismiss the forward numbers.  They may be right.  I will say, however, that they are not certain.  Also, as you correctly noted, those are prices for the entire year, day and night, not the hours that HQ will supply power. HQ will mostly be supplying power in the high-demand, high price hours.

Also in terms of pricing, I encourage you to look at the electricity price graph in this blog post

You will see that prices have spent a significant portion of the past ten years above 6 cents.  The graph comes from ISO-NE.

I believe you have missed my point about the variable market and the profits.  I have no problem with companies making profits by selling electricity. I don’t even have a problem with variable pricing,

However.  Some context here. The Memorandum of Understanding (MOU) for Vermont power purchases after 2012 with Entergy was signed in 2002. It said that for ten years after 2012:

  • Entergy will sell at the market AND
  • if the market goes above 6.1 cents, Entergy will split the extra money with the utilities.  

This was a Revenue Sharing Agreement.  If the market was below 6.1 cents, Entergy would just sell at the low market price.  If electricity prices went up, there were estimates from the DPS (Department of Public Service) of Entergy returning tens to hundreds of millions of dollars to the utilities over the length of the contract.  This money could have improved transmission lines, implemented the smart grid, or been returned to ratepayers in the form of lower prices. 

The Senators and Representatives in Montpelier said this was totally unacceptable.  That lousy Entergy wasn’t giving them a fixed price!  Those Entergy scumbuckets!    What they try to get away with! 

Actually, this MOU was a great deal for Vermont, because if the price was electricity was low, that is the price Vermont utilities would pay Entergy.  If the price went up, Vermont got partially re-imbursed.  And you should have heard the legislators screaming about this, endlessly. “You have to give us a fixed price!”  So, now they have a fixed price, and they don’t like that, either.  From what I know, and I am NOT an Entergy insider by any means, Entergy would be quite happy to stay with the Memorandum of Understanding, but the legislators objected to it.

Instead, the legislators of Vermont are willing to take market-price power from HQ, support HQ profits, and support HQ jobs while letting Vermont people hit the unemployment lines.  These are Vermont people whose company offered a better deal for Vermont than HQ did.  The Memorandum of Understanding (MOU) is a much better deal for Vermont than the HQ contract. The MOU is public, it includes revenue sharing, it’s transparent, it’s cheaper power, if only because of transmission costs at the same ISO price.  End of story. It’s a better deal for Vermont.

This answer is getting really long!  Sorry.  One more point.  About big and small hydro.  My point in the blog wasn’t that big hydro was evil and small hydro was good.  My point was that people in Vermont were willing to lay down and allow HQ to print their boots all over us, even getting our legislature to vote special names for HQ’s power.  Oh, we are so eager to please HQ!  After all, they gave us a worse deal than Entergy was giving, so of course we are grateful. (sarcasm alert.) 

By the way, I notice that you don’t mention nuclear as part of carbon-light energy mix.  An oversight, perhaps?  Your comments are well-researched and thoughtful, and I hope they are not simply justification for Vermont accepting a lousy power contract— because— at least it isn’t nuclear?

Meredith Angwin's picture
Meredith Angwin on Dec 31, 2010

I totally agree.  If gas prices are low, I would bet on them rising.  If they are high, I would bet on them falling. They are very cyclical!  Also, the ISO graph in my post shows ISO NE and New England gas prices in lockstep.  Two lines on the graph..electricity prices, gas prices.  Sometimes you can’t tell them apart.

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