Kreis: Transparency troubles for CVPS and its silent partner?

Editor’s note: This op-ed is by Donald M. Kreis, associate director and assistant professor of law at the Institute for Energy and the Environment at Vermont Law School. He is the former general counsel of the New Hampshire Public Utilities Commission and a member of the board of trustees of the Vermont Journalism Trust, publisher of VTDigger.org.

Vermonters care about where their electricity comes from. If there was any doubt about that, surely the events of the past year have obliterated it.

Last November, Vermonters elected a governor who pledged to do what he could to shut down Vermont Yankee and, with it, Vermont’s reliance on nuclear power. The Shumlin administration is vigorously defending the federal lawsuit that Vermont Yankee’s owner has filed to block the state from shuttering Vermont Yankee as planned next March.

Meanwhile, as typified by the recent referendum conducted by the Vermont Electric Cooperative (VEC), Vermonters are embroiled in a vigorous statewide argument about whether giant wind turbines should continue to sprout on the state’s verdant ridgelines. VEC members overwhelmingly answered the question in the affirmative by approving a transmission line upgrade necessary to connect the Kingdom Community Wind project in Lowell to the electricity grid. But passion persists, on both sides.

Finally, there was consternation in some circles, and howls from others, when the state’s second biggest utility, Green Mountain Power (GMP), announced recently that it was replacing its current source of nuclear power, Vermont Yankee, not with renewable energy but with a different source of nuclear power – Seabrook in New Hampshire – for the next 23 years.

In these circumstances, it is fair to assume that customers of Vermont’s biggest utility, Central Vermont Public Service (CVPS), are curious about what CVPS will do to replace its slice of the Vermont Yankee output. And now we know, sort of.

According to a CVPS announcement on Aug. 1, the utility conducted an auction process and selected two winning bidders that will, collectively, supply about 20 percent of the power the company sells to its customers. The average price, according to CVPS, is $47.50 per megawatt-hour, which works out to 4.75 cents per kilowatt-hour.

This is probably a reasonable price. For reference, on the morning of Aug. 3, electricity for delivery in Vermont was trading at $53.12 per megawatt-hour on the regional market. On a monthly average basis, according to figures obtained from grid operator ISO New England, this so-called “spot” price has ranged from $41.45 to $71.88 for Vermont over the past year.

But where the heck is CVPS getting this electricity? Is it Seabrook? Some wholesale power supplier with a fleet of carbon-intensive coal plants? A source that is green and groovy?

CVPS is respectfully declining to say.

At first blush, this seems incredible. GMP is taking its lumps for snuggling up to Seabrook. How can CVPS possibly get away with staying mum about its power purchase?

The answer, while not exactly delightful for those who favor holding utilities and their regulators publicly accountable, is at least understandable.

GMP signed a 23-year deal with Seabrook’s owner. The two CVPS agreements expire at the end of 2012. This means that CVPS will soon be conducting another auction to which it hopes to attract lots of bidders with wholesale power to offer. GMP is obliged to seek approval from the Vermont Public Service Board; the CVPS deal requires no such authorization.

So, CVPS credibly asserts that it is actually revealing more than it is obliged to disclose. Specifically, and correctly, CVPS officials note that publicly announcing even the $47.50 price to which it agreed is not legally required.

CVPS has laudably concluded that, in the face of public clamor for more information and accountability when it comes to power purchases, it would be good policy for the utility to make its cost data known. But the utility also contends that if it disclosed both pieces of key data – the price and the names of the two companies that agreed to this price – it would make it more difficult for CVPS to negotiate the next deal.

This is debatable. In fact, this whole subject is currently under debate in connection with an informal “workshop” proceeding convened by the Public Service Board. The subject of the proceeding is the extent to which the PSB is itself obliged, under the state Access to Public Records Act (APRA), to make available to the public the wholesale power contracts that utilities file with the agency.

The utilities argue that if anyone could obtain unredacted copies of the wholesale contracts they file with the PSB, it would ultimately drive up electric rates by making it harder for the utilities to negotiate such deals. They rely principally on the “trade secrets” disclosure exemption in the APRA. Transparency mavens – groups like Energize Vermont (which wants to prove that wind contracts are a bad deal) and the Ethan Allen Institute (which wants to prove that Vermont Yankee is a good deal), and individuals like the law professor whose byline graces this essay – argue that, at the very least, the utilities should have to prove their hypothesis.

In connection with the CVPS deals announced this week, the question will become moot relatively soon. The utility confirms that, once the power purchases actually begin, the names of the sellers will become publicly known via quarterly reports CVPS must make to federal regulators. According to CVPS, by then the danger will have abated that public disclosure of both the price and the sellers will scare off future sellers and/or broadcast too much information about how hard CVPS bargains for relatively short-term wholesale power.

But the bigger transparency question remains, and it is a significant issue in a state that is almost completely reliant on power purchased by utilities at wholesale (rather than generated by the utilities themselves). Or, at least, it should be. It is odd, in light of the attention both the Legislature and the Shumlin Administration have given to the subject of access to public records in 2011, there has been essentially no public discussion of the extent to which people should be able to hold the Public Service Board accountable for the vigilance with which it regulates our electric utilities and their power purchases.

The PSB has in the past taken the position that it is not necessarily subject to the APRA and the speedy, disclosure-favorable document request procedures in the statute. If you ask the PSB for an unredacted copy of a power purchase agreement, it will invite you to file a motion in whatever administrative proceeding it opened to consider the contract. Then, of course, you must await the inevitable pleading from the applicable utility opposing full disclosure. Though there is no language in the APRA suggesting an exemption from its procedures for the PSB, the board relies on a separate statute vesting it with the powers of a court of law.

In some sense, the issue here is not government accountability – it’s the question of whether deregulating the electric industry, most of which occurred in the 1990s, was a wise move. Until deregulation, utilities did not purchase wholesale power on a supposedly competitive wholesale market. Rather, they held a monopoly on the generation, transmission and distribution of electricity. The rates were set by regulators. And everything about the process was subject to full public disclosure.

Vermont never drank the deregulatory Kool-Aid, but Congress did. So, our federal lawmakers and policymakers decreed that utilities should no longer have a monopoly on power generation and that so-called merchant generators (an example of which, by the way, is Vermont Yankee and its Louisiana-based owner Entergy) should be able to negotiate power deals with utilities like CVPS and GMP. The Federal Energy Regulatory Commission has the authority to scrutinize these deals but simply assumes them to be just and reasonable as long as nobody claims the seller has monopoly power.

Anyone who thinks there are no accountability or transparency issues in all of this has a short memory. The Enron scandal, and the related California crisis of 2000 and 2001 (the highlights of which were rolling blackouts, skyrocketing rates and utility bankruptcies), are a direct result of deregulation combined with secrecy.

CVPS is not Enron. Vermont is not California. Peter Shumlin is not Grey Davis (the California governor who bungled the 2000-2001 crisis and lost his job as a result). All of the evidence suggests our utility regulators are vigilant and enlightened. And, quite possibly, the utilities are right when they claim that full public disclosure of their wholesale deals will ultimately make those deals more expensive.

But they should prove it, our regulators should quantify the cost and the Legislature should take up the question of whether wholesale power deals should be exempt in whole or in part from public disclosure. Because maybe the cost of that disclosure – whatever it is – is a price the public is willing to pay in exchange for the confidence that citizens deserve to have that their state is making good energy choices.