The clock is ticking for the Burlington Electric Department on a one-time option to buy Winooski One, a fully automated hydroelectric plant on the Winooski River.
BED general manager Barbara Grimes briefed Burlington’s Board of Finance on Monday, explaining that “this is the only opportunity that Burlington Electric has to re-acquire the dam.” The price would be somewhere between $8 million and $20 million, less than half of what was considered “fair market value” just a few years ago.
However, the negotiations cannot begin until the City Council approves, and the decision was pulled from the council’s agenda this week at the request of Mayor Miro Weinberger.
“The mayor asked for additional time to make sure we had fully vetted all risks and benefits,” Grimes explained. “From BED’s point of view the risk is minimal. We just want the council to let us enter into negotiations.”
Grimes expects to see the issue resolved at the next City Council session on Sept. 24. “That gives us five weeks to put them on notice, but we need permission to send a letter,” she explained.
The Winooski One station currently provides about 8 percent of the city’s demand for energy, but potentially could meet up to 12 percent of city needs. About 45 percent of BED’s power supply comes from renewable sources like hydro and the McNeil plant. At least 23 percent comes from natural gas, 19 from nuclear, 8 from coal and 5 percent from oil.
The only reason that coal and oil are part of the mix is contracts with other New England energy providers, Grimes points out.
According to an agreement struck with the Winooski One Partnership, which built the 7.2 megawatt station at the river’s lower falls in 1992, BED retained the option to purchase the plant at the end of a 20-year contract under the Public Utility Regulatory Control Act (PURPA). But to do that BED must formally signal its interest by Oct. 31.
“If for whatever reason the council doesn’t approve, the opportunity is lost forever,” Grimes stressed. “There is a certain amount of anxiety, not wanting to see the city lose out like the state lost with Connecticut River dams.”
Burlington was planning to build a hydro plant called Chase Mill on the Winooski River in the 1970s, but ultimately sold its development rights. “It ended up being a matter of money,” Grimes recalled. There were also some “delicate issues with Winooski prior to construction.”
In the end, BED leased the land and water rights to a private partnership, but retained ownership of the land and license.
Water-powered mills began to operate near the falls in Winooski more than 200 years ago. Mill development peaked in the early 20th century. But technological, labor and other changes left the mills vacant and water power idle by the mid-1950s.
In “The Mills at Winooski Falls,” a collection of essays, Winooski One partner John Warshow explained that state and national energy policy changed “following the turbulence in world energy markets in the 1970s” and a recognition of environmental problems associated with burning fossil fuels and nuclear power.
The new station began commercial operation in April 1993. Grimes says that Winooski One has been well-maintained. Water flows from an upstream intake through the turbines, then out the back of the powerhouse. Inside the generators, rotors – large electromagnets – create electric current for distribution through high voltage wires.
Floods have sometimes damaged mills and powerhouses in the area of Winooski Falls. But Warshow notes that the plant is built of reinforced concrete and “designed to be watertight and completed submerged during a major flood event.”
In 2011, BED began discussing future alternatives. These include exercising the purchase option and a purchase power agreement with the current owners. “We wanted to trigger the purchase option earlier, but the cost wasn’t in the cards,” Grimes recalled.
A few years ago the fair market value of the hydro plant was around $45 million. An evaluation of the purchase option was part of BED’s 2008 Integrated Resource Plan. Since then, however, the price of natural gas has dramatically altered those calculations.
BED has hired a consultant, La Capra Associates, to review figures and develop estimates for an offer. Grimes stresses that formal discussions have not yet begun, and much of the information needed to make a final decision will not be available until then.
“Once into the negotiations we’ll be better informed,” she said.
“After we inform the current owners we are going to negotiate, if the numbers don’t work we can still walk away,” Grimes added. “The mayor needs to be comfortable that this doesn’t look like Burlington Telecom.”
If the city does approve entering into formal negotiations and a purchase agreement can be reached, the public will have the final say in the form a bond vote. “BED does not have a reserve saving account,” Grimes said. “We will have to go to the taxpayers for a bond to do that.”
The specific financing structure, as well as any possible tax impacts, have not been determined yet. But Grimes pointed out that BED will have paid off a bond floated for the McNeil plant by next year. “That will free up about $9 million a year,” she predicted.
“We could go to debt payments on new bond, but customers might not even see a rate increase,” said Grimes. “A lot can happen.”