The final report of the Vermont Hydroelectric Power Acquisition Working Group, issued Tuesday, recommends that the state should not pursue buying the TransCanada’s dams or even enter into a partnership with potential buyers.
Rather, the group is advocating a wait-and-see approach: The report says Vermont officials should approach whoever eventually buys the properties to gauge interest in a long-term power-purchase agreement that might also include “a provision for (state) purchase of all or some equity stake in the dam facilities” at a later date.
“This option would not lock the state into purchasing the dam facilities but would instead provide time for sufficient public input into such a purchase and a more complete analysis,” the group’s report says.
Vince Illuzzi, a former state senator and a member of the working group, attributed the study’s outcome to a variety of factors including the projected value of the dams – which documents say could approach $1.4 billion – and a short schedule for vetting the state’s involvement in the TransCanada deal.
“The private markets move much faster than the state could possibly move,” Illuzzi said.
From the start of the state’s hydro study, it was clear that time was in short supply. TransCanada disclosed earlier this year that it would sell 13 hydroelectric generating stations as well as other Northeastern U.S. power assets to finance its $13 billion acquisition of Houston-based Columbia Pipeline Group.
A corporate spokesman has said TransCanada administrators expect to wrap up the hydroelectric sale by year’s end.
In April, Gov. Peter Shumlin announced formation of the working group to study the possibility of the state’s “partial or full acquisition” of TransCanada’s hydroelectric assets, which could provide a long-term source of renewable power. The working group was chaired by then-Secretary of Administration Justin Johnson.
It took only a few months for state officials to conclude that it would be “extremely difficult” for Vermont to independently submit a purchase bid for the hydro properties. But the state held out hope for acquisition of “some beneficial interest” in the dams.
The working group’s final report lays out the ways in which that might happen in the future. But first, members of the working group underscore the reasons why they don’t believe the state can take any action at this point.
In terms of pursuing outright state ownership, “the state was not able to put together a legitimate bid within the time frame necessary,” the report says. While the TransCanada sale’s timing “is reasonable for large companies with acquisition experience,” the state has no such experience and “would need significant assistance from outside experts in order to acquire the hydroelectric assets,” officials wrote.
Officials say a lack of financial resources is a major issue, even for the purposes of studying a purchase. Act 130, approved by the Legislature earlier this year, allocated up to $250,000 for the working group’s study.
While officials acknowledge that’s “a significant amount” in the context of the state’s tight budget, the working group’s report says it’s not so significant when studying the logistics of a potentially $1 billion transaction.
“This would be equivalent to spending no more than $50 for the purchase of a $200,000 house (including home inspection, title search, appraisal and closing costs),” the report says. “Further, the state could decide to commit the necessary expenditures to submit a legitimate bid and still lose out in the sale process.”
Illuzzi, who currently serves as Essex County state’s attorney, said other concerns included a volatile electricity market; low water levels due to this year’s dry conditions; and pending federal relicensing proceedings.
Given all the uncertainties, “we were unable to mount any substantive political support” for a dam purchase, Illuzzi said.
State officials also had considered trying to enter into a partnership with a potential buyer before the sale went through. In June, documents showed that four such companies had contacted the state to discuss a partnership.
But in the end, the working group ruled that out. “Many of the bidders have sufficient assets that a partnership is not necessary, and the timing associated with legislative and regulatory approval created a disincentive for such a bidder to submit a joint (purchase) bid with the state,” the report says.
The working group does recommend action once the sale is completed. The Department of Public Service should approach the new owner to explore the possibility of a long-term power-purchase agreement with the state, officials say.
That agreement “would need to clearly provide a benefit to Vermont ratepayers and would need to be pursued in consultation with the state’s electric distribution utilities to ensure that such a commitment matches the power supply needs of the utilities,” the report says.
Illuzzi believes such a deal could be financially beneficial both for the state and for the dams’ next owner. He said he lobbied successfully for language about a long-term power agreement appear in the working group’s final report.
“Vermont would be like an anchor tenant,” he said. “In exchange for a long-term contract … we would presumably enjoy preferable rates and have an opportunity to purchase (the dams) 30 years from now.”
Such an extended time frame could introduce many variables into the equation. The hydro dams’ productivity and viability, for example, might be impacted by factors such as climate change and advances in technology.
But a long-term purchase consideration – which may or may not be as lengthy as Illuzzi suggests – also could allow Vermont officials much more breathing room to figure out whether the state should have any stake in the dams.
The working group clearly is in favor of more time for careful consideration.
“The decision to put hundreds of millions of dollars of Vermonters’ money at risk is one that should only be made after a full, transparent discussion with significant opportunity for the public to weigh in,” the report says.