Utilities should protect the consumer first

Point/Counterpoint

Utilities should protect the consumer first

By John Tracy
Sunday, November 23, 2003

The Vermont Public Service Department's proposed deal between Green Mountain Power and IBM creates a multi-million dollar rate shift from a large industrial customer to residential and commercial customers. This raises many questions about the direction Gov. Jim Douglas and his administration are taking on energy policy.

The primary responsibility of Vermont's Public Service Department is to stand up for consumers, especially the interests of the average ratepayer. Yet our Public Service Department wants to cut a deal with IBM that raises rates for 80,000 Vermonters and calls it economic development. Who is the public advocate for us, the ordinary ratepayers?

We all realize the importance of IBM to Vermont. However, in light of the recent termination of another 500 jobs at the plant in Essex Junction, some questions should be asked before the deal is closed. Will this rate increase to consumers prevent future job losses at IBM? Will IBM provide assurance that they will remain in Vermont for the long haul? If the Public Service Department is determining that ratepayers should subsidize economic development, shouldn't those paying the bills have a say in the matter?

A few years back there was a big push to change the way we generate, transmit and distribute electricity in Vermont. It was called "electric restructuring." Major business groups, large utilities and more than a few editorial pages insisted Vermont change the way we do business and jump on the restructuring bandwagon.

The Vermont Legislature, in the face of incredible pressure, said, "hold the phone -- we have some questions we want answered. What impact will this have on Vermonters? Who will pay the bill? Will this really work?"

Because it is our job as legislators to represent Vermonters we wanted to make sure Vermonters weren't on the hook for years to come for a scheme yet to be tested. Well, we all know what happened in California and though some may still disagree about the issues surrounding restructuring by having the Legislature slow things down and look into the issue we saved Vermonters from financial and electric supply instability.

If the Douglas administration wants to make significant changes in utility policy, the Legislature should have the opportunity to look into what is being proposed and how it is to be carried out. We, as legislators, must go back to our constituents and explain our decisions and the reasons behind them. How can we do that when we are not even involved in this process?

Should we start using ratepayers as a funding source for economic development? If so, under what guidelines? Do we have any evidence that this policy will create jobs? Are there alternatives that will cost less or work better?

When regulators reduce the cost of power for IBM below what it cost Green Mountain Power to provide it, what is to keep a host of businesses and other special interests from coming forward and asking for subsidized power -- for economic development purposes? Who will pick up the tab as more and more corporations seek subsidized rates?

Before this administration undertakes a major shift of public policy I feel the Legislature should examine and discuss it. It is the responsibility of this administration to make sure that the discussion on an issue this big is fair, open and full.
Rep. John Tracy, a Democrat, represents Burlington in the Legislature.

IBM Power Agreement Beneficial To All
By Stephen C. Terry

The Free Press editorial on Nov. 16 concerning a power plan for IBM hit the nail on the head. The Economic Development Agreement is not only reasonable, but it is in the public interest. Therefore, it might be helpful to provide readers with some factual information about the EDA.

Green Mountain Power first negotiated an Economic Development Agreement with IBM in 1995, and has continued similar agreements since that time. Each and every one of these agreements has been approved by the Vermont Public Service Board.

The current agreement expires at the end of this year, and Green Mountain Power and IBM negotiated a new EDA this fall after Green Mountain Power had reached an agreement on a long-term rate arrangement with the Public Service Department.

The EDA provides a small discount on a small portion of the power IBM consumes. The rate that IBM will pay, if approved, will cover all of our power costs in supplying IBM's incremental needs (estimated to be the last 15 percent of its consumption).

In addition, under the EDA, IBM will also contribute to Green Mountain Power's fixed costs. That means that other customers are not subsidizing the IBM plant.

There are, incidentally, about 50 other economic development agreements between utilities and other businesses in the state. Like all past IBM agreements, these agreements have all been approved by the Public Service Board as being in the public interest.

We believe that offering IBM a new Economic Development Agreement helps improve the competitive posture of its Vermont manufacturing facilities, which ultimately helps the state's economy and all of Green Mountain Power's customers.

It is important to bear in mind that the proposed EDA offers IBM a discount that we estimate will be about $500,000 per year on its total annual electricity bill of approximately $35 million. It is also important to know that when an EDA amendment was approved by the Public Service Board for the 2003 EDA, the agreement specifically stated that it can "significantly influence business retention in Vermont" and that "the availability of lower priced energy is a factor in maintaining production and employment at IBM's Vermont manufacturing facility."

The proposed 2004 EDA contains the exact same wording as the current one. The policy underlying the EDA has not changed.

Green Mountain Power last increased its rates in January 2001. Almost three years have passed since that time, and we, like any business, are experiencing increased costs.

We approached the department earlier this year with an analysis that supported increasing rates by 4.5 percent. Green Mountain Power eventually worked out a settlement with the department that reduced the size of the needed increase and spread it out over three years in the following way: No increase in 2004, a 1.9 percent increase in January 2005, and a 0.9 percent increase in January 2006.

In addition, we agreed to reduce and cap the return our shareholders will be allowed to receive for providing the capital dollars necessary to maintain service to our customers. We believe this long-term rate arrangement benefits both Green Mountain Power and its customers, as it provides a stable and predictable rate path with minimal increases.

If the rate settlement is approved, Green Mountain Power customers will experience no rate increases from January 2001 to January 2005 and rate increases totaling under 3 percent over the six-year period from January 2001 to January 2007.

The rate increases to all customers, including IBM, are caused by the cost increases we face in providing service to all our customers, whether or not the new EDA is approved.

The new rate cap plan and the IBM EDA are very beneficial to all our customers and to Vermont.
Stephen C. Terry is a senior vice president at Green Mountain Power Corp.