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December 20, 2009

Vermont Yankee - Is The Price Right?

Vermont electric utilities promptly pronounced Vermont Yankee's offer of an initial 6.1 cents per kilowatt-hour(kwh) for 115 megawatts (Mw) of capacity inadequate. They are bargaining, as they should be, and are likely to end up with a better deal than Yankee's public offer which the plant's owners made clear was subject to negotiation.

The fact that we will probably end up paying LESS than 6.1 cents/kwh is a tribute to how cheaply power can be produced from an existing nuclear plant, even though it is a big increase over the 4.2 cents/kwh we're paying Yankee now. As I'm sure Yankee intended, this offer makes clear why petroleum-independent, CO2-free, made-in-Vermont nuclear power belongs in our energy mix and why we should get on with relicensing the plant subject to all the usual safety constraints.

Mary Powell, CEO of Green Mountain Power and one of those negotiating for a better deal, is quoted in the Burlington Free Press: "Now with Entergy making their offer public, others can weigh in. We hope that this conversation will lead to a reasonable conclusion that supports the relicensing of Vermont Yankee."

As part of the conversation Mary calls for, let's look at some of the alternatives:

The price of spot power changes every five minutes and daily highs can easily be many times daily lows. The recession has driven spot prices down; but, at the moment at noon on a cold Sunday with a blizzard to our south, spot price are running about 11 cents/kwh (if you like numbers, you can watch the prices in realtime at www.iso-ne.com). During the last few months the average spot price has been below 5 cents/kwh, however. When the economy recovers and/or the price of natural gas increases, these prices will go up as well. If Yankee's 540Mw of capacity were to disappear from the mix, it is reasonable to assume a substantial increase in local spot prices. Making a long term contract is always something of a gamble. Typically utilities buy some of their power under long term contracts and some on the spot market.

We currently pay Hydro-Quebec about 6 cents/kwh for clean power under a contract which is coming up for renegotiation. This is also clean, petroleum-independent, reliable baseload power and originates in a friendly place even if not made here. Like Yankee, Hydro-Quebec supplies about a third of the electricity we use in Vermont. No telling yet what price we'll be able to renegotiate that contract at; but you can be sure that, if Yankee is not relicensed, the power from HQ will cost us more per kwh than if Yankee is in the competitive mix. We may be able to get more power from HQ since they're building more capacity; that would be a good thing.

Last year the Vermont legislature passed something called a "feed in tariff" meant to accelerate the growth of renewable power sources in Vermont. This tariff guarantees builders of certain types of renewable energy plant rates for the next 20 years which are supposed to be high enough to make building these facilities (which already receive other substantial subsidies) economically feasible. Utilities must buy the power from the producers at these rates, no negotiation allowed. Here are the prices as set by the legislation and affirmed and calculated (for now) by the Public Service Board (PSB) as necessary to incent the development of generating capacity:

  • Solar photovoltaic: 30 cents/kwh
  • Wind: 20 cents/kwh from generators of under 15 kilowatts of capacity; 12.5 for larger capacity
  • Methane: 16 cents/kwh from a farm; 12 from a landfill
  • Biomass: 12.5 cents/kwh
  • Hydro: 12.5 cents/kwh

The prices above are all wholesale. At retail most Vermont residences pay around 15 cent/kwh.

Although some people are opposed to nuclear power under any circumstances, what's clear from all this is that there is no economic reason NOT to relicense Yankee now that we know the asking price for the power. It is likely to remain the cheapest source we have for both energy independence and CO2-free electricity and keeps competitive prices (but not legislated prices) down as well. Nor should or will Vermont utilities quickly agree to a deal – the issues are actually more complex than just starting price and quantity.

The legislature threatening to withhold relicensing is not an effective negotiating tactic, both because we are holding a gun to our own heads as well as to Yankee's and because a legislature of 180 people has too many different agendas to negotiate effectively.

Also from The Free Press: "State Public Service Commissioner David O'Brien said while the offer released Friday could be better, this should be enough to spur legislators to take a vote and leave the details up to the Public Service Board, which has greater expertise and the ability to take sworn testimony."

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