Power in Play
The risks and rewards of privatizing Burlington Electric
The sun is setting on the Joseph C. McNeil Generating Station in Burlington’s Intervale, and houses and street lamps overlooking the plant are starting to light up. Inside, shift supervisor Frank Vigneau sits in a second-floor control room. His job is to make sure those twinkling lights on the hill never go out unexpectedly.
From his workstation, Vigneau keeps an eye on virtually everything happening at the 46-acre facility. Closed-circuit TV cameras monitor conveyor belts that shovel 76 tons of wood chips per hour into the furnace. Computer screens show the temperature and pressure levels of superheated steam that drives the massive turbine, as well as the mix of gases going up the smokestack — “all the important stuff,” he says.
One crucial number in the room is found on a clipboard hanging on the wall behind Vigneau. It contains McNeil’s marching orders from ISO New England, which manages the entire region’s wholesale energy market. On this particular day, it indicates McNeil will run at 50 megawatts, enough juice to keep the entire city of Burlington humming on a typical autumn day.
But only 25 megawatts of that power will go to Burlington Electric Department, Vermont’s largest municipal utility, which owns 50 percent of McNeil. The rest is fed into the power grid and consumed by McNeil’s other owners: Green Mountain Power, Central Vermont Public Service and the Vermont Public Power Supply Authority — the last a conglomerate of 12 smaller utilities around the state.
Just outside the control room, at the foot of a 10-story-tall boiler, plant manager John Irving shouts to be heard over the deafening roar of the furnace and the 183-ton turbine generator that rumbles the floor beneath us.
“We’re the only major generating source in the load pocket of Vermont,” he yells, referring to Chittenden County, Vermont’s biggest energy user. “So when there’s a big storm, like the hurricane or the ice storm ... we’re the ones who are going to keep the lights on at the hospital and the city, not Vermont Yankee.” During the Northeast blackout of 2003, for example, it was McNeil that kept Burlington lit while most of New England was dark.
Irving has been at the plant since it was on the drawing board — literally. A mechanical engineer, he worked at the Boston firm that designed McNeil and joined BED while the facility was still under construction. It opened in 1984 and is still one of the world’s largest wood-fired power plants.
“I came here in spite of the fact that it was municipally owned,” says Irving, admitting he was skeptical a city department could run the plant as efficiently as private industry could. “But right now, I think it’s the best utility in the state of Vermont to work for, no doubt in my mind. They just have their priorities straight.”
Little wonder that many of BED’s 125 employees were blindsided last month when Republican mayoral candidate Kurt Wright proposed selling the utility, including its 50 percent stake in McNeil. BED General Manager Barb Grimes says Wright gave her just five minutes’ heads-up before announcing the plan, the centerpiece of his mayoral bid, on October 19.
What was the reaction of BED’s 90 union members?
“Shock and awe,” says Jeffrey Wimette, business manager at the International Brotherhood of Electrical Workers Local 300. “It seems foolish to sell it ... It’s not like they’re getting money from the police department or the fire department.” Wimette is referring to the $2 million in PILOT, or payments in lieu of taxes, Burlington receives each year from BED and McNeil.
The Queen City has many jewels in its crown: Church Street, the Intervale and the Burlington Bike Path, to name a few. But as Burlington municipal departments go, it would be hard to identify one that shines as brightly as BED. Indeed, as Wright often points out, it’s BED’s efficiency, profitability and commitment to green energy that would make it such an attractive asset to prospective buyers. So why does he want to sell it?
“I don’t want to sell it,” he stresses. “I’m not eager to ... run down there and throw a ‘for sale’ sign on the front lawn of BED if I get elected,” Wright explains. “It’s because of the financial condition we’re in that it’s necessary to consider something like this.”
That “financial condition” includes Burlington Telecom’s $50 million debt, an unfunded pension-fund obligation of about $48 million and nearly $10 million owed on the parking garage at Burlington International Airport. Wright also points out that another “several million” is required for much-needed repairs to the Burlington Bike Path, a major tourist draw for the city, as well as long-overdue upgrades and improvements to Burlington public schools.
Wright’s proposal certainly sparked a reaction. Three of the four Democratic challengers lambasted the idea, calling it “totally half baked” (Tim Ashe), “ill informed” (Bram Kranichfeld) and “financial malpractice” (Jason Lorber). Progressive Mayor Bob Kiss called it “shortsighted and irresponsible.” Only Miro Weinberger seemed willing to consider such a “highly unpleasant option” as a way of digging Burlington out of its fiscal hole.
But Wright remains undeterred. “The campaign platitudes that people could get by on in other times and in other campaigns won’t work this time,” he says. “We have to start moving in the direction of solving problems in Burlington. And we can’t have any sacred cows taken off the table.”
For now, it won’t be. Regardless of which Democrat wins the caucus, on Sunday, November 13, the proposed sale of BED will remain an issue throughout the mayor’s race — and possibly beyond.
Could an investor-owned utility run BED as efficiently as it’s currently operated, with the same commitment to renewable energy as BED? Wright certainly thinks so. He suggests that Colchester-based GMP, soon to be the state’s largest utility, is the most obvious suitor. GMP is a known commodity, a well-managed Vermont company with an environmental ethos similar to Burlington’s. And, with the financial muscle of its Canadian parent, Gaz Métro, it could pull off such a hefty purchase, Wright suggests, possibly offering rates even better than BED’s.
The problem is, GMP President and CEO Mary Powell says she’s not interested — at least for now. In light of GMP’s ongoing merger with CVPS, as well as the Kingdom Community Wind project now under construction on Lowell Mountain, “We don’t have any appetite to be pursuing other transactions” at this time, she reports.
Could that position change in three to five years?
“We’d be happy to talk to folks, if there was this huge groundswell of interest,” Powell says. “But candidly, our view has always been that Burlington takes great pride in its municipal utility.” Furthermore, few in the utility industry expect Bernie Sanders, Vermont’s socialist senator and former Burlington mayor, to let a publicly owned utility in his own backyard get privatized without a fight.
Nevertheless, other utilities, including some from outside Vermont, may be interested and wouldn’t necessarily need to have operations that abut Burlington, as GMP does. In fact, BED and Stowe Electric once considered a merger.
Before Burlingtonians can decide what to do with BED — any such sale would be determined by a citywide vote — they first need to understand the difference between a municipally owned utility, or “muni,” and an investor-owned utility, or “IOU.” Grimes, a former state legislator who’s been at BED since March 1999, is pleased to explain. She has a reputation as a politically astute, no-bullshit boss who can be gentle but tough — like a cross between your grandmother and a parole officer. Sporting a hard hat and high heels, Grimes offers a spicy analogy to make her point.
A gynecologist and an auto mechanic are taking a class in advanced car repair, she offers. Tasked with repairing a transmission, both do it equally well. But when the gynecologist gets a higher grade on the test, the mechanic complains. As the instructor explains, “The gynecologist did the entire job through the muffler.”
BED, Grimes says, does all its business “through the muffler.” That is, a muni is constrained by much tighter scrutiny and greater transparency than private utilities. Every email, report and financial statement is subject to open-records requests.
“Trust me,” she says, “Investor-owned utilities do not have their board meetings televised on Channel 17.”
Consider the process of getting a rate increase approved. When investor-owned CVPS wants to charge more for power, company executives put together a proposal and have their attorneys plead their case before the Vermont Public Service Board.
The process is more complicated for BED. First, Grimes must go before and seek approval from the Burlington Electric Commission, a five-member citizen panel appointed by the city council to represent ratepayers. If the commission OKs the rate hike, the proposal moves on to the finance committee, which can either recommend it to the full city council or reject it. Only after the entire city council OKs it can the rate increase go before the PSB for final approval. At any point, Grimes says, commissioners, citizens or city councilors can try to scuttle the deal.
Spencer Newman, who currently chairs the Burlington Electric Commission, says most Burlingtonians probably don’t realize how much say they have over their own power supply. Daryl Santerre, BED’s chief financial officer, sits down with commissioners every month to review the finances. An independent accounting firm, KPMG, audits BED once a year and delivers its findings directly to the commissioners, not BED management.
“It’s a great model to look at for citizen government,” Newman says. “In the end, Burlington citizens get to decide exactly what happens.”
How much could those citizens get for BED? Wright estimates the utility’s book value, after all outstanding debts are paid off, at somewhere between $65 million and $125 million. And, as he puts it, there would be no “fire sale” of the utility.
Grimes puts the figure closer to $50 million to $55 million. “Not that we’d ever sell it for that, of course,” Grimes emphasizes, suggesting its book value would only be a starting point in the negotiations. She likens the discrepancy between her figures and Wright’s to the difference between what the city assessor says your house is worth and the price you would accept to sell it.
Wright has also said that any prospective buyer must guarantee that customer rates are “comparable to” BED’s. Two Vermont utility executives, both of whom asked not to be identified for this story, suggest that Burlington customers probably could pay lower rates if BED were sold to an IOU. For example, GMP and CVPS, both investor owned, charge lower residential rates than BED. In fact, those executives note that BED has some of the highest rates in the state.
What would enable BED to charge less? Economies of scale. A corporate parent would likely reduce BED’s overhead by getting rid of management positions and consolidating operations. Presumably, an IOU would also have an easier time financing deals. Borrowing money has gotten tougher for BED since January, when Moody’s downgraded Burlington’s credit rating.
Grimes counters that the cost per kilowatt-hour is a less important figure than the typical bill paid by the average residential customer. By that measure, she argues, Burlington residents pay some of the lowest utility bills in the state — lower than both CVPS and GMP, according to figures from the Department of Public Service. Why? Because BED has spent the last 20 years investing heavily in efficiency, allowing its customers to use less energy.
Back in 1990, Burlington voters approved an $11.3 million energy-efficiency bond, much of which was spent in the public schools. BED ratepayers financed those improvements, but the investment has more than paid for itself. Overall ,electricity usage in 2009 was only 2 percent higher than it was in 1989. In fact, BED’s overall investment in efficiency saved Burlington customers more than $10.1 million in 2009 alone, according to data from the Burlington Electric Commission.
Supporters of public power like to point out another thing about BED: Its “value” extends beyond what it saves residents in dollars and cents. In 1991, the Burlington Electric Commission and city council asked voters to consider a proposal by Hydro-Québec to sell the city low-cost power.
Doug Hoffer, who chaired the Burlington Electric Commission from 1995 to 2000, recalls the public debate over the proposed Hydro-Québec contract, which soon focused on the disastrous impact the hydroelectric dams, known as the Great Whale Megaproject, would have on thousands of native Cree and Inuit people in northern Québec. Matthew Coon Come, grand chief of the Cree, addressed the council in person in order to drive that point home.
In October 1991, Burlingtonians rejected the Hydro-Québec deal by a vote of 58 to 42 percent. Although Burlington’s share of the contract — 15 megawatts — was just a small fraction of the 325-megawatt deal with 17 Vermont utilities, the vote was a symbolic victory: Burlingtonians rejected a project that would disrupt the lives of thousands of indigenous people, even if it meant higher energy bills. As Hoffer puts it, “There was a reservoir of trust in BED because they’re local ... But if you’re not a muni, you don’t get to make those decisions.”
A similar vote occurred in 2004 when the Burlington Electric Commission expressed concern that the city was too heavily invested in the Vermont Yankee nuclear plant in Vernon. At the time, Vermont Yankee made up 40 percent of BED’s total energy portfolio, and every time the plant shut down unexpectedly, Grimes says BED was “paying through the nose” on the spot-energy market to make up the shortfall.
With voter approval, Grimes was allowed to negotiate BED out of its nuclear contract. Today, more than half of BED’s energy load comes from renewable sources, including hydro, solar and wind. In fact, the Burlington Electric Commission has since directed BED to commit to a 100 percent renewable portfolio by 2020, a goal Grimes firmly believes will be achieved.
And BED is well positioned to add more local, renewable energy to its mix. In 2014, Grimes notes, BED’s debt on the McNeil plant will be fully paid off, freeing up resources for new investments. BED also has the right of first refusal to buy back the Winooski Hydroelectric Project, the 7.4-megawatt generator on the Winooski River.
“Are we going to treat this like the Connecticut River dams?” Grimes asks, referring to former governor Jim Douglas’ decision to pass on a similar option. “Opportunities like this don’t come along that often.” Presumably, that decision would go to the voters if BED remains a muni. As an investor-owned utility, the company’s management would make that determination.
Selling BED to an investor-owned utility would have one consequence even Wright can’t ignore: a loss of jobs. The GOP contender acknowledges that job cuts would be “likely” but “I don’t think there would be a ton ... You’d probably just lose a few managers.”
But one utility executive suggests those cuts could go deeper, depending on the buyer. Part of BED’s appeal is that it has a high density of customers in a small geographic area. A major cost driver for utilities is the number of miles of overhead power lines it needs to maintain. A corporate owner may try to get by with fewer “boots on the pole,” this executive explains.
Those “boots” earn good wages, which helps explain why the average BED employee has been on the job for more than 20 years. According to IBEW’s Wimette, a typical meter reader earns about $24 per hour; line workers get paid between $28 and $34 per hour.
In addition to the 40 BED employees on site at McNeil, the plant also supports another 70 or so workers in the field, including train operators (75 percent of the plant’s wood chips arrive by rail), loggers and foresters, who ensure the wood is harvested sustainably. Though McNeil can also run on oil and natural gas, wood chips from forests throughout Vermont and northern New York are its primary fuel source.
It’s unclear what a new buyer would do with wood-burning McNeil. As Grimes recalls, her first vote in April 1999 as a representative on McNeil’s joint ownership board was whether to mothball the plant — a proposal favored by CVPS and GMP. At the time, McNeil was running at only 25 to 30 percent capacity because fluctuating oil prices were setting nationwide energy prices, making its wood-dependent operations less financially desirable.
Grimes voted to keep the plant up and running. Less than a year later, she points out, “Enron exploded, California imploded and we never looked back.”
Regardless of whether Wright gets elected, his proposal has already tripped some breakers at BED. Both Grimes and Wimette confirm that a tentative deal reached between the union and management over company retirement benefits was scuttled due to uncertainties about BED’s future. “If you’re going to solve your problems by selling us, why do I need to give up my pension?” is all Wimette will say. That dispute now goes to fact finding and arbitration, Grimes notes, which will cost ratepayers additional money.
In the end, the electricity business is very simple: Whether it’s from BED or one of Vermont’s 19 other utilities, customers want reliable power at an affordable price. As Burlington Electric Commissioner Newman points out, it’s not like the government has one flavor — vanilla — and for-profit corporations offer 10 different flavors. So does it even matter who owns BED?
“Electricity is almost as important as air, water and the food we eat. Obviously, we think so, because we tightly control it and regulate it,” says Rep. Tony Klein (D-East Montpelier), who chairs the House Natural Resources and Energy Committee. BED’s legacy suggests that competition is not the only route to efficiency and innovation. “So what’s the benefit of private ownership?” he asks rhetorically.
Evidently, Grimes doesn’t see any.
“I would remind you that the mayor of the city of Burlington in 1905 did not like the commercial utility that was serving the city and created Burlington Electric,” she says. “I think over the 106 years we’ve been in existence, we’ve proven to be a valuable asset for this city.”
When Burlington voters go to the polls in the first week of March, their vote may very well decide whether it’s worth more to hold on to BED’s power or give it up.