Crank Call
Energy-regulation policy is daunting stuff. Aside from a few industry lobbyists, die-hard policy wonks and stout-hearted activists, most people -- including journalists -- don't know squat about how electricity is controlled beyond flicking a light switch on and off. As long as our computers boot up on command and the monthly electric bill has fewer digits than a zip code, most of us don't know and don't care who's keeping an eye on the juice.
Thankfully, that arcane chore falls to the Vermont Public Service Board, a three-member, quasi-judicial body whose job it is to ensure that Vermonters get reliable electricity service at a fair and reasonable price. Basically, nothing happens to the state's utility rates without their say-so.
One can only wonder what the Board will have to say about the deal brokered recently between the Department of Public Service and Green Mountain Power, which supplies electricity to some 88,000 Vermont customers. The two entities just signed a Memorandum of Understanding that says, in effect, GMP will not raise its rates in 2004. However, rates will go up by 1.9 percent in January 2005 and by another 0.9 percent a year later -- pending approval by the Public Service Board, which is now reviewing the deal. According to GMP, these are modest increases that will cost the average residential customer about $1.50 more in 2005 and 80 cents more in 2006. The last GMP rate hike was in 2001.
What's raising eyebrows, however, is a special contract that's been linked to the deal on behalf of IBM. The arrangement is called an Economic Development Agreement, or EDA. Back to the mid-1990s, a number of large manufacturers around the state entered into EDAs, which offer lower-priced power as an incentive for new companies to relocate to Vermont, or for existing companies to expand their operations, both of which theoretically fuel job growth.
Economic Development Agreements typically last two or three years, during which time these companies buy energy at a lower price, but only for those sectors of their business that reflect new growth. So, for example, when IBM set up a new production line to manufacture an expanded memory chip, the company could purchase cheaper power just for that part of its facility. When the EDA expired, IBM could renegotiate the deal, but only if it had added more plant capacity. In other words, no new economic development, no agreement. Hence the name.
But although IBM hasn't added any new operations, the Department of Public Service is apparently willing to renew the company's current EDA when it expires at the end of December. And some folks want to know why. "When I got [the case file] and read it, my eyes popped," says Rep. Tony Klein (D-Montpelier), a former energy-industry lobbyist. "An EDA is for economic expansion. It's not for maintaining the status quo. IBM is not expanding, it's contracting. That's a big change in policy."
Another underlying principle of an EDA is that the cost of providing that cheaper energy is not borne by other ratepayers. So when large customers get the discounted rate -- and IBM is by far the largest, consuming more than one-fourth of GMP's electricity and contributing 17 percent to its total revenues -- presumably IBM's expanded operations benefit all GMP customers. Those additional revenues contribute to GMP's fixed costs, offset future rate increases and so on. It's supposed to be a win-win situation all around.
Not this time. Now it appears that other GMP customers are being asked to subsidize IBM's electric bill. During a Sept. 30 pre-hearing conference on the matter, Public Service Board Chairman Michael Dworkin raised this point to GMP's attorney, Donald Rendall, Jr. "I think I heard you just say that the special contract with IBM is dependent upon your ability to raise rates for all customers," Dworkin said.
"I would phrase it differently," said Rendall.
"I heard you phrase it differently," Dworkin replied, "but I think that's the content of what I heard."
Dworkin went on to say that while most rate hikes take effect 30 to 45 days after they're approved, "I think it's beyond any precedent that I know of to approve a rate increase that would take effect a few years in the future." Dworkin even questioned whether the Board has the authority to do so.
But GMP spokesperson Dorothy Schnure denies that this deal is a subsidy for IBM. "The whole point of this is really to help the economy of the state," Schnure says. "It benefits all our customers and makes them more financially stable."
What's this deal worth to Big Blue? According to Klein, somewhere in the neighborhood of $8 to $9 million. IBM puts the figure much lower, at about $500,000 to $700,000 per year. Meanwhile, the proposed rate hike for other GMP customers would amount to about $10 million, according to Klein.
No one is alleging that the parties to this deal did anything illegal or unethical. As Klein puts it, "GMP is not the bad guy. IBM is not the bad guy. If we believe that it's in the best public interest for all Vermonters to help IBM out -- and maybe we do -- that's a decision that should be made by the Legislature. That's not a decision that should be made in rate cases." And, he adds, that burden shouldn't be borne by GMP's customers alone but by all Vermonters.
Historically, Vermont has denied requests from businesses, schools, hospitals, police departments, farmers, the poor and other worthy recipients to subsidize their energy rates, all in the interest of fairness. If the Department of Public Service is going to depart from that tradition, the discussion should take place in the open. In language we can all understand.