May 29, 2011 -- Mary Powell of Green Mountain Power joins Kristin Carlson and Anson Tebbetts to discuss GMP's new nuclear power deal, the Lowell wind project, Hydro-Quebec and power prices.
Good morning, everyone.
Our news maker this morning is Mary Powell, the president of Green Mountain Power. The company just inked a new long-term deal, the nuclear power plant in New Hampshire. We're going to talk to her about that and much more. Also joining us, of course, is Anson Tebbetts, thanks for being here.
Great to be here. Thank for asking me.
Lets talk about how did this all come about? I mean there's been a lot of news about Vermont Yankee and the uncertainty of that continuing. At what point did you folks turn to Seabrook and say, look, let's see if we can get a long-term deal together?
>> great question. For us, it really all goes back to the vision that we launched three years ago. As i was transitioning into the role of ceo of the company. And what happened when i was making that transition is the team at Green Mountain, we started working on what our vision was for what we wanted all of our work to be aimed towards, around power supply and around contracts that we might enter into. What we landed on is that we had a vision for the future for our customers, that we wanted to achieve what we call the trim bottom line of low-cost, low-carbon, and incredibly reliable power for our customers. So we endeavored to do that and what it was based on was the notion that we wanted to embrace nuclear power as a part of that strategy, and use it as a low-cost anchor in our portfolio, and we wanted to ramp off of that over an extended period of time while we ramped up cost effective renewable energy options, and we also wanted to engage in a new, more strategic partnership with hydro Quebec, so the vision was about moving towards what i call green, clean, cost-effective future for the Vermonters that we serve. So that really has formed pretty much everything we've done around energy supply over the last few years. So hydro-Quebec, we were able through a great cooperative effort with central Vermont public service and then governor Douglas to embrace a new, more strategic relationship with hydro-Quebec, which resulted in, as you know, a long-term power deal, but also resulted in a deeper strategic relationship around renewable energy and around the designation of hq power as renewable. So that was really important because, again, it was a very low carbon and in that case renewable form of energy that was also incredibly cost effective because of the partnership that we struck and the deal that we struck. The next piece, let me talk first about the other two parts itself and then I'll lead my way into the zeal we just announced this week. Period of time other part of it was ramping up cost effective renewable generation, and actually, we were remarking the other day that our goal at the time we set out this vision was to be about 13% premium renewable in our portfolio, but i think our original goal was somewhere around 20, 25, and i remember the press conference at the time, a lot of skepticism, a lot of questions about, jeez, do you really think you can get to that percentage in that period of time? And, you know, what's been amazing to see is the power of a team working on a vision, because once our kingdom community wind project is brought online, by 2013, we'll have 20% of our port tole yo in the premium renewable category, so we far exceeded our goal, both through our incredible efforts around solar generation, our 10,000 panels in a thousand days that we launched, our kingdom community wind project, and a couple other strategic cost-effective deals we've been able to do. So then turning to the nuclear option, we worked for a long period of time with Entergy, the owners of Vermont Yankee, and went able to, as you know, ever come to terms that seemed to work for all the parties, and at the same time, they have faced a lot of challenges in the state of Vermont and are currently embroiled in, you know, significant legal and regulatory issues. So a number of months ago, it became clear to us that we'd always worked on some other shorter term options but that we really needed to start moving more aggressively towards other long-term options because they just weren't an available option for us at the time. And that, through that, we ended up having conversations with next era energy, and we've done some transactions with them in the past for short-term, what are called system purchases, and they had actually mentioned to us, gee, if you'd ever hike to talk to us about power off of the Seabrook plant, we'd love to talk to you about that as well. So really, in about three months, we were able to come to terms in a way that we felt was mutually beneficial but from a Vermont perspective, an incredibly powerful contract that really delivers on cost-effective power, really is going to help the vermont economy, support vermont businesses, and job growth, while also respecting the needs of every single vermonter around pocketbook issues, so it's really about delivering low-cost power.
>> and is there a lot of places to get power now? This took, you said, three months to get together. Is there an abundance of power out there you can go get? Because the fear behind the scenes was always vermont yankee is going to shut down and vermont is going to be a really tough spot here, going to be more expensive, we rely on them so much, but it sounds like, hey, it's out there.
>> yeah. I think actually the truth is somewhere in the middle. To find meaningful long-term contracts like this, no, there aren't a ton of options for those kinds of transactions. You know, the market around power purchases tends to be more of a three to seven-year market and that is really what you will find more in abundance, so when folks say, well, there's a lot to choose from out there, that's true if you're really looking at the three to seven-year market. Those deals are pretty easy to strike, you can basically do your kind of classic rfp process and develop those kind of options relatively easy. I think it also -- let's also remember that the economy has really been struggling over the last few years nationally, so consumption has been down and so there's also been, i think, more availability in the market than there will be probably in future years when the economy picks back up. But developing these types of relationships, you know, in my experience, are more strategic and take more time. My first conversation with next era energy was about a year ago. I know their ceo who came to vermont. I've met him at association meetings over the years. I've been watching closely what their company does, it's a company that i respect. It's a company that i admire. They are the country's leading developer of renewable energy by far in the u.s. They have more renewable energy projects than anybody else in the country.
>> this is their only nuclear plant or is that --
>> i believe they own three, but on that, you might not want to quote me. On that, we might want to verify, but i think off the top of my head, i think it's three plants. You know, i think lou and his team also really see the importance of nuclear energy in terms of providing an important path to the future and, you know, and see it very supportive of also developing renewable energy, so yes. So they really -- i really got to know them in a more significant way about a year ago, and as i said, we've done a couple smaller, more market-based, shorter term transactions with them, and the relationship has grown. You know, when he was in vermont, he too remarked on it seems that it's a lot of similarities between the goals and the vision of their company and ours, which is really about growing renewable energy for the country.
>> governor shumlin supports this deal for many of the reasons you've said. Do you think there's some hypocrisy there though, because he was the person who led the fight to close vermont i can't think keerk but -- vermont i can't think keerk but now that the nuclear power plant is in new hampshire, he's okay with it.
>> the governor should speak for himself on that. From my perspective, i was not surprised that he was supportive of this deal at all. A, because i think he's right, it's really good for vermont's economy, a really important transaction in terms of job growth and supporting all of vermonters in terms of having an affordable budget, but, you know, i think as it relates to the plant in vermont, at least as i've always heard him, it's very specific to his concerns around that plant. You know, again, you should probably talk to him, but i've never heard him dismiss nuclear energy in a broad way. I've always heard him express issues around that particular plant.
>> so for your gmp customers, what does this mean for their rates? Because the initial price you look in with seabrook is actually lower than what you had with vermont yankee by not quite two cents, right?
>> actually, no, there was -- i think in one of the reports, there was a switching of the numbers. The existing contract will end a little bit less than the starting price of this contract, but candidly, it's what you could almost call rounding error.
>> okay. So for customers of gmp, does that mean their rates are going to hold steady now, or are there a lot of variables?
>> well, green mountain power customers now, our overall rates are pretty much i think for 99% of the population, the lowest in vermont, the overall rates. The overall rates as compared to new england, we, again, against our peer group, have the lowest overall rates. I think this means for our customers that we will continue to be in the position of providing very low rates as compare to other utilities in vermont and in new england. You know, into the foreseeable future. So i think that's really important. There are other things that put pressure on rates.
>> line upgrades?
>> well, yeah, i would say really the key driver over the last couple of years that you've seen and that you will see into the near future is really the costs coming home to root for transmission upgrades and not just in vermont. Actually, those are very small this terms of what actually hits vermonters, but it's that we're par of the new england grid and we share a part of the cost of any transmission that happens in new england and the infrastructure has all been aging at the same time as we've had tighter standards for reliability coming out of the federal government. So what that has meant, then there's been a lot of pressure on upgrades, line upgrades as you said, and other transmission projects. So that has been causing a consistent rate pressure and that will continue to cause some rate pressure. But, you know, our goal, again, is to make sure we're, you know, delivering as low cost a portfolio as we can in every category, and that's another reason why we've been so passionate about our wind project, because our project will be, you know, probably 20 to 30% less than any wind project we've been able to procure in the last few years in the context of doing some kind of power purchase agreement. So in the short-term, it's more cost effective for renewables, but then when you look out, if you take a longer view, as i think most of us should, but certainly those of us in this business really should always be taking a long view, you look out over the long view, because the utility owns and on behalf of the customers, once the initial cost of construction and the capital is paid off, it in essence is energy that is the most cost effective in our portfolio to provide. So to put a point on that, our hydro units that we own, that in the wisdom of folks who came way before me, were built, that power actually is the cheapest power in our portfolio. That power on average costs customers about three cents. So that's better than even this deal we've been able to strike and better than any deal available to us, but it's because they were built a long time ago. They're paid for, and all we pay now is the operation and the maintenance on those units, and capital improvements when necessary. And that cost of power flows straight through to customers at what it actually costs.
>> there are critics of this deal with seabrook, the conservation law foundation. One group referred to as nuclear as dirty and they would like you to get off that. How do you answer those critics?
>> well, i respect their views. I respect hearing from anybody with any kind of view that's different. You know, just backing up a little bit, i mean, i think both of those organizations, i mean, the public interest research group which is a national organization of which there are state chapters, if you will, you know, for 30 years, their long-standing policy is they oppose nuclear power of any form in any place in any state in the nation. So -- and they have their reasons for taking that position. Again, going back over 30 years ago. So that's a long-standing position. It's been a long-standing position of clf, which is also a larger organization, you know, so they're always in society, you know, if you talk about any issue, there's always organizations that work hard to push for something and there's always organizations that, you know, for good reasons and there's always good organizations that push hard, you know, a different view. So i respect that that's their view. I obviously don't agree. I believe that nuclear power plays a very important role in our future and is a really important, you know, as i've always described it, cost-effective, low-carbon bridge for us as we ramp up cost-effective vermont-own renewable energy. And that's our passion and what we've been doing and you're going to see a lot more of that from us. We've, you know, we've got a lot of plans to take steps even further than what we've already done.
>> vermont yankee is in for a legal battle now with the state over whether or not it can continue to operate. If they win, would gmp look to yankee for any source of power in the future?
>> we've always been open to talking to them. One of the things i know i described at the press conference for folks to understand is, you know, in the past, the portfolio was what i would coin fixed and full, so they were very large contractual arrangeses with hydro-quebec and vermont yankee and they pretty much almost fill the entire portfolio, and they were also very fixed pricing. And the portfolio of the future that we're creating is more flexible. It's more diverse. Besides the contract we signed with hydro-quebec, it wasn't as large as the one we had historically. The new contract we've done with seabrook starts at, you know, almost half of what we were currently taking off of vermont yankee, so that creates -- that created an opening in our portfolio for more renewable energy an and to ramp up other forms of energy p so what that really leaves is an opportunity, you know, we've created flexibility in the portfolio that we have room for future opportunities. So i like to say that the gap is gone because the gap that everybody has talked about for the last few years implies something that there's aur against si to fill it, it's a gap, fill the gap. There's no more urgency, which is the nice thing, but there still is room for strategic, important choices for the future. So i wouldn't rule that out if they work their way through their challenges. It is also our view that if vermont yankee does work its way through its challenges, whether or not we do a power purchase agreement with them or not, they still owe vermont what they promised when they bought the plant, which was that if they -- if their license is renewed, that they will share revenue with vermonters, which through gmp and central vermont public service, that they will share revenues through this mechanism called a revenue sharing agreement. So even if we don't have a power purchase agreement with them, with that revenue-sharing agreement that they signed when they purchased the plant, there would be financial value that we believe should come to vermonters as a result of their operating.
>> we're going to take a brief break and continue our discussion with green mountai
>> welcome back. We're continuing to talk with green mountain president mary powell about electric rates and where vermont will get its power from in the future, big issue facing the state.
>> let's talk about wind and what's happening in the kingdom there. That's before regulators now. There's some folks that live around that project that are still unhappy. They believe it really -- all they're going to get out of it, they're not going to get any really economic benefit out of it, may get some tax relief through some property taxes but really not a good thing for them, but just going to benefit someone away from them. Can you offer them any assurance that this project will benefit people that live near those proposed turbines?
>> all right. Great question, and you know, like anybody, i suppose, i'd love it if every single person embraced this project and loved it. But like most things in life, that is a great goal to work towards, but is awfully hard to achieve. I think whenever you're doing anything, you know, we worked really hard to make sure that we had support of the community when we were pursuing this project. In fact, i think as you know, there was -- it was our -- there was no requirement, it was our suggestion, it was our impetus that there should be a vote of the town of lowell as to whether or not they wanted this project because we really felt strongly that we didn't want to be in the community if they didn't want us there. And it was, it was striking, the percentage that came out to vote and the percentage that voted in favor of this project. We also had been working with the surrounding communities very hard to make sure that they understand all of the facts, all of the benefits, all of the challenges with having a wind farm in their communities, and in some cases, it's gone very well and in some cases, i've talked to many people. I sent something, offering that people can call me directly and some vermonters have, and i've talked to people cell about their -- directly about their issues and concerns, but we have work hard to try to answer those factually and in a way that is respectful, that again, people have different views about things. In terms of the hard facts of benefits, yeah, there are a lot of benefits to this project to the communities. You know, the most significant benefit is the one i mentioned around our passion here about cost-effective, renewable generation, and creating a future that not only delivers important renewable energy projects for vermonters, but does it in a way that is vermont-centric and adds value to vermonters.
>> how much is the projd cost per kilowatt hour for the lowell win farm.
>> i like to talk more in the context of how much lower it's been than what we've seen because in what we filed that's before the public service board, i think we had an estimate around ten cents, but you know, candidly, it's come down strikingly since that time. But we haven't filed anything officially on that. But it's a very good time to do it in terms of the economy and bargaining for different services that are a part of it and also just the equipment. So a lot of things have cut away that have may it even more attractive than it was when we first filed it, but that's not the only benefit. So that benefit that vermonters, our customers and vec customers will get that energy at cost, so that's one value. But the other value is that we agreed really to create something called the good neighbor fund, and we -- you know, with the town of lowell, they get a lot of benefits because just like you would if you built a hotel or anything else, there's tax revenue whenever you build anything, that goes to the town, so there's tax revenue, but we've also created a good neighbor fund where we try to share some of the value of the project over a period of time, so a number of the surrounding communities will also participate in this revenue that will come through the good neighbor fund that we set up. So that's another way. The other fact of it is, that we had a study done by, i believe it was by tom cavett and jeff cart to look at the economic impact and it's quite significant. You know, going through the process of building the project, there will be, you know, 700 jobs working to get this to happen. Some of that is expertise from, from out of state because there are folks who actually have built a number, most of the wind farms in new england and we know they can do it as flawlessly as possible, but there's a lot of other work that goes on much like when j. Peak did their big construction and expansion and it really created quite a boone for the area and our project will do much the same thing. So there's really also that benefit and again, if you have -- if you take it all a longer view, certainly as i do, as i should in my business, it really, then, creates great value over time because the initial cost is simply that it's expensive to build anything, right? And you have to raise capital and you have to raise debt to do that, and you have to pay for that just like you would if you bought a house or did anything else, and then once it's paid for, that's when the benefits, you know, flow through even in a more significant way.
>> how reliable is it, though? I mean, some days the wind blows and some days it doesn't. You talk about solar, half the time it's dark. S how can you say it's reliable, unlike nuclear where the switch is on most of the time?
>> great question. So what you have to do when you think about reliability, it's really about making sure that you have, from a grid perspective, you have all the right parts and pieces so that you can serve customers 24/7 because that's what we all want, right? It doesn't mean that -- we have some sources that fit in our system, that frankly run maybe 15 hours a year for when the state hits a peak, right? And then you need those generators. You don't need them any other time of the year except maybe 15 hours a year, 20 hours a year, but it's important because when you're hitting that peak and everything else in the system is runner, you still need those peakers, so there's a role for all different forms of generation and the key is to make sure that it works, that it work well together, which in the context of wind energy, it fits in very well with our portfolio. It fits in very well in terms of other forms of generation that we have available to us. Solar has a particular sweet spot in vermont because when we hit a peak, back to that peak, when we're turning on generally fossil-fire units to support the peak demand, that's when solar is producing. I mean the reason we did our solar gmp rate is, a, we wanted to incent customers to build solar, but b, it made economic sense because when solar is producing, those are the days when vermont needs that production and that's when it's hot and sunny. Those are the days we hit our peaks, we're a summer-peaking state. So it's really about having the right complement, you know. And having it integrated and working well. And the other piece that will really help us is the work that we're doing through the -- what's called the smart grid work, because that helps run the system even more efficiently because you have better mechanisms for understanding load flows and what's coming on and putting things on and turning things off and running it as efficiently as possible for vermonters.
>> would a lot of these projects be happening without -- if the government hadn't made it more favorable? I mean, there's been a lot of incentives out there both for the homeowner and to do these. If they were so cost-effective, why aren't people doing in them?
>> very quickly, we're almost out of time.
>> so answer your question, the reason the incentives were designed were to get people to do it because whenever there's new technologies, in particular a lot of times you have to help getting to consumer acceptance and that tipping point where folks will do that on their own.
>> we have to leave it there, unfortunately. Mary powell, the president of green mountain power. Thanks for joining us and thank you for watching us at home. Have a great sunday, everyone. Captioning provided by caption associates, llc www.captionassociates.com