Posted on 11/01/2003 10:20:30 PM PST by Straight Vermonter
MONTPELIER — The Douglas administration has made a deal with Green Mountain Power Corp. that would raise rates for its customers while providing new discounts for IBM.
The agreement between the state’s Public Service Department and GMP is part of the administration’s campaign to keep IBM — Vermont’s largest private employer and Chittenden County’s key economic engine — happy.
Critics of the deal, though, say the discounts for IBM would come at a cost for the utility’s other 80,000 customers.
Documents on file at the Public Service Board, which must rule on the proposals, outline a new “economic development agreement” between GMP and IBM to take effect Jan. 1. Its precise terms are secret, although it is clear it is designed to lower the price IBM pays for power.
In order for the discounts to take effect, GMP and the Department of Public Service have told the board, the company will need to raise rates for its 80,000 customers by up to 1.9 percent in January of 2005 and another 0.9 percent a year later — bringing in roughly an extra $10 million during those two years.
David O’Brien, commissioner of the Department of Public Service, sought in an interview to minimize the link between the rate increases and the discounts for IBM.
But documents on file at the Public Service Board say one can’t happen without the other.
The rate increases “will permit Green Mountain Power to have the financial ability to offer IBM the terms of the proposed EDA (economic development agreement),” GMP energy planner James Brown said in written testimony filed at the board.
IBM has long cited high electric costs at its Vermont plants as one of the chief handicaps of doing business in the state.
The company has cut about 2,300 jobs in Vermont since 2001, leaving its current work force at about 6,200. In addition to trying to lower IBM’s electric bills, the Douglas administration has pushed hard to continue construction on the long-stalled Chittenden County Circumferential Highway, a $140 million project that IBM has supported.
“I’m determined to address those competitive disadvantages and increase the likelihood that the company will make a commitment to Vermont in the future,” Gov. James Douglas said at a news conference shortly after a layoff announcement in August.
The documents on file at the PSB appear to represent key changes in the direction of Vermont energy policy.
Rate breaks under the economic development agreements, or EDAs, historically have been as high as 90 percent from industrial rates that are already well below those paid by residents. They have been based on promises that the business in question will expand and add jobs. It’s the increased electricity usage triggered by the expansion that has been eligible for the discounts.
But IBM isn’t expanding. It announced 514 permanent job cuts just two months ago. And GMP’s Brown cited “IBM’s current projection that electricity consumption is not likely to increase materially over the next three years.”
O’Brien and IBM spokesman Jeff Couture said the main goal for now is not expansion but retention of existing business activity at IBM’s facilities in Essex Junction, Essex Town and Williston.
The goal of job retention, rather than expansion, for the discounts would mark a change from previous board policy.
When the board approved GMP’s first economic development agreement in 1992, it made clear that only new electric demand tied to new business growth was eligible for the extra discounts. “For existing customers, only the new load portion would be entitled to the discount,” the board said.
The board’s 1992 order said “the new load must produce a certified number of new jobs. The participating business must coordinate with a regional development corporation and that agency would certify the business is creating meaningful employment in the area and those jobs are the result of new load being added.”
Frank Cioffi, president of the Greater Burlington Industrial Corp., said he met with GMP and IBM officials to discuss the new economic development agreement. “There were not specific jobs that were discussed in the meeting that we were involved in,” he said.
A second major policy change seen by some observers, but disputed by O’Brien, would be a possible move toward a cross-subsidy for one ratepayer at the expense of others.
Richard Cowart, former chairman of the Public Service Board, said the board has long insisted on a policy in which electric rates would be based solely on the cost of providing the power to the customer.
“I went to the Legislature and testified against discounts for ... farmers, low-income customers, schools, hospitals,” Cowart said. “These are all important public-policy objectives, but the long-standing policy in Vermont has been cost-based ratemaking.”
Rep. Tony Klein, D-East Montpelier, said it might be reasonable to provide a subsidy to help retain jobs at IBM. But he said that should be a matter to be decided by lawmakers, and not in a utility rate case.
“Every Vermonter should be responsible for paying for it and not just 80,000 GMP customers,” Klein said.
O’Brien and Couture said there would be no subsidy from other ratepayers for IBM. “That’s not the case here, because these rates are recovering the cost of service,” O’Brien said.
Klein argued that the subsidy should be made obvious by GMP’s statements that it needs to raise general rates in order to afford the IBM price breaks.
Other observers said the truth of the matter would have to be determined after careful scrutiny of the secret numbers by the board. And the board itself appears to have its suspicions.
After GMP lawyer Donald Rendall explained the company’s view of the link between its agreements with the Department of Public Service and IBM at a recent conference, board Chairman Michael Dworkin said, “I think I just heard you say the special contract with IBM is dependent upon your ability to raise rates for all customers.”
Rendall replied, “I would phrase it differently.”
Dworkin said, “I heard you phrase it differently, but I think that’s the content of what I heard.”
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