MONTPELIER — State officials are mobilizing to explore the potential purchase of hydroelectric dams on the Connecticut and Deerfield Rivers, but plenty of obstacles remain in the way to complete a purchase the state passed on just over a decade ago.
TransCanada put the 13 dams on the market on March 17 as part of an effort to acquire Columbia Pipeline Group, a Texas-based firm that operates a natural gas pipeline between New York and the Gulf of Mexico, for $13 billion. The sale process involves a total of 4,600 megawatts of power in TransCanada’s northeast power portfolio, including the hydroelectric plants on the Connecticut and Deerfield Rivers that total 560 megawatts, according to spokeswoman Jennifer Link.
The move has prompted a bipartisan group of state officials, including Gov. Peter Shumlin and House Speaker Shap Smith, both Democrats, and Republican Lt. Gov. Phil Scott, to express interest in purchasing the dams through a state-owned power authority. A similar effort under former Gov. Jim Douglas was made in 2005, but TransCanada outbid the state with its $505 million offer.
Link said the sale of the dams, located in Bellows Falls, Vernon and Wilder, is being brokered by J.P. Morgan. The company cannot disclose what price it needs to receive to ensure the Columbia acquisition proceeds, she said.
“That is commercially sensitive information. However, we certainly want to ensure we get the best possible value for our shareholder,” she said.
The company is looking to close its deal with Columbia by the end of the year, according to Link. That leaves a short window for the state to act if it wants to purchase the dams.
Smith said he is hoping to sit down with the Shumlin administration and Treasurer Beth Pearce to begin exploring a state purchase. The dams could provide the state with a powerful economic development arrow in its quiver, he said.
“If you look at New York and the power that they generate through the authority that New York has set up, you understand their control of their energy future and it gives them some levers for economic development in setting electrical rates. I think it’s something that could be critical for us from an economics perspective,” Smith said. “Certainly, with regard to our goal of 90 percent renewables by 2050, I think it could be really helpful for us.”
Smith said he wants the state to complete an analysis of the dams to determine if it could generate enough revenue to support the purchase.
“I think it’s a long-term play for the state of Vermont. These dams probably would be good for another 100 years and over time my sense is that we would be able to sell it into the Vermont market. But, I think that’s one of the questions that we need to explore as we move forward,” the speaker said. “I do think that if we purchase these dams we would have some opportunities, particularly to create lower rates for industrial power users.”
Pearce said there is plenty of work to be completed before the state can determine if a purchase is in the state’s best interest.
“While this opportunity is exciting, before a decision can be made about next steps, a number of factors need to be analyzed. We must consider the appraisal of the assets, financing capacity and alternative cost structures and energy pricing assumptions,” Pearce said. “Understanding the details will give us the ability to assess the feasibility, and most importantly, the value to the taxpayer.”
Sen. Anthony Pollina, P/D-Washington, believes the state already has some money it can use to help finance the purchase. He helped secure a law that commits 10 percent of the state’s cash for in-state investments.
“The idea was that we would be able to set aside 10 percent of the state’s daily average balance, so 10 percent of what the state has in the bank, and invest it locally,” he said. “It amounts to about $35 million a year.”
The money is controlled by the state treasurer and has been used mostly to invest in affordable housing and energy projects.
“I would imagine that we could use some of that,” Pollina said. “Rather than just bonding and borrowing money, the state already has money, which could be directed towards purchasing the dams.”
Rep. Tony Klein, D-East Montpelier, the chairman of the House Energy and Natural Resources Committee, also favors exploring a state purchase and giving the idea its “due diligence.”
“After we do that, whether it’s feasible or not, I couldn’t tell you,” Klein said. “It would make sense because we would have a local, green, base-load source of power and it keeps the power … in the state. Taxes, revenue, jobs all stay in the state instead of exporting it out.”
But, Klein noted that Vermont utilities are locked into long-term power contracts, which means selling power generated by the dams within the state is not likely in the near-term.
“The downside would be if it was not possible for our in-state utilities to purchase a lot of this power. We would have to hopefully retain the contracts from out-of-state that purchase the power and hope that they are at a viable enough level to support the purchase price of it,” he said. “Taking what the market gives you is not a good way of long-term business.”
Klein also supported a state purchase in 2005.
“When these dams first came on the market it would have been a tremendous opportunity for the state of Vermont to purchase a large amount of in-state base load,” he said.
The opportunity was squandered by former Gov. James Douglas, whose administration was not supportive of the idea and did not offer a competitive bid, according to Klein.
“I think that, unfortunately, the cards were stacked against the opportunity and I think that there were many in the utility industry and in the administration at that point that were uncomfortable with public power and certainly created the scenario that said this was not a good idea to do,” he said.
Smith, too, said Douglas stymied a deal in 2005.
“I think you had a head of state government in Gov. Douglas who just wasn’t interested in purchasing the dams and I think that drove the decision,” Smith said. “We’re in a different time. Let’s see what the landscape looks like 10 or 11 years later. My view was that that was an asset that the state ought to own 10 years ago and I still think that’s true if we can make it work.”
Douglas, who was confronted with the same opportunity in 2005 but did not support a state purchase, remains unapologetic.
“I was unenthusiastic, frankly. My view was that energy generation and distribution was principally the province of the private sector … and ought to remain so,” he said.
Douglas said his administration “went through the process of looking at the possibilities” and considered an offer but was unable to produce a bid to compete with TransCanada. He said he did not want the state “to acquire a losing proposition.”
“I thought it was a fair process, an objective look at what would be a reasonable maximum price for the state acquiring it. I remained unenthusiastic and so did the treasurer at the time, Jeb Spaulding.”
The state’s offer would have doubled the state’s debt if it was accepted, according to Douglas.
“There’s the ideological argument and then there’s the financial argument. I was always concerned with the latter,” the former governor said.
Creating a state power authority with the capacity to seek bonds for the purchase of the dams will require legislative authority, Smith said. But lawmakers are slated to adjourn in early May — likely not enough time for officials to complete a detailed analysis. Smith said he would seek a special legislative session later in the year if the purchase proves to be a viable option for the state.
“If we think it’s something worth exploring, it’s a big enough deal where we could adjourn, continue to explore it, and then if the governor was supportive, I think it would be appropriate to have a special session. I think it’s that important. I think it’s a once-in-a-generation legacy moment,” he said.
Shumlin spokesman Scott Coriell said the governor will work with Pearce, Smith and others to determine the state’s capacity to purchase the dams. The administration is focused now on gathering information and has reached out to experts in the energy field, Coriell said.
“There certainly could be opportunity there. That’s why we’re looking at it so closely,” he said.
Scott, who is running for governor in a Republican primary, favors exploring a state purchase, according to his office. The campaign of his opponent, Bruce Lisman, did not respond to a request for comment.
On the Democratic side, all three candidates — Matt Dunne, Sue Minter and Peter Galbraith — have expressed an interest in the state