The
Morrisville Village Trustees called a Special Village meeting for Monday
evening, October 2, 2006. The Trustees
seek authorization from Village residents to enter into a long term Power
Supply Agreement (PSA) with the Vermont Public Power Supply Authority (VPPSA).
Craig Myotte, the new general manager of MWL, said a Village vote is necessary
because Vermont Law requires voter approval for any contract exceeding 5 years.
VPPSA,
an authority created by the State of Vermont whose 14 members are the
municipally owned electric distribution companies in Vermont, plans to
construct a 40 mW gas-fired generating plant in Swanton, Vermont. The plant, known as a “peaker” unit, will
only operate during high (peak) demand times for energy. Traditionally, electric costs are divided
between energy and demand. Energy is the actual usage of kilowatt-hours
(kWh). Demand represents the peak or
highest level of energy used (demanded) at a particular point in time and is
measured in kilowatts (kW). Electric
utilities must have sufficient capacity available to meet the peak demand plus
a reserve margin. Demand pricing works like a ratchet in that the demand rate
which distribution utilities, i.e., Morrisville Water & Light Department,
pay for the transmission of energy that it receives to meet customer demand is
based upon the annual peak demand set for the utility system.
The
Federal Energy Regulatory Commission (FERC) is forcing regional pricing
agencies (ISO-New England for New England utilities) to set the demand rates to
reward those utilities that are closer to generating facilities and to charge
higher costs to utilities that are further from generating facilities. FERC is
also trying to assure that sufficient generating capacity is available in
regional areas to meet peak demands for that area. This is part of the
attractiveness of the Swanton plant as it is a Vermont project that will be
priced to benefit Vermont utilities, especially the municipal members of VPPSA.
The
planned Swanton generator, known as VPPSA Project #10, is designed to meet
these emerging market conditions. VPPSA
members will be voting to purchase their share of the capacity and energy, when
the plant actually operates, from VPPSA. VPPSA will own and operate the plant
and all revenues and expenses will be distributed to those members that agree
to enter the project. Total development
and construction costs of the project are estimated at $15.5 million. In excess of 60% of these costs are fixed by
contracts that are already in hand so it is unlikely for the project to incur
any cost over-runs in excess of the contingencies already built into the cost
estimates. Project costs will be financed through a VPPSA bond issue. The cost
will be amortized over the life of the project. There will be no taxpayer funds used to finance or pay for the
operating costs of this project. The
revenues of each utility company are used to meet their share of these
costs. The project is projected to go
on-line in December 2007.
Myotte,
who serves on the VPPSA Board of Directors, went on to say that MWL seeks
approval to purchase up to 9% of the project. However, MWL’s ownership would be
less if all VPPSA members agree to enter into the project, which is most
likely. In its economic analysis of the
project VPPSA used three market projections prepared by unrelated experts, one
of which was the Vermont Department of Public Service. These projections place the 20-year price
forecast for capacity at an average of about $8.21 per kilowatt-month. The projected cost for Project 10 is
approximately $3.93 per kilowatt-month resulting in considerable savings for
participants in this project. If existing market prices continue to hold, which
no one expects will happen, for the next 20-years the average capacity costs
would be approximately $3.49 per kilowatt-month. This unlikely possibility means that participants would pay
slightly more for capacity costs. This
represents relatively little downside risk compared to the potential savings on
the part of Project 10 participants.