Vermont’s two largest utilities today signed a memorandum of understanding with provincial utility Hydro-Québec that sets the stage for a new power supply contract for Vermont customers.
Vermont Gov. Jim Douglas hailed the accord, which he said would be good for Vermont and Québec. “Reaching a new long-term agreement with Hydro-Québec is a good deal for ratepayers and strengthens the state’s economic future,” Douglas said. “This new contract will provide stable, clean, renewable power at a competitive price through 2038. Energy trade is the centerpiece of our longstanding and valued trading relationship with the Province of Quebec – a relationship that Lt. Gov. Dubie and I have worked hard to strengthen over the past seven years. The agreement reached today is the result of many hours of hard work by my administration working in a collaborative fashion with CVPS and GMP.”
“Québec and Vermont have an established relationship in multiple sectors. Today's agreement is yet another example of this collaboration. Under this agreement Québec will continue to provide clean renewable electricity to Vermont. Today Québec strengthens its commercial ties with Vermont; together we continue to pursue the fight against climate change,” said Jean Charest, Premier of Québec.
Central Vermont Public Service and Green Mountain Power seek similar volumes to what they receive from Hydro-Québec today, and to make power available to other Vermont utilities.
Under the MOU, the term sheet is confidential to protect market-sensitive information, but the companies announced that they anticipate purchases totaling up to about 225 megawatts starting in November 2012 and ending in 2038. The term sheet includes a price-smoothing mechanism that will shield customers from volatile market spikes over this period.
“This agreement sets the stage for a new contract that will help us maintain what is arguably the cleanest power supply in the nation, while ensuring a relatively stable and affordable future for our customers,” CVPS President Bob Young and GMP President Mary Powell said in a joint statement. “It continues a relationship that has helped us provide competitive rates in the northeast, with minimal air and greenhouse impacts. This is an enormous step forward as we continue to plan Vermont’s energy future.”
“This agreement is the natural extension of a business relationship that has benefited both Hydro-Québec and our Vermont customers,” said Thierry Vandal, President and Chief Executive Officer of Hydro-Québec. “It will allow us to optimize our exports of clean renewable electricity, and Vermonters will continue to benefit from a reliable energy source at a stable and competitive price.”
Under the accord, announced at a meeting with Premier Charest and Gov. Douglas, CVPS, GMP and Hydro-Québec will negotiate final terms of the agreement over the next few months. The final 26-year agreement is expected to provide broad, scheduled energy delivery at a good value for customers.
“The market is extremely volatile, with tremendous highs and lows,” the companies said. “The contract will tend to keep Vermont’s purchases near the middle of the market, protecting Vermont consumers from the highest price swings and Hydro-Québec from the lowest price swings.”
Young said the memorandum of understanding will help secure a major segment of CVPS’s power supply as existing contracts with Hydro-Québec and Vermont Yankee come to a close starting in 2012. “Hydro-Québec’s clean, sustainable hydroelectric projects and relative price stability provide exactly the kind of power Vermonters have told us they would like,” Young said. “We have always provided an energy mix with very low emissions, and this agreement will help us ensure that tradition for the next generation of our customers.”
Powell said: “A major component of our energy strategy, launched two years ago, was to pursue a broader, more strategic partnership with Hydro-Québec in order to benefit from its highly reliable, very low-carbon power system. Our agreement today is a major step in that direction and also ensures significant economic value for Vermont consumers.”
Vermont and Québec have had an energy partnership for a very long time. Energy trading between Vermont and Québec has been an important component of Vermont’s energy supply since the early 1980s, when longer-term power deals were inaugurated. The current Vermont-Hydro-Québec contract, which was signed on Dec. 4, 1987, expires in 2016.
One of the key provisions of the agreement is for the Vermont General Assembly to enact legislation to designate large hydro, which would include Hydro-Québec power, as renewable. Any renewable energy credit revenues for HQ power delivered over the Highgate Interconnection would be shared between the Vermont companies, benefiting their customers, and Hydro-Québec.
The accord was signed by CVPS (NYSE-CV), GMP and H.Q. Energy Services (U.S.) Inc., an indirect wholly owned subsidiary of Hydro-Québec. It commits the parties to negotiate in good faith a power purchase agreement based on the non-binding term sheet. According to the memorandum, the parties intend to negotiate the material terms of the power purchase agreement no later than June 30, 2010 to allow the parties to obtain all necessary internal organizational approvals and execute the agreement no later than July 31, 2010. The final agreement will be subject to Vermont Public Service Board approval and certain other conditions.
The binding terms of a power purchase agreement will be established only upon execution of a contract acceptable to each party. Should execution of the agreement by all parties fail to occur for any reason prior to July 31, 2010, the memorandum of understanding and the obligations of the parties to negotiate a final agreement will terminate.