PSB: How is Entergy's spin-off better for Vermont consumers?
Senate President Pro Temp Peter Shumlin and House Speaker Shap Smith are right to question the alleged benefits of allowing Entergy to spin off its Vermont Yankee nuclear power plant (and five others) into a separate holding company called Enexus. On the face of it, the spin-off does little more than free Entergy, a debt-free and profitable company, of future expense while creating a new company — loaded with debt — to shoulder the burden of decommissioning five aging nuclear plants in the not-so-distant future. Finding the benefit to Vermont in such a deal is perplexing.Yet the DPS, the same group that agreed that Fair Point should be allowed to buy Verizon’s business in Vermont, has given its tentative approval to the plan. Why? Because Entergy sweetened the pot after the DPS rejected the plan on the first go-around this summer. The deal the DPS agreed to allows Enexus to raise money for the deal by going heavily into debt, bonding $3.5 billion and borrowing more than an additional billion, says Shumlin. As collateral for the loans, Enexus will put up its nuclear plants and the electricity they generate. But because the plant’s electricity production is subject to long-term license agreements, and because decommissioning costs are high (Vermont Yankee’s decommissioning fund is presently $600 million short), those assets aren’t the most secure.Shumlin asks a good question of the DPS: “Why is it in Vermonters’ best interests to trade a profitable company, that was able to reward its CEO $225 million over the last five years, with a junk-bond rated, debt-ridden spin-off?”The question is particularly poignant as Vermonters watch Fair Point file for bankruptcy after not being able to fulfill promises made to the state’s DPS, and now try to negotiate a better deal for itself by providing less to consumers.The lesson the DPS should have learned is that companies need to be well financed to take on endeavors of this magnitude; and that companies that are front-loaded with debt and have only their operations as collateral are not a good deal for Vermont consumers.Stephan Wark, a spokesman for the DPS, justified the department’s recent reversal from its July rejection of the proposed spin-off by saying the DPS “got a better deal for Vermonters.” And so it has. But better than junk, can still be junk.The DPS needed to answer the bigger question: Why is the proposed spin-off a better deal for Vermonters than keeping the status quo? Logic also suggests that if it is obviously a better deal for Entergy (and one has to presume it is or they wouldn’t be doing it), who is left the poorer? Unfortunately, the DPS made a recommendation to the Public Service Board to approve the spin-off without convincing proof that the new company is more financially secure to meet future obligations, would run the business more efficiency and with better safety standards, and would provide better rates to consumers than if it were operated under Entergy. Unreasonable? Not at all. If the deal under Enexus is not better than the current arrangement with Entergy, why sacrifice what we have for less?It is now up to the PSB to ensure that the transaction meets that higher standard or is rejected. To that end, Shumlin and Smith should ensure the Senate Finance and House Natural Resources Committees hold hearings to analyze the proposed memorandum of understanding between DPS and Entergy and its repercussions on Vermont Yankee’s reliability and its decommissioning fund. While the PSB is a quasi-public board that is not beholden to legislative decisions or reviews, we would hope they would be grateful for the Legislature’s interaction and would withhold any decisions until the committees’ work is done. All Vermonters, particularly the DPS and PSB, should welcome any scrutiny that may help prevent another agreement with state utilities that ends in failure. Furthermore, it is imperative that the state not be saddled with an inadequate decommissioning fund and a new, debt-ridden company in charge of Vermont Yankee that cannot meet its obligations.The specific task facing the PSB is to determine if a Certificate of Public Good should be issued to allow the transaction to occur. We would hope that the standard used ensures a greater benefit to the public good than what the state currently has and that the guarantees against future expenses are made on assets that are impregnable so we avoid another bankruptcy. The Legislature, the governor and the PSB should insist on nothing less.