Central Vermont Public Service Corporation is the largest electric utility in Vermont. We engage principally in the purchase, production, transmission, distribution and sale of electricity. We serve approximately 159,000 customers in nearly two-thirds of the towns, villages and cities in Vermont. Our Vermont utility operation is our core business. We typically generate most of our revenues through retail electricity sales. We also sell excess power, if any, to third parties in New England and to ISO-New England, the operator of the region’s bulk power system and wholesale electricity markets. The resale revenue generated from these sales helps to mitigate our power supply costs.
Our wholly owned subsidiaries include:
Custom Investment Corporation (“Custom”), formed for the purpose of holding passive investments, including the stock of our subsidiaries that invest in regulated business opportunities. On October 13, 2003, we transferred our shares of Vermont Yankee Nuclear Power Corporation (“VYNPC”) to Custom. The transfer to Custom does not affect our rights and obligations related to VYNPC.
C.V. Realty, Inc., a real estate company that owns, buys, sells and leases real and personal property and interests therein related to the utility business.
CVPSC - East Barnet Hydroelectric, Inc., formed for the purpose of financing and constructing a hydroelectric facility in Vermont, which became operational September 1, 1984. We have leased and operated it since the in-service date.
Catamount Resources Corporation (“CRC”), formed for the purpose of holding our investments in unregulated business opportunities. CRC’s wholly owned subsidiary, Eversant Corporation, engages in the sale and rental of electric water heaters in Vermont and New Hampshire through a wholly owned subsidiary, SmartEnergy Water Heating Services, Inc.
In 2007, we dissolved our wholly owned subsidiary Connecticut Valley Electric Company, Inc. (“Connecticut Valley”), which had been incorporated under the laws of New Hampshire on December 9, 1948. Connecticut Valley distributed and sold electricity in parts of New Hampshire bordering the Connecticut River, until January 1, 2004, when it completed the sale of substantially all of its plant assets and its franchise to Public Service Company of New Hampshire. Its remaining assets were nominal.
Our equity ownership interests as of December 31, 2008 are summarized below:
We own 58.85 percent of the common stock of VYNPC, which was initially formed by a group of New England utilities to build and operate a nuclear-powered generating plant in Vernon, Vermont. On July 31, 2002, the plant was sold to Entergy Nuclear Vermont Yankee, LLC (“Entergy-Vermont Yankee”). The sale agreement included a purchased power contract between VYNPC and Entergy-Vermont Yankee. Under the purchased power contract, VYNPC pays Entergy-Vermont Yankee for generation at fixed rates, and in turn, bills the purchased power contract charges from Entergy-Vermont Yankee with certain residual costs of service through a FERC tariff to us and the other Vermont Yankee sponsors. Although we own a majority of the shares of VYNPC, our ability to exercise control is effectively restricted by the purchased power contract, the sponsor agreement among the group of New England utilities that formed VYNPC and the composition of the board of directors under which it operates.
We own 47.05 percent of the common stock and 48.03 percent of the preferred stock of Vermont Electric Power Company, Inc. (“VELCO”). In June 2006, VELCO transferred substantially all of its business operations and assets to Vermont Transco LLC (“Transco”). VELCO’s wholly owned subsidiary, Vermont Electric Transmission Company, Inc., was formed to finance, construct and operate the Vermont portion of the 450 kV DC transmission line connecting the Province of Quebec with Vermont and the rest of New England.
We own 33.02 percent of the voting equity units of Transco, which was formed by VELCO and its owners, including us, in June 2006. Transco owns and operates the high-voltage transmission system in Vermont. VELCO and its employees manage the operations of Transco under a Management Services Agreement. VELCO owns 14.14 percent of the voting equity units of Transco. Our total direct and indirect (through our VELCO ownership) interest in Transco is 39.67 percent of the voting equity units.
We own 2 percent of the outstanding common stock of Maine Yankee Atomic Power Company (“Maine Yankee”), 2 percent of the outstanding common stock of Connecticut Yankee Atomic Power Company (“Connecticut Yankee”) and 3.5 percent of the outstanding common stock of Yankee Atomic Electric Company (“Yankee Atomic”). All of the plants have been permanently shut down and have completed decommissioning.
We also own small generating facilities and have joint ownership interests in certain Vermont and regional generating facilities. These are described in Sources and Availability of Power Supply below.
As a regulated electric utility, we have an exclusive right to serve customers in our service territory, which can generally be expected to result in relatively stable revenue streams. The ability to increase our customer base is limited to acquisitions or growth within our service territory. Due to our geographic location and the nature of our customer base, weather and economic conditions are factors that can significantly affect retail sales revenue.Retail sales volume over the last 10 years has grown at an average rate of less than 1 percent per year, ranging from a decrease of over 2 percent in 2008 to increases of over 2 percent in other years.
Our operating revenues consist primarily of retail and resale sales. Retail sales are comprised of sales to a diversified customer mix, including residential, commercial and industrial customers. Sales to the five largest retail customers receiving electric service accounted for about 6 percent of our annual retail electric revenues for 2008, 2007 and 2006. Resale sales are comprised of long-term sales to third parties in New England, sales in the energy markets administered by ISO-New England and short-term system capacity sales.
Retail Rates Our retail rates are set by the Vermont Public Service Board (“PSB”) after considering the recommendations of Vermont’s consumer advocate, the Vermont Department of Public Service (“DPS”). Fair regulatory treatment is fundamental to maintaining our financial stability. Rates must be set at levels to recover costs, including a market rate of return to equity and debt holders, in order to attract capital. The return on common equity of our regulated business did not exceed the allowed return for 2008, 2007 or 2006.
Wholesale Rates We provide wholesale transmission service to 10 network customers and six point-to-point customers under ISO-New England FERC Electric Tariff No. 3, Section II - Open Access Transmission Tariff (Schedules 21-CV and 20A-CV). We also provided wholesale transmission service to one network customer under a FERC rate schedule through October 18, 2008. We maintain an OASIS site for transmission on the ISO-New England web page.
Sources and Availability of Power Supply Our power supply portfolio includes sources used to serve our retail electric load requirements plus any wholesale obligations into which we enter. Our current power forecast shows energy purchase and production amounts in excess of load obligations through 2011. For the year ended December 31, 2008 energy generation and purchased power required to serve retail and firm wholesale customers totaled 2,406,575 mWh. The maximum one-hour integrated demand during that period was 414.4 MW and occurred on January 3, 2008. For 2007, our energy generation and purchased power required to serve retail and firm wholesale customers totaled 2,487,279 mWh. The maximum one-hour integrated demand was 420.6 MW and occurred on August 6, 2007.
Wholly Owned Plants: Our wholly owned plants are located in Vermont, and have a combined nameplate capacity of 74.2 MW. We operate all of these plants, which include: 1) 20 hydroelectric generating facilities with nameplate capacities ranging from a low of 0.3 MW to a high of 7.5 MW, for an aggregate nameplate capacity of 45.3 MW; 2) two oil-fired gas turbines with a combined nameplate capacity of 26.5 MW; and 3) one diesel peaking unit with a nameplate capacity of 2.4 MW. The diesel plant has been deactivated since 2007 but its capacity is included in the above totals.
Jointly Owned Plants: We have joint-ownership interests in three generating facilities and one transmission facility. As shown in the sources and availability of power supply table above, we receive our share of output and capacity from the three generating facilities. The Highgate Converter is directly connected to the Hydro-Quebec system to the north and to the Transco system for delivery of power to Vermont utilities. This facility can deliver power in either direction, but predominantly delivers power from Hydro-Quebec to Vermont.
VYNPC: We purchase our entitlement share of Vermont Yankee plant output from VYNPC under a long-term power contract between VYNPC and Entergy-Vermont Yankee. The contract extends through the plant’s current license life, which expires in March 2012. Prices under the contract range from $42 to $45 per mWh, and the contract contains a provision known as the “low market adjuster” that calls for a downward adjustment in the contract price if market prices for electricity fall by defined amounts. If market prices rise, the contract prices are not adjusted upward in excess of the contract price.
Entergy-Vermont Yankee has no obligation to supply energy to VYNPC over the amount the plant is producing, so we receive reduced amounts when the plant is operating at a reduced level, and no energy when the plant is not operating. We are responsible for purchasing replacement energy at these times. The next refueling outage is scheduled for mid-2010. We typically enter into forward purchase contracts for replacement power during scheduled outages. We also have forced outage insurance in place to cover additional costs, if any, of obtaining replacement power from other sources if the Vermont Yankee plant experiences unplanned outages through March 31, 2009. We are currently working with an insurance broker to obtain insurance coverage for the remainder of 2009 through March of 2012 when the contract between Entergy-Vermont Yankee and VYNPC ends.
Entergy-Vermont Yankee has submitted a renewal application with the federal Nuclear Regulatory Commission (“NRC”) for a 20-year extension of the Vermont Yankee plant operating license. Entergy-Vermont Yankee also needs PSB and Vermont Legislature approval to continue to operate the plant beyond 2012. At this time, Entergy-Vermont Yankee has not received approvals for the license extension, but we are continuing to participate in negotiations for a power contract beyond 2012 and cannot predict the outcome at this time.
Hydro-Quebec: We purchase power from Hydro-Quebec under the Vermont Joint Owners (“VJO”) Power Contract. The VJO is a group of Vermont electric companies, municipal utilities and cooperatives, of which we are a member. The VJO Power Contract has been in place since 1987 and purchases under the contract began in 1990. Related contracts were subsequently negotiated between us and Hydro-Quebec that altered the terms and conditions contained in the original contract by reducing the overall power requirements and related costs. The VJO contract runs through 2020, but our purchases under the contract end in 2016. As of November 1, 2007 the annual load factor was reduced from 80 percent to 75 percent, and it will remain at 75 percent until the contract ends, unless the contract is changed or there is a reduction due to adverse hydraulic conditions.
Independent Power Producers: We purchase power from several Independent Power Producers (“IPPs”) who own qualifying facilities under the Public Utilities Regulatory Policies Act of 1978. These facilities use water and biomass as fuel. Most of the power is allocated by a state-appointed purchasing agent that assigns power to all Vermont utilities under PSB rules.
System and Other Purchases, including ISO-New England: We participate in the New England regional wholesale electric power markets operated by ISO-New England, Inc., the regional bulk power transmission organization established to assure reliable and economical power supply in New England, which is governed by the Federal Energy Regulatory Commission (“FERC”). We also engage in short-term purchases with other third parties, primarily in New England, to minimize net power costs and power supply risks to our customers. We enter into forward purchase contracts when additional supply is needed and enter into forward sale contracts when we forecast excess supply. On an hourly basis, power is sold or bought through ISO-New England’s settlement process to balance our resource output and load requirements.
Franchise Pursuant to Vermont statute (30 V.S.A. Section 249), the PSB has established the service area in which we currently operate. Under 30 V.S.A. Section 251(b) no other company is legally entitled to serve any retail customers in our established service area except as described below.
An amendment to Title 30 V.S.A. Section 212(a) enacted May 28, 1987 authorizes the DPS to purchase and distribute power at retail to all consumers of electricity in Vermont, subject to certain preconditions specified in sections 212(b) and 212(c). Section 212(b) provides that a review board, consisting of the governor and certain other designated legislative officers, review and approve any retail proposal by the DPS if the review board is satisfied that the benefits outweigh any potential risk to the state. However, the DPS may proceed to file the retail proposal with the PSB either upon approval by the review board or failure of the review board to act within 60 days of the submission. Section 212(c) provides that the DPS shall not enter into any retail sales arrangement before the PSB determines that it is appropriate. The PSB assesses the following factors in reaching its conclusion: 1) the need for the sale; 2) the rates are just and reasonable; 3) the sale will result in economic benefit; 4) the sale will not adversely affect system stability and reliability; and 5) the sale will be in the best interest of ratepayers.
Section 212(d) provides that upon PSB approval of a DPS retail sales request, Vermont utilities shall make arrangements for distributing such electricity on terms and conditions that are negotiated. Failing such negotiation, the PSB is directed to determine such terms as will compensate the utility for all costs reasonably and necessarily incurred to provide such arrangements. Such sales have not been made in our service area since 1993.
In addition, Chapter 79 of Title 30 of the V.S.A. authorizes municipalities to acquire the electric distribution facilities located within their boundaries. In Vermont, the exercise of such authority is conditioned upon an affirmative three-fifths vote of the legal voters in an election and upon the payment of just compensation, including severance damages. Just compensation may be determined either by negotiation between the municipality and the utility or, in the event the parties fail to reach an agreement, by the PSB after a hearing. If either party is dissatisfied, the statute allows an appeal of the PSB’s determination to the Vermont Supreme Court.
Over the years a handful of municipalities have investigated the possibility of acquiring our distribution facilities. However, no municipality served by us has successfully established a municipal electric distribution system. We cannot predict whether efforts to municipalize portions of our service territory will occur in the future or be successful, and if so, what the impact would be on our financial condition.