Vt. Proposes Rate Freeze For IBM
Shumlin Seeks to Keep Major Employer in State
Montpelier — The Shumlin administration is backing a proposal to freeze electricity rates for IBM, the state’s latest effort to support Vermont’s largest single private for-profit employer.
The administration’s deal between Green Mountain Power, IBM and Associated Industries of Vermont, a business trade group, comes as part of a proposal announced last week to cut GMP customers’ rates by 2.46 percent starting Oct. 1.
The proposed three-year rate freeze for IBM is an incentive to keep the company in the state, state officials said. If electricity prices rise in the next three years, GMP will cover any costs associated with that rate freeze. GMP and the state said the deal is good for ratepayers.
“The agreement provides stability and predictability for one of our most valued employers, and helps ensure that Vermont maintains a thriving center of innovation and technology well into the future,” Gov. Peter Shumlin said in a statement.
IBM employs roughly 4,000 people with an estimated payroll of $150 million to $200 million. The Wall Street Journal reported in April that the company hopes to sell its chip manufacturing plants in the United States. In response, Shumlin and the Legislature this year set up a new $4.5 million Vermont Enterprise Incentive Fund designed to support any company on the verge of closing or leaving the state.
Chris Recchia, commissioner of the Department of Public Service, said the rate freeze was particularly important this year for IBM.
“It is no secret that they are struggling,” Recchia said. “And a rate freeze for them was going be very helpful for additional planning in the coming years.” Though the freeze doesn’t prevent IBM from leaving the state, he said, “I think they would describe it as every little bit helps.”
IBM said in testimony to the Public Service Board that electricity rates in New York are much lower than they are in Vermont. And New York has “made an aggressive push” to attract high-tech businesses like GlobalFoundries, the tech company rumored to be considering the purchase of IBM’s Essex plant.
“Competitors in other geographic areas are paying electric rates significantly lower than IBM Vermont’s rates,” said Nathan Fiske, an IBM site energy manager, in prefiled PSB testimony on May 30. “Our competitive disadvantage, as a result of the higher electric costs paid by IBM Vermont, is very substantial.”
The Essex facility uses the most electricity of any business in the state — as much power as the city of Burlington. “In 2013, we paid approximately $37.1 million for the electricity we purchased from GMP,” Fiske said in his testimony.
But this is not the first time IBM has negotiated for a rate reduction by leveraging its roles as an economic driver in the state. In 2003, state regulators approved a so-called Economic Development Agreement (EDA) between Green Mountain Power and IBM that offered the company reduced rates in exchange for retaining jobs at the plant.
IBM is also exempt from paying the state’s energy efficiency charge because it has adopted its own self-administered energy efficiency program.
Bill Driscoll, vice president of Associated Industries of Vermont, has been pushing to partially deregulate Vermont energy market to allow the state’s largest energy-consuming businesses to negotiate their own rates directly with power providers.
He said Vermont’s electricity prices are some of the highest in the country. He said some businesses are interested in negotiating rates directly with utilities.
“To the extent that there are opportunities out there for companies to try to contract more directly with one or more supplies and be able to find prices that are lower than the sort of territory-wide options that a utility might offer, then that is certainly an attractive possibility,” he said.
GMP last December proposed keeping rates flat for at least two years. After the board opened a docket on the rate case, the Department of Public Service said the company could achieve additional cost savings that could be used to reduce rates.
As part of the latest proposal, a 1.46 percent reduction would come from GMP’s costs savings and returns on equity investments. An additional 1 percent reduction would come from a chunk of money awarded this year as part of a revenue-sharing agreement with owner of the Vermont Yankee nuclear power plant.
The proposal needs final approval from state regulators.