BRATTLEBORO — Time constraints, regulatory issues, and competitive pressures will make it “extremely difficult” for Vermont to independently submit a purchase bid for TransCanada's hydroelectric stations on the Connecticut and Deerfield rivers, a new document says.
The Department of Public Service memo details several options by which the state still might partner with another entity or entities and “acquire some beneficial interest” in the dams.
In fact, the memo - penned by Regional Policy Director Ed McNamara - says four companies already have contacted the state to explore such a partnership.
But it appears officials have set aside the idea that Vermont could, on its own, acquire TransCanada properties.
“Given the deadlines for the sale, the significant interest from other hydro owners, and the expense and time required to perform the necessary due diligence, it is extremely unlikely that the state could put together a legitimate bid within the time frame necessary,” McNamara wrote in a June 6 memo.
State Secretary of Administration Justin Johnson, who chairs the Vermont Hydroelectric Power Acquisition Working Group, said in an interview Monday that the group has not yet come to any conclusions regarding TransCanada's dams.
But he also said McNamara's conclusion - that the state won't be able to go it alone - is not a surprise.
“The state is very interested in having an equity position - having some kind of ownership in a portion of these assets,” Johnson said. “How we get there, we're not sure yet.”
State Public Service Commissioner Chris Recchia was more succinct in his assessment of the situation.
“It's very clear that we cannot, nor should we try to, do this on our own,” Recchia said.
Connecticut and Deerfield facilities for sale
TransCanada, based in Calgary, Alberta, is selling a number of power-producing properties in the Northeastern U.S. to raise money for its acquisition of a Houston-based natural gas business.
The company's six hydroelectric stations on the Connecticut River, including the Bellows Falls and Vernon stations, are among the properties being offered.
Also included in the sale are another seven properties on the Deerfield River, including the Searsburg Station in that town and the Harriman Station in Readsboro and Whitingham.
Vermont officials considered purchasing those stations a decade ago when the previous owner went bankrupt. So when TransCanada announced the properties' availability earlier this year, the state quickly formed a working group to study the “partial or full acquisition” of those hydropower facilities.
“I feel like we missed an opportunity last time around to purchase these assets,” Gov. Peter Shumlin said in early April. “There is clearly an opportunity now to look at it again.”
The working group has been meeting since then. The group was codified and funded in Act 130, signed by the governor May 25; that act also says the group must report back to several legislative committees by Aug. 1.
But it appears that might not be quick enough to keep up with the behind-the-scenes maneuverings of potential hydroelectric station buyers.
“The sale process has already commenced, and the initial bids are expected to be due in early July,” McNamara wrote in his memo to Johnson and Recchia.
Who can talk to whom?
TransCanada has retained JPMorgan Chase & Co. to handle the sale. In late May, McNamara wrote, JPMorgan Chase distributed initial information about the process as well as “non-disclosure agreements that bidders must sign before gaining any access to any additional information.”
Even that paperwork - described as an early step in a multi-stage bidding process - is causing some concerns for Vermont officials.
Those concerns are not so much tied to open-records requirements, since Act 130 exempts from public-records requests any “commercial and financial information of a proprietary nature produced or acquired by the [hydropower] working group.”
Rather, Johnson said, officials are concerned that signing a non-disclosure deal could hinder the state's TransCanada deliberations by imposing limits on “who can talk to whom” - both within the working group and outside of it.
State officials don't have much time to deliberate on that and other matters related to the TransCanada deal. “Since TransCanada is conducting this sale to raise money to purchase another company, it is expected that it will try to conduct the process relatively quickly,” McNamara wrote.
That process is further complicated by its complexity. McNamara's memo says TransCanada is selling not only its hydroelectric facilities but also three natural gas-fueled plants in Rhode Island, New York, and Pennsylvania; a wind-power site in Maine; and a power-marketing portion of the company.
TransCanada “has informally indicated” that it might sell the hydroelectric stations separately from the other assets, McNamara wrote. But he added that the company has “made clear that they will not carve out individual stations from this category” - meaning a buyer would need to take all 13 hydro properties.
Johnson said the state has no interest in anything other than TransCanada's hydroelectric stations, and he acknowledged that could put Vermont at a disadvantage if a buyer wants all of the company's assets listed for sale.
“If someone is prepared to bid for all of it, I think anything less than a bid for all of it doesn't get you anywhere,” Johnson said. “There's no way we're going to bid for all of it.”
Federal government, three states' laws come into play
There also are regulatory issues to consider.
McNamara wrote that “regulatory approval for the sale of the assets must also be obtained from the Federal Energy Regulatory Commission, the Vermont Public Service Board and likely agencies in New Hampshire and Massachusetts.” That latter consideration is necessary because most of the hydroelectric stations extend into other states.
So it appears that Vermont could use some help, likely in the form of a partnership. McNamara's memo says that could happen via a partial-ownership agreement or a state power-purchase agreement.
In the first scenario, McNamara wrote that the state likely would need a 10-percent-or-greater share in ownership of TransCanada properties “in order to have a seat on the board and ability to influence decisions.”
Pursuing a purchase with other buyers would mean the state doesn't have to go it alone, and the memo says four unidentified companies “have reached out to the state of Vermont to express interest in working with the state in the TransCanada sale.”
At the same time, though, McNamara cautioned that the state would be exposed to liability in any sort of ownership scenario and also should plan for “very significant legal expenses” related to structuring a partnership with an outside entity.
So he pitched another possibility: Vermont could forgo ownership of the hydroelectric properties in favor of a power purchase agreement with the stations' eventual buyer.
“The state could also see some benefit to ratepayers through the execution of a stably and beneficially priced, long-term power purchase agreement for the output of the hydro assets,” McNamara wrote.
Recchia, while not endorsing any option, said there are clear benefits to the state forming a partnership in order to continue pursuing the TransCanada matter. From a renewable energy standpoint, “we could probably get what we need from that,” he said.
Johnson said he expects that the hydropower working group will meet again soon, and he said officials must address many “moving parts” and unanswered questions.
“We're trying to explore those [questions] to make sure we either realize the opportunity there or realize that there isn't one,” he said.