Annette Smith exposed the irony of GMP pleading poverty when resisting sound monitoring at wind generation sites when its CEO compensation is $1.9 million a year. A common first reaction is surprise or outrage at the magnitude of that number. I suggest that GMP customers and Vermonters concerned with renewable-energy project impacts also consider the GMP corporate parent incentive plan that allows that compensation.
We need to ask these questions: Are the interests of Vermonters aligned with those of GMP’s Canadian owners? Can the Public Service Department be restructured from a utility advocate to one that examines critical issues such as GMP’s executive compensation policy?
Here’s why the large incentive payments provided under GMP’s executive compensation plan provide Canadian investors positive benefits, which in turn often cause negative impacts for Vermonters.
Willie Sutton robbed banks because “that’s where the money is.” Utility investors make their money from building infrastructure. Investors supply equity capital upon which they earn a return. Utility investors provide capital for “asset base” or “rate base.” Growth in assets means growth in return, i.e. profits. Thus, it’s no surprise that the GMP executive compensation plan states that the “Long-Term Incentive Program…takes in account … asset base growth…” (GMP parent Valener Energy Company Management Proxy Circular). To the extent that its CEO helps increase GMP assets, her incentive-based compensation increases.
Increasing GMP’s assets sometimes results in negative consequences for Vermonters. Providing Vermont’s renewable-energy requirements requires new assets. GMP’s investors prefer that those assets are owned by GMP and built in Vermont. But renewable energy from other states and Canada could provide that energy at lower cost and with less siting impacts. A CEO directing corporate policy favoring asset growth has an incentive to disregard possible lower-cost options, such as purchasing more renewable energy from Hydro-Quebec. A big Vermont wind project increases investors’ returns; a Quebec power purchase does not.
Vermont will soon purchase about a third less renewable energy from Hydro-Quebec, due to reductions occurring under a 1987 contract. GMP has available transmission capacity with which it could purchase additional Hydro-Quebec renewable energy. Two new underwater/underground transmission lines into Vermont are being developed to allow more renewable energy purchases from Quebec or New York. GMP has not made a new deal with Hydro-Quebec since the 2012 contract negotiated before the GMP merger with Central Vermont Public Service. I suspect that this may be due to the GMP executive incentive compensation goal of asset growth.
Besides the question of whether to buy renewable energy in or out of state, the CEO asset incentive goal can affect in-state renewable-energy projects.
The GMP Deerfield Wind power purchase contract allows GMP to purchase the wind project assets after 10 years. Does this purchase option provide benefits to GMP customers? Did GMP favor Deerfield over other competing projects without such an option?
GMP has executed solar purchase contracts in the Rutland area that were higher in cost than from other comparable projects being offered by Vermont Electric Power Producers, a purchasing agent that deals with multiple solar developers. GMP has until recently promoted the large, net-metered solar projects located far from customer load, which are the highest-cost source of solar energy.
These projects have more negative siting and distribution system impacts than rooftop solar. Is this because GMP had partnerships with solar developers, whereby GMP shares in asset ownership? I know GMP was considering at least one such partnership when I worked there.
It is normal for utilities to try to maximize profits. Such behavior would be acceptable if the PSD aggressively protected ratepayer interests and siting issues were adequately addressed. In the 1990s, the PSD severely penalized CVPS and GMP for energy purchases that raised rates. It’s time for the PSD to be restructured from an entity that allows rampant and reckless renewable development into one that looks out for the consumer.
Bob Amelang retired after working 26 years as an electric power engineer for CVPS/GMP.
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