A new chapter in crony capitalism
Gov. Peter Shumlin has announced the latest in a long series of sweet deals for his favored people at everybody else's expense. The lucky winner is IBM, which has repeatedly been reported as preparing to unload its Essex Junction plant and departing Vermont.
This latest deal is a three year electricity rate freeze. As reported on Vermont Digger, "The proposed three-year rate freeze for IBM is an incentive to keep the company in the state, state officials say. If electricity prices rise in the next three years, Green Mountain Power will cover any costs associated with that rate freeze. GMP and the state say the deal is good for ratepayers." Presumably the rate frozen will be the rate in effect after a 2.46 percent reduction in rates set to take effect Oct. 1.
Gov. Shumlin said "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."
Well, let's see. Shumlin and GMP agree that protecting IBM's electricity rates is a good deal for ratepayers. But that's only in the sense that having IBM in Vermont is a good deal for the Vermont economy generally. If power rates don't go up, the deal doesn't have any value. If they do go up, Vermont ratepayers not named IBM will see their rates go up, but those named IBM will get to pay the old, lower rates.
Will rates go up? That could happen because of rising natural gas prices, increased regional energy demand, Obama's efforts to shut down coal-fired electricity, or another round of Shumlin's renewable energy subsidies billed to Vermont ratepayers for the benefit of people who sell solar, wind and biogas electricity.
The announcement states that "GMP will cover any costs associated with that rate freeze." With what?
Does GMP somewhere have a corporate reserve to cover the cost of the discount enjoyed by IBM? Probably not.
Will GMP use the $21 million snatched away from the CVPS ratepayers in the Shumlin-brokered utility merger of 2012? Most likely much of that has already been assigned to the GMP Community Energy and Efficiency Development Fund created to support Shumlin's pet causes, weatherization and renewable energy subsidies.
Or will GMP cover any future discount by joining Shumlin's Public Service Department in persuading the compliant Public Service Board to approve higher electricity rates for everybody else? That's clearly the most likely alternative.
Commissioner Chris Recchia of the Department of Public Service is already on the band wagon. Though the freeze doesn't prevent IBM from leaving the state, he said, "I think they would describe it as, every little bit helps." Especially when every little bit is paid for by somebody else.
This latest corporate handout comes on top of the new $4.5 million Vermont Enterprise Incentive Fund created by the legislature at Shumlin's behest to allow him to support any company on the verge of closing or leaving the state. The new deal is potentially much better for IBM, since Shumlin could hardly lavish the entire $4.5 million on IBM alone, and if he did, it would scarcely make any difference in the company's decision making.
Maybe we ought to offer the same deal to our smaller business ratepayers. If you agree to stay in Vermont for three more years, you get the benefit of an electricity rate freeze. Quite a few would be willing to take that deal -- but their governor has arranged it only for Big Blue. Sorry.
IBM employs roughly 4,000 people with an estimated annual payroll of $150 to $200 million. The company is an incomparable asset to the state's economy. But for Shumlin to engineer a special deal for IBM, that no other business can qualify for, adds yet another chapter to the (unsavory) "History of Crony Capitalism in Vermont."
John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).
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