Gaz Metro, owner of Green Mountain Power, part of large international energy conglomerates

Green Mountain Power is based in Colchester, and company officials often emphasize the 200-employee utility’s local operations. Green Mountain Power has its own management structure, with its own CEO and senior executives, and for all intents and purposes, it operates independently. The company, however, is part of a complicated family tree of multi-national holding companies that have global reach.

Gaz Métro is the titular owner of Green Mountain Power, and Vermont Gas Systems, Inc., the only natural gas company in the state. The Montreal-based company acquired Green Mountain Power in 2007 and Vermont Gas Systems in 1986. It has a hands-off approach to management of the two Vermont companies, and it has deep ties and positive track record in the state.

Through a web of holding companies, tax-advantaged spin-offs, and general partners, the corporate genealogy of Gaz Métro links Vermont to a global network of energy companies jockeying for markets from New England to the Asian Pacific. At the top sit co-owners Enbridge, Inc., a $30 billion (Canadian) dollar energy transmission corporation, and The Caisse, a $151 billion (Canadian) investment firm that manages Quebec’s public pension funds, according to 2010 annual reports from the companies.

Last month Gaz Métro made a hostile takeover bid for ownership of Central Vermont Public Service, the state’s largest utility.

The offer trumped a bid from Newfoundland-based Fortis, Inc., in a bidding war for Central Vermont Public Service Corporation. On Memorial Day weekend, Fortis, a $13 billion multinational holding company based in Newfoundland, offered stockholders an overnight increase in the strike price of about $10 per share, or a 28 percent spike in the value of the stock.

Quebec natural gas giant Gaz Métro trumped that bid with a 15-cent increase in share prices and sweetened the deal for locals by offering to build a regional headquarters in Rutland and by pitching a “solar city” concept for the central Vermont municipality, which has long been the hometown of CVPS. Green Mountain Power officials have said the deal would save ratepayers $144 million over 10 years due to efficiencies from the consolidation of the two utilities.

If CVPS accepts the offer, Gaz Métro would own 70 percent of the electric utility market in Vermont.

On June 10, just two weeks before Gaz Métro’s bid for CVPS was made public, the Vermont Public Service Board approved a reshuffling of Gaz Métro’s investor companies.

Those investors include Calgary-based Enbridge, Inc., an international company that owns 51,000 miles of pipeline through much of North America, and runs oil and natural gas extracted from ocean wells, tar sands and shale fields throughout the US, Canada, and the Gulf of Mexico, according to the company’s 2010 annual report.

Another major Gaz Métro investor is The Caisse de Depot et Placement du Quebec (known as The Caisse), which invests Quebec’s provincial funds internationally and is one of the largest institutional fund-managers in North America, according to the company’s website.

The chairman of the board of directors for The Caisse, Robert Tessier, is also chairman of the board for Green Mountain Power and a former Gaz Métro executive.

The government of Quebec appoints board members to The Caisse.

On March 22, 2011, Enbridge and The Caisse requested a certificate of public good from Vermont’s Public Service Board to buy out the third partner at the time, GDF Suez, one of the world’s largest energy and natural gas corporations.

GDF Suez, through its subsidiaries, supplies natural gas to a fifth of New England. GDF Suez owns half of the Winooski One hydro-electric plant, and shares ownership of the Ryegate biomass plant with Duke Energy. It wholly owns three more biomass plants in New Hampshire and Massachusetts, the Northfield Mountain hydro plant in Northfield, Mass., whose reservoir extends up the Connecticut River to the Vernon Dam in Vermont, and a fleet of power plants around New England, according to the company website and filings with the Federal Energy Regulatory Commission.

Power Play

Conceived as an independent private company in 1955, Gaz Métro’s ownership evolution began when it was bought in 1986 by a utilities holding company, Noverco, Inc., the same year Gaz Métro acquired Vermont Gas Systems. Gaz Métro went public in 1993 as a limited partnership. Hydro Quebec, provider of about a third of Vermont’s electricity through a 26-year contract beginning next year, became a significant shareholder in Noverco in 1997 (along with IPL Energy, which changed its name to Enbridge in 1998). Hydro Quebec sold its shares to The Caisse in 2004.

In 2007, Gaz Métro purchased Green Mountain Power, which serves 30 percent of Vermont’s ratepayers, or about 90,000 electricity customers. As part of the deal, Gaz Métro also acquired stakes in VELCO/Transco, Vermont’s transmission utility, and the McNeil Generating Plant in Burlington.

“Vermont’s electricity market is still extremely fragmented,” Gaz Métro officials stated in the 2009 annual report. “Accordingly, in Gaz Métro’s view, there are possibilities for consolidation. If this is the case, we are well positioned to assert our expertise.”

“It’s tough in Vermont,” said Richard Sedano, a principal and director of the Regulatory Assistance Project and former commissioner of Vermont’s Department of Public Service. “Vermont utilities don’t own that much power,” which means they contract with outside corporations for transmission purchases. More than a decade ago, accounting companies imposed a high standard of financial backing for power purchase agreements, Sedano said. The new standards “have caused anyone who is making a significant power contract to have significant financial backing, in case either side defaults. And that’s taxing on a small company.”

Central Vermont Public Service recently purchased two of the state’s 20 electric utilities: Readsboro Electric in November 2010, and Vermont Marble Power Corporation in March 2011. The DPS recently agreed to study consolidation among Vermont’s electric utilities.

In June of 2011, Gaz Métro announced a $720 million USD bid for CVPS. If CVPS approves — and they’ve recently agreed to consider it — the Canadian corporation would serve 250,000 electrical customers throughout Vermont, or 70 percent of the market, with a rate base of $1 billion, according to Canada’s Financial Post. They would hold a majority share in VELCO (of which they’d entrust 30 percent to the state), and gain a 30 percent ownership in McNeil (to Burlington Electric Department’s controlling 50 percent), and a continued partial stake in Vermont Yankee.

Canadian Dynasty

Tracking up the chain of ownership, Noverco stands to inherit ownership of CVPS and Green Mountain Power and their subsidiary holdings.

In 2010, Gaz Métro L.P. reorganized to avoid new legislation taxing profit flows through limited partnerships.

A tax-advantaged spin-off, Valener, Inc., swallowed Gaz Métro L.P.’s share-holders, while Gaz Métro, Inc. sprang up as “acting manager” of Valener, according to the annual report for Valener. Gaz Métro, Inc. retains 71 percent of the original company to Valener’s 29 percent, and Valener’s board of directors is comprised entirely of members of Gaz Métro, Inc.’s directors.

Noverco, in turn, maintains the “apparent ability” to elect a majority of Gaz Métro, Inc.’s board members, according to a 2010 order from the Vermont Public Service Board.

A 14-member board of directors runs Gaz Métro. Two of the directors are from Enbridge; two are from The Caisse; two are from GDF Suez; three represent Valener.

One member is a former executive of SNC-Lavalin, an international construction firm, and a direct representative of SNC-Lavalin left the board in 2009.

GDF-Suez and SNC-Lavalin held stakes in Noverco until recently, when The Caisse and Enbridge consolidated ownership of Noverco by purchasing their shares.

SNC-Lavalin partners with GDF Suez on power plant construction. Currently, the companies are spending $2.2 billion to build the 1075 MW Astoria I and II power plants in New York, according to a July 2010 overview of the GDF Suez assets.

In November of 2010, SNC-Lavalin sold its Noverco shares to The Caisse, withdrawing its ownership entirely.

In February of this year, Laurentides, an investment company representing GDF-Suez, sold its stake in Noverco to Enbridge and The Caisse, making them sole owners of Noverco.

The Caisse holds 61 percent of the shares — voting shares, according to PSB documents — to Enbridge’s 39 percent.

GDF Suez, invested in at least two Vermont power plants — Ryegate and the Winooski One hydro facility — also owns power plants around New England (some under a wholly-owned subsidiary, First Light Power Resources).

The company ownstwo regasification terminals off the shore of Boston, supplying 20 percent of New England’s natural gas.

Influence

Rocki-Lee DeWitt, Professor of management at UVM’s School of Business Administration, lists three factors in examining the influence of boards of directors on corporate strategy: breadth and depth of expertise; who’s on the board and whom they’re connected to — “that’s more of the cabal logic,” she says; and how much of the board is comprised of independent outsiders.

With GDF Suez and SNC-Lavalin’s three representatives on the Gaz Métro board now likely to roll over to Enbridge and The Caisse, the board would skew toward the two corporate parents: The Caisse, led by a board of directors appointed by Quebec’s government and seeking a sound return for their investors — “the majority of which are Quebec public and private pension funds and insurance plans,” according to their website. And Enbridge, which launched $6.5 billion CDN worth of new projects in 2010 while planning a “post-2011” period of development totaling $30 billion CDN, twice its current value.

Gaz Métro says it has a light touch when it comes to management of its subsidiaries. “This is a hands-off policy,” said Jean-Charles Robillard, a Gaz Métro spokesperson. “This is the approach that Gaz Métro has been taking in terms of its management style with Green Mountain Power.” They’ll continue the “hands-off” approach with CVPS, he concluded.

Asked to what extent Gaz Métro’s upstream boards influence their decisions, Robillard said this: “The principal shareholders of Gaz Métro have been here for a long time. They were here when Gaz Métro offered to buy Green Mountain Power, so they clearly supported that offer,” as well as the proposed purchase of CVPS.

Sedano concurs with Robillard’s managerial outlook. “As far as I can tell, Gaz Métro has stabilized the management structures in both [GMP and Vermont Gas], and have largely avoided imposing outside influences,” he said. “I’m detecting no influence that would take them away from their interest in doing what is best for Vermont markets.”

Rocki-Lee DeWitt sees the bid in a larger context. Although CVPS and GMP together comprise a majority of Vermont’s market, they’re “not that big a dollar number relative to the parent corporation. So why would [Gaz Métro] be interested in doing it?”

It’s more likely that they’re looking down the line, she says, where Vermont becomes a milk-run for administering a foreign energy infrastructure. “Is New England going to be up for grabs?”

This corporate jockeying for market control and long-term stability is common, Richard Sedano says. “Energy companies across North America are doing things like this,” he said. “The problem with trying to make sense of these things is that the energy environment changes.”

An Uncertain Future

Looking forward, Gaz Métro has a couple of developments on the horizon. Canada signed the international Kyoto Protocol, mandating a 1990-level cap on CO2 emissions. Natural gas burns cleanly relative to other petroleum fuels, spurring Gaz Métro to tap into a freight industry scrambling to reign in emissions: as natural gas-fueled shipping becomes increasingly feasible, Gaz Métro hopes to augment their presence among freight haulers.

Enbridge, Gaz Métro and GDF Suez (originally Gaz de France) also partnered in 2004 to develop the Rabaska liquid natural gas terminal and regasification facility at Levis, Quebec, on the shores of the St. Lawrence. A fourth partner, Gazprom, the world’s largest extractor of natural gas and supplier of 17 percent of the world’s need[4], balked over uncertain markets in 2009 and withdrew support.

A March 2011 press release emphasized Gaz Métro’s support of extraction companies tapping a potentially massive, mostly unexplored shale gas field stretching through much of southern Quebec.

Gaz Métro will transmit power from the Seigneurie de Beaupre wind farm, slated to go online in December of 2013. The Quebec facility will churn out 272 MW for Gaz Métro through a 20-year contract with Hydro Quebec. Enbridge ramped up wind and solar generation over the past three years with 650MWs in generation projects sited around Ontario and Colorado.

Although Enbridge continues to build and maintain pipelines ranging across all of Canada and through many states in the U.S., their biggest build-out by far is the $5.5 billion CDN Northern Gateway Pipeline, which would stretch 730 miles from Edmonton, Alberta to the port of Kitimat, British Columbia. The pipeline would transmit low grade oil from Alberta’s tar sands to the coast, where as many as 255 tankers a year would ship it to China and Asian Pacific markets.

Enbridge continues to vie for market leverage in natural gas transmission in the United States, capitalizing on recent extraction technologies. “The North American natural gas market has entered a period of abundant supply primarily due to horizontal drilling of shale gas plays in the United States,” states their 2010 annual report.

And while many in Vermont continue to debate whether Gaz Métro will shuttle Canadian electricity to lucrative southern New England markets through Vermont’s transmission system, Enbridge may be eyeing natural gas exports from the United States into Canada. Enbridge’s Annual Report stated that rapid natural gas growth in the U.S. has “spurred proposals to export gas into eastern Canada.”

Richard Sedano cautioned against projecting into the future. “If there’s any evidence over the course of the last 25 years, it’s that once you think you get what the future is going to be, you’re very vulnerable to being wrong,” he said. “Three years ago, I’m sure that no one would have expected gas supplies from shale deposits to be a big driver of energy strategies in eastern North America, and now it’s huge.”

If CVPS accepts Gaz Métro’s bid, the transaction must earn approval from Vermont’s Public Service Board. CVPS could not comment for this story under confidentiality agreements with Gaz Métro and securities regulations.