Ratepayer group says DPS commissioner has conflicts of interest in GMP, CVPS merger case

Sen. Vince Illuzzi. Photo by Josh Larkin

State senator, former officials call for independent counsel to represent state in Public Service Board review of Gaz Metro buyout of Central Vermont Public Service

A loosely formed ratepayer group charges that the commissioner of the Vermont Department of Public Service is too compromised by conflicts of interest to represent the interests of Vermonters in the upcoming review of Gaz Metro’s purchase of the state’s largest electric utility, Central Vermont Public Service.

State Sen. Vince Illuzzi, R/D-Essex-Orleans, has petitioned the Vermont Public Service Board to appoint a separate, independent attorney to investigate and present evidence regarding the merger of Green Mountain Power and Central Vermont Public Service.

Illuzzi and about 30 ratepayer petitioners say Elizabeth Miller, the commissioner of the Department of Public Service, will be unable to vigorously pursue the interests of Vermont ratepayers in the merger case because her husband stands to gain financially from Gaz Metro’s buyout of CVPS.

The $702 million Gaz Metro purchase and merger deal, if approved by the quasi-judicial panel, would make the Montreal-based company (doing business as Green Mountain Power), the owner of 72 percent of the state’s electricity market, and the largest entity offering wholesale generation, retail electricity and power distribution in Vermont. Gaz Metro also owns Vermont Gas Systems, a subsidiary that supplies natural gas to customers in northwestern Vermont.

Read the Motion to Intervene, Green Mountain Power, CVPS case before the Public Service Board.

Illuzzi and two former department officials say the merger would cede control of VELCO, the state’s transmission utility, to the Canadian corporation. Until now, VELCO’s ownership has been split between the 21 electric companies in the state. Under the deal, Gaz Metro would own 72 percent of VELCO.

Gaz Metro has said it would put 30 percent of its shares in the transmission utility into a public trust and that profits from the trust would be used to offset rates for low-income Vermonters. Critics say the details about the trust haven’t been released, and questions about who would run the trust have yet to be answered. (In an interview on Tuesday, Dotty Schnure, communications director for Green Mountain Power, was unable to provide details about how the trust would operate.)

Illuzzi and the 30 signatories allege that Elizabeth Miller,  commissioner of the Department of Public Service, should not retain direct oversight of the department’s lawyer, also known as the public advocate, in the case before the Vermont Public Service Board because her husband, Eric Miller, is a managing partner of the law firm that represents Green Mountain Power.

Illuzzi and several other prominent petitioners, including two former public advocates for the Department of Public Service, allege that Sheehey, Furlong & Behm, a Burlington legal practice, stands to be a financial beneficiary as a result of the merger between the two utilities. This situation presents the appearance of a conflict of interest for Elizabeth Miller, Illuzzi writes, and “transparency must be guaranteed when taking a position on behalf of Vermonters about the most significant electric utility merger in the past century.”

“Any less than the appointment of a public advocate places the integrity of this merger process into question,” Illuzzi writes.

Commissioner of the Department of Public Service Elizabeth Miller. VTD/Josh Larkin

The Motion to Intervene, which was filed on Oct. 17, also cites Gov. Peter Shumlin’s vocal support of the merger deal as a conflict of interest for the commissioner, who reports to the governor. There is no way, Illuzzi asserts, that Elizabeth Miller, a Shumlin appointee, could afford to oppose the governor’s stance on the merger – even if it appeared to run counter to the public’s interest. “The commissioner and the Department cannot take a policy position contrary to the governor’s and must ultimately take and promote the Governor’s position,” the motion states.

The governor did not return calls for comment.

Elizabeth Miller wrote in an email that she was disappointed to hear of “Sen. Illuzzi’s filing because the Department has been working hard to represent the citizens of the State of Vermont in this important merger, just as it has done in so many other important utility issues in the past.”

I reject the notion that my husband’s job creates an appearance of conflict. My husband has never represented GMP or any other utility in front of the Public Service Board; he has a general civil litigation and criminal defense practice. His job presents neither a legal nor an executive ethics conflict or appearance of conflict for me or the Department.

Beyond that, a governor is supposed to pay attention to and weigh in on important state matters. The public and the press expect it. Our governor has always appointed the commissioner of the Department. Governor Shumlin, like others before him, expects his appointee and the Department to do the best possible job on behalf of Vermonters. Governor Shumlin has expressly said that he expects the Department and the Board to review this merger and come to the right result for Vermonters. The Department will do that; the Public Advocate John Beling and his team have already started the process of merger review and have retained expert assistance on the VELCO portion of the merger.

Senator Illuzzi did not speak with me prior to writing this filing; had he done so, he would have learned that the Department is not satisfied with the merger as filed with respect to a number of areas, including the proposed structure and accountability of the offered VELCO ownership. All of that is evolving in the context of the PSB docket itself. Meanwhile, the Department has to formally respond to the filing, of course; John Beling will be reviewing Senator Illuzzi’s petition in detail and formulating the Department’s response to the Board on this promptly.

Dotty Schnure, communications director for Green Mountain Power, disputes Illuzzi’s allegation that the governor’s support of the Gaz Metro deal over the Fortis offer for CVPS creates a conflict for the Department of Public Service. “In our experience, the department plays a vigorous role as public advocate,” she said.

Illuzzi’s motion also points to conflicts involving Neale Lunderville, a former secretary of the agency of administration in the Douglas administration. Lunderville is described as “THE architect” of the merger deal. The former Republican political operative is an executive with Green Mountain Power. He recently took a leave of absence when he was tapped by the Shumlin administration to serve as the Tropical Storm Irene recovery czar. Illuzzi argues that Lunderville’s connection to the governor is a conflict.

The state senator said in an interview that VELCO – the state’s transmission utility, which serves all of the state’s electric companies – would become a de facto arm of Gaz Metro if the merger goes through. He and the other signatories are worried that once the Canadian company owns nearly three-quarters of the electricity market, there will be no incentive to guarantee GMP’s purported $144 million in efficiency savings to ratepayers over the next 10 years.

A secret meeting

Illuzzi isn’t the only prominent Vermonter who is concerned about the implications of Gaz Metro deal. He just happens to be the only one willing to stick his neck out, according to sources, in spite of his longtime friendship with Gov. Peter Shumlin.

Recently, about a dozen people, including representatives from small utilities, a House rep and utility experts, gathered for a behind-closed-door meeting to discuss their dismay with the way the Shumlin administration has handled the merger, according to a source who asked not to be identified for fear of retribution. The members of the ad hoc group, with the exception of Illuzzi, were Democrats, and they are outraged that the governor endorsed the biggest utility deal in the state’s history since the licensing of Vermont Yankee in the late 1960s — before the merger was subjected to vigorous scrutiny by attorneys for the state.

The members of this group of concerned utility muckety mucks, however, were unwilling to question the governor in public because they all have ties to the industry or to the Shumlin administration, and they feared their careers would be destroyed. Illuzzi was persuaded to take up the cause and file the motion to intervene before the Oct. 17 deadline.

“Vince is just Vince,” the unidentified source said. “He’s willing to do it.”

Later, when Illuzzi needed signatories, two former public advocates – Michael Burak and Samuel Press – came forward to sign the petition for the motion to intervene. Public advocates serve at the behest of the commissioner of the Department of Public Service and are obliged to represent the interests of Vermont consumers when they analyze rate and other utility cases before the board.

Burak, owner of the Burlington law firm of Burak Anderson & Melloni, and former general counsel for the Vermont Public Service Board, said in an interview that the merger deal “might be a good thing, but I don’t know that.”

“When this needed signatories I was pleased to sign,” Burak said. “I am concerned that the biggest thing to hit this state in a long time is already decided.”

Burak said while he has no doubt that the Department of Public Service has the capacity to analyze the Gaz Metro purchase, the public advocate needs to “approach the entire proposal with healthy skepticism.” As the state’s first public advocate in the 1980s, Burak said he made “damn sure” that rate increases or other cases before the Vermont Public Service Board were subjected “to a high level of scrutiny.”

Samuel Press, also a former public advocate for the Department of Public Service, said under statute the department must hire an independent counsel “whenever the department has been compromised.”

In his view, the department cannot objectively represent the interests of the public because of the governor’s endorsement of the merger and Elizabeth Miller’s ties to the industry.

“If the merger is approved and her husband, as managing partner of the company’s law firm continues in that role, it will be difficult for the public to have confidence in the department as its advocate,” Press said. “I don’t know the Millers or the state of their marriage, but something has got to give.”

Press described the relationship between a representing law firm and a large international utility like Gaz Metro as a “cynosure,” or a position that assures revenues indefinitely. “They (the law firm) will constantly represent this large entity in its legal affairs, most of which will show up in front of the PSB where the department is supposed to be represent the public,” Press said. “It’s a little rich for my taste.”

Press dismisses Elizabeth Miller’s contention that her husband is not involved in utility law, and therefore their relationship does not present a conflict of interest.

“That’s pretty shallow,” Press said. “If you look at the Web site, he’s the managing partner of the firm. He’s running the show and participating in decisions about the revenues of this firm. If that’s a wall, it’s tissue thin.”

Under state law, Gaz Metro must show that the merger will promote the general good of Vermonters, and that’s where, Press said, “the public debate ought to occur.”

Green Mountain Power officials have argued that the merger is in the best interests of ratepayers because it will save $144 million in rates through efficiencies over the next 10 years.

Press said the governor has “bought into the notion” that the deal will be good for ratepayers, without looking at the deal from other perspectives.

Press described GMP’s efficiency savings claims as “debatable at best.” Often when companies merge, he said, there are counter efficiencies in which a utility can spend more resources on combining operations, and it “ends up being worse than before.” And in states like New Hampshire, Florida and Hawaii, that are dominated by one big electric utility, Press said, the rates aren’t “necessarily very attractive.”

“There’s no guarantee of lower rates here,” Press said. “In the future, the big new company will try to recover every nickel it expends, plus profits. If they are so confident about efficiencies, they should be willing to lower rates to whatever level of efficiency they can get.”

Under state law, the utility must also prove that the merger will not obstruct competition, Press said. “I don’t think it would be a hard case to show that in this environment (with a large monopoly utility dominating the market) this would create a situation in which small companies would be living on borrowed time.” Press said small co-op and municipal utilities could, in a market dominated by Gaz Metro, find it difficult to offer competitive rates and become absorbed by the Canadian company as well.

“This thing is going to be a monster, and before it gets out of the lab it needs to be pretty thoroughly vetted,” Press said.

Editor’s note: A write-through of this story, with additional material, was posted at 6:50 a.m. Oct. 19.