The AARP is calling on the state’s largest utility to fulfill a promise it made in 2001 when ratepayers bailed out Central Vermont Public Service.
In 1991, CVPS locked into a deal with Hydro-Quebec that went south, putting the company’s financial health in doubt. The utility asked the Public Service Board to approve higher electricity rates that required ratepayers to cover the cost of the utility’s imprudent financial decision. The board approved the rate increase on the condition that if there was a disposal or acquisition of CVPS assets or merger at above book value, that CVPS stockholders and ratepayers would share equally in those profits up to $16 million for ratepayers, adjusted for inflation.
Now that CVPS and Green Mountain Power propose to merge, AARP wants to make sure ratepayers get their money back.
“Ultimately, we’re fighting for ratepayers, many of whom are struggling to make ends meet,” said Dave Reville, communications director for AARP Vermont.
Reville says ensuring ratepayers get reimbursed for bailing out the state’s largest utility is a matter of fairness.
“Our message to the Public Service Board and to utilities is to keep your promise,” he said.
AARP filed a motion to intervene on Sept. 19.
The advocacy organization for seniors says that it has a significant interest in the CVPS/Green Mountain Power merger because it represents 130,000 Vermonters who are age 50 or older, many of whom are customers of CVPS.
On Sept. 2, Green Mountain Power and CVPS filed a petition with the Public Service Board to approve of a merger between the two companies with Green Mountain Power emerging as the surviving entity. The petition says that the merger complies with the “windfall sharing mechanism” that requires the utility to share profits with ratepayers. The petition states that the companies agree to return $144 million in cost savings to ratepayers in the first 10 years.
Projected savings in lieu of direct reimbursement is not quite good enough, says Philene Taormina, a government affairs representative for AARP.
Taormina said the Public Service Board order does not “say ratepayers must be paid back in future savings.” In the Green Mountain Power CVPS merger, shareholders will receive an immediate payout of $10 per share, while ratepayers have to wait for future savings, she said. The two groups are being treated differently, in her view, and she questioned Green Mountain Power’s ability to “guarantee” the savings.
Taormina said it’s only fair to make sure ratepayers are “reimbursed to whatever extent possible in today’s dollars for what they contributed 10 years ago when they were in trouble because of contracts they got into.”
The idea of the windfall sharing mechanism emerged from a 2001 Public Service Board order allowing CVPS to charge higher rates in order to avoid a downgrade in CVPS’ credit rating, diminish the company’s access to capital, and place it in an unstable financial situation. The rub was that CVPS had to pay for its imprudence in getting into a bad deal. In an earlier decision, the Public Service Board had found that CVPS’ decision to lock-in early to the Hydro-Quebec Vermont Joint Owners Contract was imprudent, and estimated that, from 1999 to 2016, $130 million in above-market costs could have been avoided, had the lock-in not occurred.
CVPS was not the only utility to lock in to the 1990s Hydro-Quebec deal. Green Mountain Power is committed to the same mechanism that aims to avoid unjust enrichment of shareholders at a cost to ratepayers. In 2007, after the Canadian utility Gaz Metro purchased Green Mountain Power, the Public Service Board applied the windfall sharing mechanism and found the utility had to share its profits with ratepayers. The company reached a $1 million settlement agreement with AARP. That money was used to fund a low-income electricity assistance pilot program. This summer, AARP won a petition for the establishment of a permanent assistance program. In July, the Public Service Board gave its approval to the project, which will cut power bills for low-income Vermonters by 25 percent. The cost for the program will be borne by ratepayers.
The utilities believe the $144 million in savings is more than adequate.
Dotty Schnure, a spokeswoman for Green Mountain Power, said customers will begin seeing the benefits of the merger in the first year and after the 10-year period where they guarantee $144 million in savings, ratepayers will continue to see lower rates because of the efficiency of running one utility instead of two.
“We really think we have more than covered what is required under the windfall sharing mechanism,” Schnure said.
The petition for approval of the merger also includes a contribution of $1 million annually to a low-income rate program.
Currently, the Vermont Department of Public Service has not taken a position on the windfall proposal in the Green Mountain Power and CVPS petition. John Beling, director of the Department of Public Service Public Advocacy Division, said “at this point we share some of AARP’s concerns as to whether it’s consistent with the 2001 order.”