Before the PSB: State senator leverages fight over independent counsel for Gaz Metro merger

Board grants Illuzzi motion to intervene on behalf of ratepayers; utilities, VELCO and the Department of Public Service oppose senator’s arguments

Sen. Vincent Illuzzi has struck an uneasy truce with the Shumlin administration over the way it will handle its review of the biggest utility merger in the state’s history.

In exchange for holding his fire in the latest round of legal parries with regulators and the players in the utility industry, Illuzzi has asked that the Department of Public Service demonstrate it will vigorously defend the public interest in a merger case involving Green Mountain Power and Central Vermont Public Service.

The department’s plan for the case will be filed on Dec. 20 with the Vermont Public Service Board (PSB), a quasi-judicial entity, which will ultimately decide whether to approve Montreal-based Gaz Metro’s proposed purchase of Central Vermont Public Service and merger of the company with Green Mountain Power.

If the $702 million deal goes through, Gaz Metro will own about 70 percent of the state’s retail electric market and will hold the majority share of Vermont Electric Power Company (VELCO), the state’s transmission utility.

Since October, Illuzzi, representing 46 ratepayers, has filed a motion, two rebuttals, a letter to the board and a motion with the Federal Energy Regulatory Commission. His motion to intervene in the case included a request for an independent counsel.

The state senator, who is also the state’s attorney for Essex and Orleans county, argues that the Department of Public Service will be incapable of scrutinizing the deal adequately because he believes the department has been compromised by a conflict of interest involving the commissioner and Shumlin’s public support for Gaz Metro’s bid. The department will represent ratepayers in the case.

The Department of Public Service, along with VELCO and the petitioners – CVPS and Green Mountain Power – have, in separate counter filings, rejected Illuzzi’s criticism of the department and his assertions about the nature of the merger, which he describes as a “mega proposal.”

However, the PSB recently granted Illuzzi his request to intervene in the merger case. That means the state senator could, he says, call experts to testify against the proposed merger.

Though utilities lost their request for denial of Illuzzi’s party status in the case, the heart of their objections revolve around the senator’s request for an independent counsel instead of the department’s “public advocate,” or staff attorney.

Illuzzi wants the Board to appoint an independent attorney because he believes the public advocate’s objectivity could be impaired under the direction of a commissioner with the appearance of a conflict of interest. Commissioner Elizabeth Miller’s husband is a managing partner with the firm that represents Gaz Metro and could, Illuzzi alleges, benefit from the proceeds derived from a potentially lucrative long-term contract with the utility.

The utilities argue that the commissioner’s judgment isn’t clouded by her husband’s association with the Canadian utility, and that replacing the public advocate is unnecessary and would ultimately lead to costly delays in the board review of the case.

“Cost is an important factor for our customers,” said Dotty Schnure, manager of corporate communications for Green Mountain Power.

Schnure said in an interview that the merger should “absolutely undergo scrutiny, and that’s what the Department of Public Service is set up to do.” There is no question, Schnure said, that the department “will do its due diligence.”

Miller’s alleged conflict of interest is “not an issue,” Schnure said, and hiring an independent is “completely unnecessary.”

Illuzzi said a board appointed independent counsel would have the ability to retain and call experts, and have the expense billed back to the applicants.

“The way Gaz Metro is throwing money around to get the deal done ($18 million to Fortis; $24 million to CVPS executives and other stockholders), the relatively small expense of retaining expert consultants to look at the deal would give Vermonters a level of assurance that we won’t be a byway for Hydro Quebec to reaps billions in revenue from southern New England, where the demand for electricity is growing,” he wrote in an email.

A cancelled meeting

The legal exchange between Illuzzi, the petitioners, VELCO and the department began in October. Before Illuzzi filed his initial motion to intervene and request for independent counsel, he tried to reach out to Shumlin with his concerns about the commissioner and VELCO, according to Seven Days columnist Shay Totten. On the Friday before the Monday Public Service Board filing deadline, Shumlin cancelled a planned meeting with Illuzzi about the merger.

By the following Monday, just before the deadline, Illuzzi filed his motion, with signatures from 46 other ratepayers.

The governor’s office later claimed Illuzzi had not made an effort to reach out. Then Sue Allen, Shumlin’s press secretary, changed tack and told Totten: “Given Sen. Illuzzi’s political posturing, we determined that his presence at a meeting would be counterproductive.”

In a press conference shortly afterward, Shumlin took umbrage at the idea that Illuzzi, a former longtime colleague and friend in the state Senate, would impugn the integrity of Elizabeth Miller, who is widely viewed as one of the best lawyers in the state.

A one-man crusade?

So why is the freeform Republican senator from Essex-Orleans, who isn’t a utility lawyer by trade and who holds down a full-time gig as a state’s attorney, going to all this trouble?

Illuzzi says he intervened in the case because utility industry experts were worried about the merger’s implications for VELCO, but were too nervous about opposing the governor publicly, and so they asked him to step up.

Two of the ratepayers who signed Illuzzi’s motion to intervene and request for an independent counsel – Michael Burak and Samuel Press – are former public advocates for the Department of Public Service. They told VTDigger.org last month that they have grave concerns about the commissioner’s alleged conflict of interest.

Illuzzi has a penchant for populist issues, and in his view, the state is selling off one of its most important assets — the transmission lines that distribute power throughout the state — to a foreign entity, Gaz Metro. Though the Canadian company has a good track record and a long interest in Vermont – Gaz Metro acquired Vermont Gas Systems, a subsidiary company that distributes natural gas to 45,000 customers in Chittenden and Franklin counties in 1987 — Illuzzi is concerned that the main attraction for the corporation’s investment in Vermont is the state’s transmission lines.

The senator compares Gaz Metro’s potential control of the state’s $1 billion transmission utility, VELCO, to a takeover of the state highway system. In several of his filings, he invokes the ghosts of George D. Aiken and Ernest Gibson, governors in the early 20th century, who fought utility industry consolidation.

Illuzzi wrote that VELCO, which owns the state’s power lines is “a core element of Vermont’s economy.”

“All Vermonters depend on VELCO,” he said in a letter to Susan Hudson, the board clerk. “It falls to the Board to decide on the wisdom of such a profound and permanent change.”

A question of conflict

Illuzzi argues in filings with the board that he believes the department commissioner, Elizabeth Miller, cannot review the case impartially. He says her husband, Eric Miller, a managing partner of the law firm Sheehey, Furlong and Behm, which represents Gaz Metro in the case, will reap financial gains should the deal between CVPS and Green Mountain Power go through.

This apparent conflict of interest, Illuzzi says, makes it difficult for the commissioner to represent the interests of the public as she guides the litigation for what is widely believed to be the biggest change in the utility landscape in Vermont in decades — on a par with the state’s approval of the Vermont Yankee Nuclear Power Plant in the late 1960s and the initial agreement with Hydro-Quebec in 1987.

“His firm stands to represent what would be the largest electric economic entity in Vermont, which would generate a large and steady of volume of business for the Sheehey law firm and secure the success of the firm for which Mr. Miller, as managing partner, is responsible,” Illuzzi wrote.

“Revenue from such representation will either flow directly to Mr. Miller in partnership compensation, or help to support the business overhead and hence increase the profit available to distribute to the partners, including Mr. Miller. In short, his law practice would be gilded for the foreseeable future, and perhaps for a very, very long time. Commissioner Miller stands to profit from this arrangement.”

The department, VELCO and Green Mountain Power rushed to the commissioner’s defense in a flurry of filings.

The department requested that the board reject Illuzzi’s request for an independent counsel on the grounds that “there is no legal conflict presented by her husband’s employment.”

Geoffrey Commons, a longtime attorney for the department wrote: “There are no allegations made, nor is there factual support for a finding that the Commissioner’s husband has a financial interest in any entity subject to supervision of the department or financially benefits from the outcome of any individual matter before the Board, when this merger or any other regulatory matter is handled by other members of his law firm.”

Sheehey, Furlong and Behm, the law firm representing Gaz Metro, CVPS and Green Mountain Power, filed a more detailed response to Illuzzi’s allegations of a conflict of interest regarding Eric Miller’s partnership arrangement with Sheehey, Furlong and Behm. The filing, which was also signed by John Marshall, esquire, with Downs Rachlin Martin, asserts that the Executive Code of Ethics, issued by the governor’s office, supercedes professional code of conduct ethics for lawyers in Vermont. Under the executive order, “the Commissioner shall not be ‘financially interested, directly or indirectly in any private entity or private interest that is subject to the supervision of … her … department.”

“The Commissioner does not act as counsel for the Department,” the attorneys wrote. “Instead, the Commissioner is the head of the Department and its legal representation is provided by the public advocate.”

The lawyers for the petitioners also cite two advisory opinions – one from the Executive Branch Ethics Commission for the state of Kentucky and another from the Office of State Ethics in Connecticut. In both instances, a commissioner for a department of public service had voluntarily asked for conduct guidelines regarding their ability to diligently carry out their duties under similar circumstances. In both cases, the spouses of the commissioners were lawyers for utility companies. The Kentucky commissioner agreed to recuse herself regarding matters that involved her husband’s business and disclose his position when necessary. Public Utility Control Authority Commissioner Anne George of Connecticut was also allowed continued in her role even though her husband was an associate of a firm that represented rate cases, bond issuances and mergers for utilities.

In his rebuttal, Illuzzi says the spouses, in these two instances, were associates of the firms they worked for and they earned an hourly wage. Neither was a managing partner like Eric Miller who receives “monetary benefits derived from work at his law firm,” Illuzzi wrote.

Illuzzi, whose own career in the law was checkered by misconduct and an 18-month suspension from practicing the law, argues that the commissioner is not in a traditional lawyer-client relationship where “the commissioner can pick up the phone and ask if her clients (i.e. the ‘public’) are troubled by the family relationship.”

VELCO, for its part, argued that neither the commissioner, nor the department had been compromised. In addition, VELCO took issue with Illuzzi’s “misapprehension” of the “regulatory context in which the merger proposal arises,” which requires the company to adhere to legally enforceable open access requirements.

VELCO also argued that an independent counsel would have to “come up to speed” to understand the complex electric utility regulatory regime.

“The state, as well as the Public Service Board, will benefit from a public representative who understands the federal and state authority governing VELCO and the bulk transmission system,” VELCO’s general counsel, Karen O’Neill wrote.

Kerrick Johnson, the communications director for VELCO, said the appointment of an independent counsel could cause delays in the approval process.

A fairness question

Jim Balassone, an ethics expert from Santa Clara University’s Markkula Center for Applied Ethics, said the sides are arguing over technicalities. The bottom line is: What’s fair?

“This might be a good deal for ratepayers … but that isn’t the point here,” Balasonne said. “The point is the conflict of interest and what is her obligation to the stakeholders she represents? She should be represent the best interests of the citizens of Vermont.”

Balassone, who works with Silicon Valley executives, said the commissioner’s relationship creates a “clear conflict of interest.” This would be true if the situation involved her brother, uncle or any other relative, he said.

“The perception is this is a conflict of interest,” Balassone said. “And in that case, judges, lawyers, decisionmakers and board members need to recuse themselves from the decision. It’s quite common. What I don’t like is people are trying to stand behind a legalistic definition.”

Vermont’s a small state and we’re going to have these appearances, said Rep. Tony Klein, D-E.Montpelier, who is chair of the House Energy and Natural Resources Committee. If we “require … firewalls we’re going to have trouble finding competent people to serve in these positions.”

Klein said he spoke to the commissioner about the conflict and was satisfied based on his “gut feelings” that the people of the state of Vermont are “well served in this proceeding by the Department of Public Service.”

“Liz Miller is highly regarded in the legal world, and she could be making a heck of a lot more money than she is now,” Klein said “If it was about money she wouldn’t be doing this. I think because the issue is raised and now on everybody’s radar screen I think all eyes are going to be upon it.

Editor’s note: A write-thru was posted and additional content was added at the end of this story (Illuzzi suspension information and quote, Balassone and Klein section, at before 7:30 a.m. Nov. 30, 2011.)