Municipal and cooperative utilities are concerned about who will control the state’s transmission utility — Vermont Electric Power Company (VELCO) — should the state’s two largest utilities merge.
The smaller “munis” and co-ops urged the Vermont Public Service Board to prevent the new large entity — Green Mountain Power — from controlling 80 percent of the state’s transmissions lines and effectively squeezing them out of representation on the VELCO board.
At the same time, the chief executive officer of VELCO criticized a proposal by the Department of Public Service to appoint “public good directors” to the company’s board.
VELCO has risen to the forefront of the conversation about the merger between Green Mountain Power and Central Vermont Public Service because it plays a role in just about every major decision regarding electricity in the state. VELCO, which manages the transmission infrastructure, is owned by utilities in proportion to their share of the retail electric market. A merged CVPS and Green Mountain Power would own a vast majority of VELCO, granting the new utility an effective veto over all of the remaining utilities in the state. To address this situation, in their petition to merge, the two utilities proposed shifting a one-third share of VELCO to a low-income trust.
In testimony submitted on Jan. 10 on behalf of the Department of Public Service, Vermont Law School professor and former chairman of the Public Service Board Michael Dworkin recommended a Transmission Nominations Board that would nominate five of the 13 directors of the VELCO board as “general good directors.” The Senate, House, governor and utility experts would appoint the nominations board.
VELCO rejected this proposal outright.
In a press release announcing the company’s testimony Friday, VELCO President and CEO Chris Dutton said, “This proposal completely disregards the existing regulatory protections that have long ensured that the state’s transmission system is operated in the interests of the general good of the State.”
The press release states that if Dworkin’s recommendations were accepted, they would “render VELCO’s governance more political, complex and uncertain.”
The testimony asserts, “Imposing needlessly damaging governance changes based on unsubstantiated, ill-informed fears and concerns will jeopardize VELCO’s ability to continue to best serve the interests of our owners and the state.”
Kerrick Johnson, vice president of external affairs for VELCO, said a mandatory change to the company’s managerial structure will inevitably alter the company’s operations. His answer: “If it’s not broken, don’t fix it.”
“When you disrupt an organization like this and 38 percent of its management, and we’re going to tell you who’s going to serve on this board, of course it’s going to impact,” he said.
Johnson said everything the company does is subject to strict regulation by the Public Service Board as well as other regulatory entities like local town boards and the Federal Energy Regulatory Commission. Currently, the board has a duty to its owners — utilities — who need to keep rates down. He said the company has a history of fairness.
“We have been open, transparent and adhered to regulations and tariffs,” Johnson said. “We treat everyone fairly. You may not like our answers, but you will see how we arrive by them.”
Appointments to the board by the Legislature and governor could politicize the process, Johnson said.
“It seems to me inarguable that you’re gong to have a very political process for selecting for the first time,” he said.
While VELCO supports the current management structure, with the modifications proposed by its two largest owners, smaller utilities worry it will leave them and the public out of the process and allow the new giant to steamroll over them.
Stowe Electric Department, a publicly owned utility which is a department of the Town of Stowe, realized the pitfalls of VELCO’s current structure in the early 2000s during construction of an electric line from Duxbury to Stowe. A dispute arose over who should pay for the upgrade. Stowe alleged that the cost should be spread among the utilities, while the VELCO board contested that the smaller utility should foot the bill.
In its testimony, Stowe alleges that “serious decisions adversely affecting the interests of Stowe Electric were made without any solicitation of input from the utility.”
Stowe, which was not a member of the Vermont Public Power Supply Authority, did not have a seat at the table in transmission decisions and was essentially out of the loop, according to Ed French, a lawyer for the department.
“Our concern is that the current structure would perpetuate existing control by the investor-owned utilities, but it would make it worse because instead of two utilities to balance it out, you would end up with one that would be like the elephant in the room when decisions are made,” French said.
Stowe is advocating for seats on the VELCO board for itself and Washington Electric Cooperative, the other utility that is not directly represented on the VELCO board.
Burlington Electric Department, the largest of the municipal utilities, expressed similar concerns in its testimony to the board. BED cited an example: an upgrade to the Highgate converter where VELCO committed the owners (one of which was Burlington Electric) to a more than $30 million contract. Green Mountain Power and CVPS were able to approve the upgrade without consulting the smaller utility because they had approval of more than half the owners. Burlington Electric found out about the agreement a month later.
Ken Nolan, manager of power resources at Burlington Electric Department, filed testimony on behalf of the department.
Nolan said Burlington Electric is concerned about a lopsided amount of power in the large utility.
“As one utility really starts to dominate the ownership, there is a tendency to defer to the larger owner,” he said.
If Green Mountain Power becomes the largest shareholder in VELCO, it may acquire the ability to make decisions that would shift infrastructure costs to the smaller utilities, indirectly raising rates for customers. As the costs shift to smaller utilities, Nolan worries, they will be less competitive and more likely to sell to the giant utility, leaving open the possibility for an even more unbalanced share of power.
Where Burlington Electric parts ways with the Department of Public Service is with the proposal to include appointed members of the board. Management decisions need to be made by the corporation, Nolan said, and the decision of what needs to be built and how to pay for it is really a corporate discussion.
Avram Patt, general manager of Washington Electric Cooperative, agrees that control of VELCO should not rest solely with one giant utility. Contrary to Burlington Electric, however, the small cooperative’s position is that public involvement could go even farther than Dworkin proposed.
Patt said the cooperative is generally in agreement with Dworkin’s proposals, but it goes a step further to recommend a quasi-public governance structure.
“We feel that this is a time to really open up the club a little bit and make this a little more publicly accountable organization,” he said.
The cooperative’s testimony notes that it does not have the resources to do a full financial and legal analysis of the merits of public ownership, but this historic moment in utility history provides an ideal moment to do so.
“We just don’t think we should move forward without a full analysis,” Patt said.
VELCO as benefit corporation?
Another proponent of public ownership, Sen. Vince Illuzzi, R-Essex-Orleans, also filed testimony Friday.
Illuzzi recommended converting VELCO into a public benefit or “B” corporation. Vermont is one of about a half dozen states that allow this type of corporate structure that allows a company’s governing board to put social or environmental objectives ahead of profits.
“I thought it would be a great opportunity to take advantage of public benefits VELCO can bring,” Illuzzi said.
He compared the transmission infrastructure to dams on the Connecticut River that the state could have bought in the early 2000s but opted not to. The dams, once paid off, produce the cheapest electricity in the state.
Illuzzi contests VELCO’s position that public involvement will disrupt the company financially.
“One of the things VELCO will say is ‘we run this company really well. How are a bunch of politicians going to do it?’” he said.
Illuzzi said the state is able to manage things like pension funds and self-insured health funds by hiring experts.
Saying the state cannot manage the transmission lines “doesn’t pass the laugh test,” he said.
Illuzzi originally filed a motion to intervene on behalf of a group of ratepayers seeking appointment of independent counsel to represent the Department of Public Service since the department’s commissioner is married to a partner at the law firm that represents Green Mountain Power. Illuzzi withdrew his motion when the department tapped Dworkin to offer independent testimony. The group of ratepayers, however, will continue with a different spokesperson.
The Department of Public Service filed additional testimony on Friday as well. Elizabeth Miller, commissioner of the department, said the department is currently reviewing the testimony and could not offer comments on specific parties’ testimony.
“The department continues to believe it is important to reflect the public interest in VELCO governance and that the appointment process to the VELCO board is an appropriate way to accomplish that,” Miller said.
The petitioners in the case, Green Mountain Power and CVPS, will offer rebuttal testimony in February.
