House, Senate likely to vote on CVPS, Green Mountain Power merger issue

Rep. Tony Klein. VTD/Josh Larkin

Rep. Tony Klein. VTD/Josh Larkin

Editor’s note: Go to the end of this story to access 10 of the briefs in the merger case filed with the Vermont Public Service Board on April 23, 2012.

It’s down to the wire for the Legislature and the Vermont Public Service Board as both zero in on a merger between the state’s two largest utilities.

On Monday, more than a dozen parties made initial filings in a final round of briefs before the Vermont Public Service Board over the merger of Central Vermont Public Service Corp. and Green Mountain Power. Gaz Metro, based in Montreal, will be the parent company of the expanded Green Mountain Power, which will provide power to eight in 10 Vermonters.

The $21 million windfall provision for ratepayers continues to be the focal point of criticism leveled at the deal.

In 2001, ratepayers bailed out both CVPS and Green Mountain Power when both utilities were on the verge of bankruptcy. In a ruling at the time, Vermont Public Service Board required the utilities to find a way to repay ratepayers should either one be sold.

Green Mountain Power agreed to repay CVPS ratepayers through a weatherization program that the Vermont Department of Public Service endorses; AARP, an intervenor in the case before the Public Service Board, says utility customers should get a refund.

Though experts and House Speaker Shap Smith have cautioned against the Legislature intervening in an open docket before the board, lawmakers are poised to vote on measures that could have an impact on the board’s ruling on the matter.

On Tuesday, the Senate Finance Committee approved an amendment 5-0 to require the Department of Public Service to reopen the memorandum of understanding with Gaz Metro and return $21 million to CVPS ratepayers who are Vermont residents (institutions and businesses would be excluded).

Meanwhile, the House Committee on Commerce and Economic Development voted against a similar amendment that would require the utilities to give ratepayers $21 million in a check or refund.

Some representatives plan to offer an amendment Thursday during debate on H.718, the Department of Public Service housekeeping legislation. The amendment would require Central Vermont Public Service Corp. to give its customers cash or a rebate to satisfy a windfall requirement.

Meanwhile another group of lawmakers in the House is working on a resolution that the Legislature could send to the Public Service Board.

An earlier version of the resolution would direct the Vermont Department of Public Service to “examine whether in the current merger docket it has proceeded in a manner consistent with its obligations.”

Rep. Tony Klein, chair of the House Committee on Natural Resources and Energy, said the resolution did not sit well with the Shumlin administration, which supported an agreement with the utilities to put the money into weatherization.

Klein is one of the lawmakers working on the resolution.

“We didn’t cause the the controversy that’s going on, and there are those of us that are looking for a solution to the controversy,” he said. “It’s not an easy path to find. You can’t necessarily find a fix that’s going to satisfy all.”

Klein said legislative intervention in the board process would be the beginning of an unraveling of a regulatory process that’s worked for 30 years.

“We’re trying to find proper words that express their feelings that they can vote for before they vote for a really bad idea,” Klein said.

A resolution isn’t enough for Rep. Paul Poirier, an independent who is one of four original supporters of the amendment that would require a cash payout to ratepayers.

“A resolution means nothing,” Poirier said. “The only way we can get the satisfaction we’re looking for is by directing the Public Service Board to do something.”

He said 72 representatives have signed onto the amendment that will be offered on the House floor Thursday.

The politically charged merger between the utilities raised a flurry of questions about who really wins out in the end: ratepayers or shareholders of Green Mountain Power’s Canadian parent company Gaz Metro.

Before the Public Service Board, utilities, industry and the AARP raised numerous concerns about the sharing of savings that will result from the merger as well as the governance of the state’s electric transmission system.

The AARP is pushing for the utilities to give ratepayers $21 million in cash or a rebate on their bills to satisfy a windfall sharing requirement. In 2001, the Public Service Board allowed state utilities to raise rates to cover an imprudent contract they signed with Hydro-Quebec. The bailout kept the utilities from bankruptcy, but the board required them to share profits resulting from a profitable merger with their ratepayers.

The utilities first proposed that $144 million they guaranteed in savings would cover the windfall. Later they compromised with the Vermont Department of Public Service and agreed to invest $21 million in an efficiency fund. The arrangement is nearly identical to the one Gaz Metro agreed to when it bought Green Mountain Power in 2007.

Utility officials say legislative intervention would spoil the deal.

In its filing with the quasi-judicial Public Service Board, attorneys for Gaz Metro maintain that “A Board requirement to satisfy the Windfall Sharing Mechanism by payment of $20.9 million in an upfront rate credit to CVPS customers could constitute a material adverse effect under … the CVPS-Gaz Metro Merger Agreement, and thereby terminate the proposed Merger, losing for customers and the State all of the Merger benefits.”

The AARP has pointed to an earlier proxy statement and the merger agreement that say that compliance with the earlier windfall sharing order would not constitute a “material adverse effect.”

James Dumont, an attorney representing AARP before the board, said the utilities are trying to tell the board it’s all or nothing.

“They’re trying to say to the board: Take it or leave it, our way or the highway,” he said.

Dumont said the utilities are getting an unfair share of the savings from the merger. While ratepayers are set to receive $144 million, shareholders will get $82 million.

Dumont said the $82 million that would go to shareholders coupled with the utilities’ recouping the $21 million through rates would mean ratepayers would pay a premium.

“The net ‘repayment’ to ratepayers would add up to a loss of $102.9 million in savings, in effect compelling ratepayers to pay an acquisition premium,” AARP’s filing states.

Dumont said the sharing of profits with shareholders goes against state precedent. In numerous Vermont utility mergers, ratepayers have received all the resulting profits. He said the utilities want to follow precedent when it suits their needs with the efficiency fund but not with profit sharing.

“They want to follow precedent when it helps them,” he said.

Green Mountain Power disagrees.

Dorothy Schnure, a spokeswoman for Green Mountain Power, said the agreement with the Shumlin administration is consistent with past mergers, and legislative intervention could kill the deal.

Green Mountain Power’s testimony lists 14 similar mergers where ratepayers got less that utility shareholders. The utility claims the mergers AARP references were smaller than the GMP-CVPS deal.

“What’s really more important is looking at comparable transactions,” Schnure said. “There are lots of instances where benefits are not as advantageous to customers as we’re proposing.”

As for the “material adverse effect,” the utilities’ latest brief says the Legislature’s intervention could scuttle the deal. Lawyers for Gaz Metro say the proxy statement AARP relies on in its filing only says the utilities agreed to comply with the windfall requirement, not necessarily that they would pay cash to ratepayers.

“An approval condition requiring a cash repayment would likely result in a dispute between the Merger Agreement parties, which could end up in litigation and end up with at least a delay and potentially elimination of all the benefits of this transaction for everyone,” their filing states.


Comments

  1. Randy Koch :

    Tony Klein is wrong: the PSB permit process has long since come unravelled, not because of democratic scrutiny by the legislature but from the fact that the governor has been in bed with the utility from the beginning. That’s why we’re dealing with a sweetheart MOU that gives away the store to the utility. That is why we’re watching in horror as the overriding issue is basically swept under the rug: why the heck should Vermont’s energy policy come under the control of a foreign conglomerate? How will Vermont’s government ever be able to stand up against such a frankenstein once it has been created?

    The legislature needs to assert proper democratic control of an issue of historic importance to the state. Don’t wimp out up there: we need a moratorium on any further consideration by the PSB until the public, the press, the legislature and the governor himself learn about and weigh the consequences. This will not and cannot happen in the PSB.

    • David Russo :

      >> How will Vermont’s government ever be able to stand up >>against such a frankenstein once it has been created?

      thanks Randy. When citizens and some legislators started asking questions about the getting repaid for CVPS loan, the response was, in effect, “if you ask any questions about the $21 million we’ll kill the deal.” If that’s not a thug response, I don’t know what is. I predict we can expect more brass knuckle tactics once the power has been consolidated in Montreal.

  2. Liz Schlegel :

    I’m curious about Plan B, or Plan C, or D. CVPS is looking to be acquired. If Fortis and Gaz Metro are off limits because they are “foreign,” who is the proper owner? I have heard others say their concern is the partner. Fair enough, but who are you proposing as an alternative owner for CVPS? Exelon? Entergy?

    What should the criteria be for ownership as determined by the state? And do the shareholders get any say in this, or is it solely up to “the public, the press, the legislature and the governor”??

  3. Coleman Dunnar :

    One really must question the judgment of a Governor, a native born Vermonter, who challenges a mother bear with cubs. Was he using the same lack of judgment when he introduced the poison into the regulatory process by the appointment of the current Commissioner of the Public Service Department? Did he think nobody would notice the possibility of the “appearance of conflict of interest” and assumed this deal could be pushed right through? It’s insulting to all Vermonter’s that the Governor assumed we are all naïve and wouldn’t notice and fight back. Come the political season don’t be surprised if his spin machine portrays the confrontation with the Bear as an act of courage rather than dangerous, foolhardy act it actually was. Shumlin, always the politician never the statesman.

  4. Elinor Osborn :

    I would like to see the $21 million going into energy efficiency (which would lower rate payers energy bills and cut carbon use) rather than into a small check to rate payers. However–Having rate payers pay for their own payback is not right. The EE money should come from company profits instead.

    The utmost concern for Vermont is who will control the state’s energy and it’s transmission network. A foreign corporation with profit as its top priority should not be in control. The 3 person Public Service Board is on outdated and very undemocratic way to decide Vermont’s future. The legislature needs to step in. And we need a moratorium to carefully study all the ramifications.

    Corporate rule is not right for Vermont. Randy Koch has it exactly right.

  5. John Greenberg :

    The issues in this merger are complex and I am disinclined to do enough homework to express solid opinions about them, but I cannot help noting that many of the arguments in this debate are either logically or factually flawed.

    Let’s start with Randy Koch’s logic. Let’s assume, as he does that “the governor has been in bed with the utility from the beginning.” Obviously, the governor and his supporters do NOT accept that premise, but I’ll let them argue the point. For now, let’s assume Koch is right.

    Based on this assumption, Mr. Koch appears to infer that “the PSB permit process has long since come unravelled…,” but he fails to say precisely how.

    The Department of Public Service negotiated the MOU, not the PSB, and it is DPS, not the PSB, which is controlled by the governor. While PSB members are appointed by governors, their terms are staggered, and only one of the current Board members was nominated by the current governor, and he was actually appointed originally by Jim Douglas. Shumlin had nothing to do with the other 2 members of the Board, other perhaps, than voting for their confirmations when he was a senator(assuming he did).

    Finally, the PSB was not established to educate “the public, the press, the legislature and the governor himself,” so to infer that if this is not accomplished by the PSB process that the Board has failed is quite a leap.

    All of this leaves me wondering how Koch concludes that the PSB process — still underway and with no decision made — is hopelessly wanting. Will Koch still feel that way if the Board rules against the merger? Or if it conditions the merger on the returning the $21 million to ratepayers (and any other points Mr. Koch deems necessary)? If Mr. Koch is willing to accept a decision from the Board with which he agrees, but not one with which he disagrees, that suggests to me that it is NOT really the process which is at issue here.

    Elinor Osborn suggests that “A foreign corporation with profit as its top priority should not be in control.” She fails to mention that currently, a DOMESTIC corporation (VELCO) “with profit as its top priority” is in control, and that a substantial portion of ITS ownership is controlled by a “foreign corporation,” namely GMP (Gaz Metro) Why then is the status quo — to which, of course, we would return if the merger is rejected — acceptable?

    Liz Schlegel’s questions about this are all good ones, and deserve a thoughtful answer.

  6. Bob Zeliff :

    I don’t understand why this issue is not CVPS’s problem. It occurred years ago. To my simple perception it should have be carried as a liability on the CVPS books. When they gained health, again years ago, they should have paid this liability off. Where were the executives or board of directors on getting this done long ago. I feel that they intentionally swept this under carpet, to make themselves look good and increase the sales price and their personal golden parachutes. I think CVPS should pay up, before the sale. Remember no sales has yet occurred. I think there is some legal liability in CVPS management.
    I would like some one to explain why my perspective is incorrect.

    Reply April 24, 2012 at 06:36 P

  7. Josh Fitzhugh :

    Good comments by Mr. Greenberg. Bob, I believe CVPS’ obligations re windfall sharing were triggered by sale of the company.

  8. John Greenberg :

    Bob Zeliff: I can’t answer your question, but I believe I can point you in the right direction.

    You need to look at the original PSB ruling which generated this $21M “liability” in the first place. The public (and legislative) debate has used language very loosely, but you need to establish exactly what the Board ruled, specifically a) is there a loan? b) is there a “liability?” and if the answer to the first 2 questions is no (which some of what I’ve read suggests), then c) what exactly did the Board order? Who was the ruling intended to benefit, and what was the basis for the benefit?

    I gather the Board issued a similar order pertaining to GMP at around the same time and then allowed GMP to invest in energy efficiency as a way to comply with their order, so you also need to ask d) is that correct? e) is it applicable here? and f) did the Board correctly interpret its own order in the preceding case?

    Hope this helps.

  9. Bob Zeliff :

    Thanks John Greenberg. I visited the PSB site and spent some time trying to search for the original ruling. No success. I don’t know enough to use the right key words.
    I will have to trust those better informed to make the right decision. I am very skeptical of the politics of this will serve Vermonters well.

  10. John Greenberg :

    Bob Zeliff:
    After writing this AM, I followed a little of my own advice. The AARP brief posted above (and quite possibly the others) quotes the relevant passages of the original decision extensively. It confirms that there is no “debt” and that the answer to your question is that the Board order required a triggering event, such as this sale. AARP, of course, is the leader of the charge AGAINST the MOU deal on this money.

  11. William Dods :

    Just for clarification, the PSB 2001 Order (as quoted in the AARP Brief) does not contain the word “debt” but does state that the company has an obligation to create a mechanism for repayment of ratepayers “in addition to other benefits appropriately assigned to ratepayers at the time of the future sale, merger or acquisition.”
    The exact form of that mechanism is left to be determined but the Order states that a one-time payment is one option for this, or the repayment could be extended over time if a “one-time full-value payment” would create “an undue financial strain on the Company.”

  12. John Greenberg :

    William Dods:
    To my knowledge, no one in this debate has ever disputed that CVPS must compensate ratepayers to the tune of roughly $21 million.

    The controversy has centered on what the Board called “a mechanism by which ratepayers will share in the above-book proceeds of any future sale or merger of the Company….” (In re Central Vermont Public Service Co., 211 PUR 4th 53, 84-85 from AARP brief, p.2)

    The point here is that cash repayment of a debt is ONE such mechanism foreseen by the Board, but clearly NOT the only one, despite the extravagant claims that have been trumpeted by partisans in this debate. It’s pretty clear that the notion that DPS and GMP conspired to violate a previous agreement is simply false. They have, in fact, proposed precisely what the Board order mandated: namely, “a mechanism.”

    I am NOT suggesting that this resolves the question: it doesn’t. One can certainly question whether investing in efficiency is more or less beneficial to ratepayers than cash repayment would be. That’s the debate we SHOULD be having.

  13. Alan,
    The RPS will harm the Vermont economy by raising electric rates, raising the prices of goods and services, lowering living standards, increasing job losses, lowering standards of living.
    Net Jobs From Renewables is a Hoax: RE promoters and politicians often tout job creation by RE projects, but do not mention the jobs lost in others sectors of the economy.
    Economists have used standard input-output analysis programs for at least 40 years to the determine the plusses and minuses of various economic activities. Numerous studies, using such economic analysis programs, performed in Spain, Italy, Denmark, England, etc., show for every job created in the RE sector, about 2-5 times jobs are lost in the other sectors.
    For every 3 green jobs created in the private sector, 1 job is created in government. Such job creation is unsustainable.
    http://vtdigger.org/2012/03/27/digger-tidbits-vermont-ranks-no-1-in-green-job-survey-early-out-for-obama-event-sanders-no-1-congressman-on-twitter/#comment-32109
    Job creation in the green sector increases unemployment in the private sector and increases employment in the public sector. Whether these government jobs are good or bad, needed or not needed, is irrelevant.
    Note: This is not the case with increased energy efficiency subsidies. They create jobs in the EE sector, but also create a net increase of jobs in the other sectors, because the reduction of energy costs enables more spending on other goods and services.

    http://en.wikipedia.org/wiki/Input-output_model#cite_note-ref-0
    http://en.wikipedia.org/wiki/Input-output_model
    http://www.texaspolicy.com/pdf/2012-02-PP03-LearningFromOthersMistakes-ACEE-JosiahNeeley.pdf
    http://conservativedailynews.com/2011/09/green-jobs-why-wont-obama-learn-from-europe/
    http://sistertoldjah.com/archives/2011/02/28/study-green-initiatives-actually-costing-more-jobs-than-they-create/?wpmp_switcher=mobile
    http://greatlakeswindtruth.org/breaking-news/117-for-every-green-job.html
    http://www.alabamapolicy.org/viewpoints/print.php?id_art=481
    http://conservative-outlooks.com/2011/03/12/green-jobs-fruit-of-the-poison-tree/
    http://budget.house.gov/News/DocumentSingle.aspx?DocumentID=261226
    http://www.aei.org/article/energy-and-the-environment/the-myth-of-green-energy-jobs-the-european-experience/

  14. William Dods :

    Mr. Greenberg,
    I just thought that your statement “there is no “debt” might be a little confusing. If, as you say, everyone agreed that “CVPS must compensate ratepayers” I think it would go a long way toward resolving the debate. The central question, I agree, is whether investment in “efficiency programs” and “weatherization” in ways that may benefit many who are not past or present CVPS ratepayers is an appropriate mechanism for meeting this obligation. I have yet to see a convincing argument from DPS or anyone else that this is so.

  15. John Greenberg :

    William Dods wants an argument for efficiency investment as an appropriate mechanism to repay Vermont ratepayers. Here’s a brief one.

    Utilities are tasked with providing adequate electricity to meet the demands of ratepayers. To do so, they can either buy electricity or reduce demand. Reducing demand costs under 3 cents. Purchased power currently costs around 4 cents or more. Therefore, buying demand reduction is cheaper than buying power. Since utility costs are paid by all ratepayers pro-rata, all ratepayers benefit from reducing costs by investing in efficiency.

  16. William Dods :

    Mr. Greenberg,
    Thank you for your response. I am ready to concede, without verifying your figures, that energy efficiency represents a general benefit to ratepayers. I believe the central question of this debate is not about the general benefit but about a specific obligation originating from a particular rate increase on CVPS ratepayers that was approved by the PSB. As you correctly say, we should be arguing about the best mechanism for meeting this obligation.
    Is it fair or proper to address this specific obligation by spending more money on the general good of efficiency programs? Considerable money (from every electric bill) is already spent on efficiency. Is this money being well spent?
    Has the public been well served by DPS in this matter? Are ratepayers in fact going to be compensated or is the state just trying to secure additional funding for programs?
    These questions, especially the question of fairness, are what the debate is about.

  17. John Greenberg :

    Thanks for your reply William Dods.

    I’ll respond to the questions you raise, though not in the order you raise them.

    1) You write: “Considerable money (from every electric bill) is already spent on efficiency” and then ask: “Is this money being well spent?” The obvious answer is yes. Ratepayers are purchasing what Amory Lovins calls “negawatts” at a fraction of the cost of the power which would otherwise need to be purchased. Additionally, there’s a secondary economic benefit: efficiency programs create significant numbers of well-paid Vermont jobs. And finally, efficiency is less damaging to the environment than ANY source of energy.

    So, by spending money on efficiency, we are lowering overall costs to ratepayers, protecting the environment, AND creating jobs. I believe that there are ways to do efficiency even better than we have been in Vermont, but that’s an entirely different question.

    So, the short answer to your question is a resounding affirmative: yes, this is money well spent.

    2) You then ask: “Is it fair or proper to address this specific obligation by spending more money on the general good of efficiency programs?” Why not? The major benefit, the one I articulated for you previously, comes in the form of lowered utility costs, which are passed on to the affected ratepayers. Ratepayers of other utilities won’t benefit from these investments since the shared costs of ratepayers in one utility’s service area do not cross over into another’s, so this benefit is NOT so general that it ignores the fact that CVPS’s ratepayers contributed the higher rates which we are now trying to disperse, while those of say, Burlington Electric, did not. It’s true that the job benefits may well go to non-CVPS ratepayers, and the environmental benefits will go to everyone, regardless of whether or not they are ratepayers at all, but I really don’t see how either of these points can be construed as a drawback or as unfair.

    3) I can’t answer your question about whether this is the “best mechanism,” because I have not done the necessary homework, which in this case would involve reading the PSB testimony and briefs to see what sources far better informed than I am on this issue, and who have reasoned it out far more carefully in the full context of this merger, have to say about it.

    But I will point this out: that’s why we have a Public Service Board in the first place, and why I have been so defensive about not interfering with their process. This is PRECISELY the kind of question the Board was established to answer and I am perfectly content to let it go ahead and do so.

    For essentially the same reason, I can’t answer your question about whether “the public been well served by DPS in this matter.” If the Board finds that the MOU constitutes the best mechanism proposed in the context of the merger taken as a whole, and if that conclusion seems reasonable, then the answer would certainly appear to be yes. If not, perhaps not.

    I have tried to confine my role here to sorting out some of the basic facts and addressing some of the obvious errors in arguments made. Frankly, I don’t have a horse in this race. I recognize the complexity of the issue, and its importance, but I don’t have the time or energy to invest in weighing all the factors.

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