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.