As the Vermont Public Service Board considers allowing the state’s two largest utilities to merge, the fate of millions of dollars is still undecided.
Green Mountain Power plans to return $144 million in savings to ratepayers in the first 10 years after the merger. In what form remains to be decided.
The state’s largest utility, CVPS, is obligated to repay $21 million to ratepayers as a result of a bailout in the 1990s in which utilities were allowed to raise rates in order to avoid bankruptcy. Green Mountain Power and CVPS claim this debt will be satisfied through reductions in operational costs over a decade. The utilities say the savings will be passed on to ratepayers.
Groups like the AARP, which intervened in the docket, and the Department of Public Service, which represents the public, are not convinced that the utilities’ original proposal satisfies their obligations to return a windfall to ratepayers who bailed them out more than 10 years ago.
Numerous proposals have been floated for spending the $21 million, which the Department of Public Service argues the utilities need to pay back in addition to savings that will already accrue as a result of the merger.
The AARP asked for a reimbursement to current ratepayers.
Most recently, Vermont’s community action agencies have requested that the board consider spending this $21 million in “windfall” money on the state’s weatherization assistance program, which lost $1 million of year-end carry-forward money in the state’s efforts to restore LIHEAP funding. Federal funds through the American Recovery and Reinvestment Act, which helped fund the low-income weatherization program, will likely be spent soon.
Steve Geller, executive director of Southeastern Vermont Community Action and president of the Vermont Community Action Partnership, said the suggestion was give utilities a better way to invest the “windfall” money in the future.
“We’re just saying when you’re thinking about where to put this windfall money, weatherization would be a good place,” Geller said.
Geller said the federal stimulus funds helped increase the state’s capacity to help weatherize homes. With the loss of those funds, the momentum could be lost.
Unlike the AARP proposal, which would spread the money around to all ratepayers, the community action proposal focuses on low-income people, but Geller said the groups want to help everyone.
“We want to emphasize we’re not trying to take money out of anyone’s pocket,” Geller said. “We just want to put out our best idea for how this money could be used to help Vermonters.”
In written testimony, the Department of Public Service addresses options for the windfall money, including efficiency measures and returning cash to ratepayers.
Asa Hopkins’ testimony outlines criteria for ratepayer reimbursement, such as linking the amount of returned benefits to higher rates paid, meaning commercial ratepayers would likely get a greater share.
DPS Commissioner Elizabeth Miller said, “The department’s position is that value from the windfall should be returned to CVPS ratepayers, and the department proposed a number of possible programs that would not only return the full value but also be able to leverage that value to create greater benefits.”
The DPS agreed with the AARP that the windfall money should be in addition to the $144 million in savings that will accrue as a result of the merger. Hopkins testimony, however, points out that giving a refund to existing ratepayers (somewhere around $70 for residential customers on average) would not create a lasting benefit.
In separate testimony by economist John Wilson, the department was skeptical about the purported savings.
The merged utility will save $82.4 million. According to Wilson’s testimony, the company’s benefits would accrue faster than the ratepayers’ benefits. In the first six years after the merger, the utility would benefit $63.7 million, while ratepayers would see $19.1 million in savings.
The DPS also points to areas, such as double leverage financing, in which the companies will benefit but ratepayers will not.
This so-called “double leveraging” is a rarely used financial strategy where a subsidiary company’s equity capital is funded by debt issued at the parent company level. In effect, Vermont utilities’ equity could be financed by Gaz Metro’s (Green Mountain Power’s parent company) debt. Gaz Metro, Green Mountain Power’s parent company, proposed using this method.
The technique, according to Wilson’s testimony, can be financially risky because there is more debt and less equity financing the enterprise than there would be otherwise.
Allowing the company a return on the debt-funded portion will result in additional profit for the company while ratepayers will be charged more than the company’s actual capital cost, the testimony states.
“The department would like to see the sharing between ratepayers and the acquiring company favor the ratepayers far more than the merger petition has requested,” Miller said.
Dorothy Schnure, a spokeswoman for Green Mountain Power, said the utilities are looking at all the proposed options for the savings that will result from the merger. Company executives say the $144 million in savings would take care of its obligations under the Public Service Board’s precedent.
“We believe the original proposal is significant and satisfies the board order” that requires the utilities to share profits as a result of a merger, Schnure said.
She said the slower rate of ratepayer savings comes from the fact that the company would be achieving savings more slowly through attrition rather than through layoffs at the outset.
Schnure also emphasizes that during the first 10 years after the merger, ratepayers will receive more savings than the company and after that all savings go to ratepayers. She also emphasizes the amount of savings that would not occur if Fortis, the other company that bid to purchase CVPS, was able to take over the utility. Green Mountain Power and CVPS have service territories in the state that look like something of a patchwork quilt. Combining the two will allow for a much smoother operation, she said.
As for the promised savings, Schnure said, “We expect to live up to those promises, and we expect regulators will ensure we live up to promises. Those savings are guaranteed. It just makes sense.”
