What do transmission lines and the mid-year budget correction bill have in common? Not much, but on Thursday the two narrowly escaped an unorthodox union when Sen. Vince Illuzzi attempted to marry the Budget Adjustment Act with an amendment that would require the state to look into buying half of the state’s electric transmission system.
At one point, the entire Senate left the room for a 45-minute recess while Illuzzi, a Republican from the Northeast Kingdom, and the Democratic leadership convened in the cloak room. Then, in a strategic move, one of the amendment’s co-sponsors, Sen. Peter Galbraith, D-Windham, withdrew the amendment. The provision was later sent, in bill form through a rule suspension, directly to Senate Finance for review.
The hubbub was about finding a vehicle for legislation that would give lawmakers more say over the fate of the state’s power lines. Sens. Illuzzi, Galbraith and Tim Ashe, D-Chittenden, want the state to hire experts to look into public ownership of 51 percent of the shares of Transco.
The bill, S.172, is another manifestation of proposals by politicians and at least one publicly-owned utility to look into buying all or part of the state electric transmission infrastructure.
Currently, Transco, which is governed by its sister corporation, Vermont Electric Power Co., is owned by the state’s utilities in proportion to their share of the retail electric load. While the state’s two largest utilities are petitioning the Vermont Public Service Board to approve their merger, the fate of the transmission system has come to the forefront of the conversation.
If Central Vermont Public Service and Green Mountain Power merge, they would own around three-quarters of VELCO and Transco. In effect, Gaz Metro — the Canadian utility that owns Green Mountain Power — would own most of the transmission system.
The utilities proposed relinquishing a third of VELCO’s voting shares to a low-income trust. The Department of Public Service recommended in testimony that the VELCO board include five “public good directors” who would represent the public in the decision-making process.
Washington Electric Cooperative asked for a study to assess the merits of purchasing VELCO, but the Department of Public Service has not taken up the idea.
Illuzzi first championed public ownership of Transco after he became a party to the Public Service Board proceedings based on his standing as a ratepayer. The senator obtained that standing when his motion to intervene was accepted by the Public Service Board. He asked in his filing with the board that an independent counsel from the Department of Public Service be appointed to present the case. He argued that the Elizabeth Miller, the commissioner, couldn’t oversee the merger case objectively because her husband, Eric Miller, is a managing partner of the legal firm that has been hired to represent Green Mountain Power.
Illuzzi judged the legislative maneuver a success on Thursday when his proposed amendment found its way, in full-fledged bill form, to Senate Finance. “This is a significant step forward to position the state in deciding whether to acquire an ownership interest in the transmission system,” Illuzzi said.
The senator has maintained that Gaz Metro’s ownership of Transco could in future pave the way for construction of new high voltage transmission lines from Quebec through Vermont to Southern New England. Partial state ownership would ensure the state has a voice in those decisions, he said.
“If you’re at the table as a co-owner those concerns come to the forefront instead of being an afterthought,” he said.
The idea, Galbraith said, is to allow the state the opportunity to condition the proposed merger on Transco, making the shares available to the state at book value.”
The bill, which would authorize $250,000 from the General Fund for the study, must still make its way through the finance committee and the Senate as well as the House.
The deadline for the study is early April, shortly before the Public Service Board issues a decision on whether the merger of the state’s two largest utilities is in the “public good.”
Illuzzi is chair of the Senate Committee on Economic Development, Housing and General Affairs. He took testimony for two days on the issue, and Miller and the state treasurer, Beth Pearce, both weighed in on the proposal.
The idea, Galbraith said, is to allow the state the opportunity to condition the proposed merger on Transco, making the shares available to the state at book value.
The assets of the transmission system are somewhere around $1 billion; the state would have to find around $500 million.
Galbraith said the deal would be a financial boon for the state given the high rate of return on utility infrastructure investments. With no other means of distributing electricity except through transmission lines, Galbraith said the state should capitalize on the return equity investments could offer.
“The nature of the thing is such that there is no loss,” he said.
Miller, who testified Thursday, said the department’s position, as explained in testimony by former chairman of the Public Service Board Michael Dworkin, was to ensure control in the management of the transmission system rather than ownership of the physical assets. Dworkin proposed a mechanism whereby Transco could not sever the relationship with its management company and essentially fire the board with the state’s public good directors.
Miller told committee members Thursday that ownership of Transco is an issue the state could take up at any time, and it is not directly tied to the merger.
The three senators proposing the study disagreed, asserting that the state would have to acquire the assets through eminent domain, which would be a lengthy and expensive process.
Numerous utilities have expressed concerns with the department’s proposal to have a nominations board of political representatives elect the so-called “public good” directors.
As a for-profit, public service company, Johnson said, VELCO is required to provide for the public benefit.”
Avram Patt, general manager of Washington Electric Cooperative, recommended a similar study of the benefits of public ownership of the transmission system in testimony to the board.
“We just don’t think the potential benefits have been weighed,” Patt said. “It’s possible that when you do full analysis it’s not worth doing, but this is the time to look at this.”
Patt said that if the Public Service Board determines state ownership will not work, the department’s proposal with public good directors on the VELCO board would be a good alternative.
“To be clear, this kind of study is the kind of thing we said should be done and we’re not in a position to do it,” he said. “In the event it doesn’t succeed, the department took an important step to protect the public interest.”
Kerrick Johnson, vice president of external affairs for VELCO, cautioned the state against the idea of purchasing part of the transmission system.
“With ownership comes responsibility,” Johnson said.
As a for-profit, public service company, Johnson said, VELCO is required to provide for the public benefit.
He said VELCO has saved ratepayers money through its good investments.
“The current system works,” Johnson said. “We have a record that demonstrates that it works.”
The company provides a reliable, sustainable service to the state at low risk to the state and ratepayers, he said. If the state owned all or part of the transmission system, it would mean millions of dollars in lost tax money on top of the risk involved if transmission upgrades do not result in a high rate of return in the future. The company anticipates paying about $20 million in state and local property taxes in 2015, Johnson said, meaning state ownership would result in lost revenue.
The proposal to purchase the transmission system has been addressed and rejected in other arenas. In testimony to the Public Service Board, Dworkin said he was sympathetic to the idea of public ownership, but he recommended against it.
In November, legislative counsel sent a memorandum to Rep. Tony Klein, chair of House Natural Resources and Energy, and Illuzzi regarding the structure of VELCO.
Klein said purchasing part of Transco was “unattractive.” A better investment for the state would have been ownership of the Connecticut River dams.
Ownership of the transmission system would leave the state open to liabilities it does not want, Klein said, and since smaller utilities make good returns on their investments through transmission upgrades, they will likely not want to sell.
Illuzzi tried and failed to get the state to buy the dams. The effort, he has said, was rebuffed by CVPS and Green Mountain Power.
Correction: The lede of this story originally stated that Illuzzi’s proposal would have obliged the state to buy half of the state’s transmission system. The bill asks for a study of the alleged risks and liabilities of such a purchase.
