Editor’s note: Anne Galloway contributed to this report.
A proposal to study whether the state should purchase up to 51 percent of Vermont’s electric transmission system is ruffling feathers.
Lobbyists filled the Senate committee rooms this week as financial experts and utility executives ticked off reasons why state ownership of half the state’s electric transmission utility is a bad idea.
It’s such a bad idea, in their view, that it doesn’t warrant study.
The proposal, introduced in the form of a bill by Sens. Vince Illuzzi, Tim Ashe and Peter Galbraith, is for an independent study of the costs, benefits and risks associated with the state’s acquisition of an ownership interest in Transco, the company that owns most of the electric transmission assets in the state, and VELCO, the company that manages it.
In committee discussions, the proposal by the trio of senators appears to have many critics and few allies.
Most of the resistance, Galbraith said, is coming from vested financial interests who currently receive a good rate of return (up to 14 percent) on investments in the transmission system. He claims purchasing a large share of the state’s electric transmission system would be a safer bet than U.S. Treasuries.
“You can be sure that this is a pretty good idea when lobbyists and the state treasurer all show up and say we shouldn’t study it,” Galbraith said. “That ought to raise some pretty big red flags.”
Green Mountain Power and Central Vermont Public Service plan to merge into one company that would be a subsidiary of the Canadian utility Gaz Metro. The senators have proposed that the Vermont Public Service Board place a condition on the merger that would require the state to own a percentage of the transmission utility.
If the merger goes through, Green Mountain Power would hold about three-quarters of the retail electric market in Vermont. VELCO and Transco are owned by the state’s electric distribution companies, including Green Mountain, CVPS, the electric co-operatives and municipal electric departments in proportion to their share of the retail electric load. The merged CVPS/Green Mountain Power utility would own 72.3 percent of Transco and 78 percent of VELCO.
Parties in the Public Service Board proceeding, including municipal electric departments, have proposed ways to address the large concentration of control by one utility, but none has advised that the state should actually buy a portion of the utility itself, although Washington Electric Cooperative recommended looking into it.
Galbraith said the amount of money associated with the deal has prompted the companies to deploy lobbyists to ensure that a study of public ownership doesn’t happen.
“They’re lobbying so strongly because they know what a valuable asset this is and the last thing they want to do is lose it,” Galbraith said. “If this was a lemon, they would be lobbying to unload it.”
VELCO and Transco hold $883 million in assets and have a roughly $20 million annual budget. According to Kerrick Johnson, vice president of external affairs, VELCO returned $64.4 million to distribution utilities in 2011, which he said utilities used to lower rates for consumers and to pay for transmission upgrades.
According to testimony from Ken Nolan, manager of Power Resources for Burlington Electric Department, the utility received more than $2 million in dividends from Transco in calendar year 2011. Dividends from the transmission system made up about 4 percent of Burlington Electric’s operating revenues.
The value of VELCO and Transco is estimated to be between $800 million and $1 billion, according to Liz Miller, commissioner of the Department of Public Service. If the state purchased 51 percent of VELCO and Transco, it would cost $500 million, based on estimates from Beth Pearce, the state treasurer.
Pearce, who has testified in Illuzzi’s committee, Senate Finance and Appropriations, said it would be unrealistic for the state to purchase half of VELCO. Though the state has excess bonding capacity, a 51 percent stake in the transmission utility, Pearce said, “is a big chunk of change.”
The state’s total current debt obligation, she said, is $500 million, and the purchase of VELCO would bring the total to $1 billion.
Pearce said the purchase would hurt the state’s AAA bond rating. Even if the state spun off a new bonding authority to finance the purchase, she said it would have a “significant impact on the state’s moral obligation.”
“The potential funding mechanisms like state debt, moral obligations and pension fund investments are not viable based on the size of the presumed purchase and nature of the funds themselves,” Pearce said in an interview.
If the state invested pension fund money, it would mean putting somewhere around 15 percent of the total state fund in one pot, according to Pearce. This would be risky if shares in Transco and VELCO went south.
Unlike Quebec, whose government employee pension fund invests in Gaz Metro, Vermont is not large enough to have enough money to put into something like the utility and still satisfy its diversity requirement, according to Pearce.
Even though the proposal is for a study, Pearce said, it would ultimately require a funding mechanism and none available seem to make sense.
Without a viable means of financing, she said a study would be a waste of taxpayer money.
Chris Dutton, president and CEO of VELCO, said the state could be on the hook for $1 million a day in fines if the utility does not satisfy its reliability requirements imposed by the Federal Energy Regulatory Commission.
The fundamental issue highlighted by Dutton and Green Mountain Power general counsel Don Rendall is that VELCO is not for sale.
“What I tried to portray is that I think VELCO is working pretty well right now, and I would hate to see anything jeopardize that,” Dutton said. “We’ve built a governance structure that allows us to succeed. Anything that deviates from that has to be viewed with real caution.”
Sen. Tim Ashe, who sits on the Senate Committee on Finance and sponsored S.172, said the testimony in committees the last two days has solidified the fact that the Legislature has a lot to learn about the issue.
“I’m not surprised that utilities and all who at present would like the current system to stay the way it is have made assumptions based on the absolute worst financial situation,” Ashe said.
Ashe and other proponents of the study emphasize that it is only a proposal for the state to hire an expert (for $250,000) to look into the state buying some of the transmission assets.
A number of Vermont utilities, including Burlington Electric Department and Vermont Electric Cooperative are publicly owned. In the West, towns like Boulder, Colo., have approved initiatives to move away from private utilities to a public model. The state of Nebraska is wholly served by public power.
Ashe said a study may show buying part of VELCO is a bad idea, but without an independent analysis, the state will not know.
“The only people communicating to us are the people who have a vested interest in things merrily humming along the way they always have,” he said. “The whole point is you can’t just rely on people regulated themselves to be dispassionate about this.”
Galbraith argues that the decision comes down to which government will own the state’s power lines — Vermont or Quebec. Gaz Metro’s interest, he says, is the transmission of hydro power from Quebec to southern New England, possibly through a Vermont power corridor.
“Now why is Quebec so keen to acquire the transmission lines? Because it also owns hydro, and it has a strong economic interest in selling as much of the electricity that is generated by hydro to New England, particularly southern New England, which is both a large market and where electricity rates are high,” Galbraith said. “That is the concern I think many Vermonters have about the merger, and (in) particular about having the same entity, the Province of Quebec, as ultimate owner of the power and means of transporting it, the transmission system.”
Illuzzi points to a 1974 master’s thesis by now-economist Lee Webb that recounts the history of the energy battles of the 1960s when Democrat Gov. Phil Hoff proposed establishing a Vermont corporation to construct a high-voltage line to receive imported power from Canada and transmit it to New England. According to the thesis, private utilities opposed the plan, fearing it could shift the balance in New England away from private utilities and toward public power.
Illuzzi said the current push from lobbyists for private utilities like Green Mountain Power and CVPS is a rerun of the debate from the Hoff era.
