The Vermont Public Service Board issued an order Friday morning approving a historic merger between the state’s two largest utilities: Green Mountain Power and Central Vermont Public Service Corp.
Canadian utility Gaz Metro will be the parent company of the new Green Mountain Power, which will provide electricity to more than three-quarters of Vermont residents.
According to a news release issued Friday, the utilities expect a formal closing in late June.
Numerous parties intervened in the docket, and issues like how the utilities will account for $21 million in “windfall” money resulting from the merger and the makeup of the Vermont Electric Power Co. (VELCO) became prominent issues at the Statehouse as well this legislative session.
The opinion states: “In sum, the evidence before the Board in this proceeding persuasively demonstrates that the approval of the proposed acquisition of CVPS, the subsequent merger of CVPS and GMP and the other related transactions, as described and subject to the conditions in this Order, will promote the public good and will not obstruct or prevent competition.”
The utilities cheered the decision, which approves almost wholesale an agreement they struck with the Department of Public Service, the state agency that represents ratepayers before the Public Service Board.
In a press release, Green Mountain Power CEO Mary Powell said the merger will bring financial benefits to utility customers.
“This once-in-a-lifetime opportunity will save customers money and create additional significant benefits to customers of both utilities,” Powell said. “Our guaranteed cost savings and reliability improvements will help our customers with their own household and business budgets, and be a boon to Vermont’s economy at a time when it is critically needed. We have set a goal to become the best small utility in the country, and with this regulatory approval, we can begin the work to make that goal a reality.”
The merger between the state’s two largest utilities is slated to result in $144 million in cost savings in the first 10 years of the merger and $500 million over 20 years.
Much of that savings comes through more efficient operations by having one utility rather than two.
According to the board’s decision, the two utilities combined currently employ 738 people. Green Mountain Power predicts that number will dip to 621 employees after five years and 599 employees after 10 years. The utilities plan to reduce their workforce through retirements and turnover. Testimony from the heads of both companies assured labor savings would not be achieved through layoffs.
Dorothy Schnure, a spokeswoman for Green Mountain Power, said the utilities have been doing a lot of planning in anticipation of the merger, but you will not see any utility trucks with the new GMP logo until after the closing.
“With the employees we’ve been very clear we’ve been planning for this but in no way should anyone assume it will happen,” she said.
The board also approved a mechanism embodied in a memorandum of understanding between state regulators and the utilities that would allow $21 million to be invested in efficiency projects rather than refunded to ratepayers in a credit or cash.
“[O]n the whole, after considering all the evidence and relevant circumstances, we find the CEED Fund to be an adequate mechanism for achieving windfall recovery, not because the Petitioners and the DPS have offered a perfect or ideal proposal, but because it is one
reasonable option and a negotiated term within a unique transaction that will directly deliver substantial and permanent savings to every ratepayer now served by CVPS and GMP,” the opinion states.
Gov. Peter Shumlin issued a statement Friday praising the board’s order.
“Today’s ruling by the Public Service Board affirms that the merger between Central Vermont Public Service and Green Mountain Power will bring tremendous benefits to ratepayers and is in the best interest of Vermont,” the statement reads. “I continue to believe, and this ruling reflects, that the terms as approved by the Board will produce extraordinary benefits for consumers and the state.”
Sen. President Pro Tem John Campbell opposed the company’s rate recoupment of $21 million to customers in the form of weatherization and efficiency programs and led an effort in the Senate to require Green Mountain Power to return the money to ratepayers.
He said in a statement: “While I am disappointed that the Board chose not to directly reimburse CVPS ratepayers as the senate had proposed, I am happy that it will require the new entity to affirmatively demonstrate the $144 million dollar savings to ratepayers that GMP insist will come as a result of efficiency investments.”
Not everyone cheering
While Shumlin supports the merger, many Vermont lawmakers questioned parts of the deal when they learned an agreement struck between the Vermont Department of Public Service and the utilities would allow the utilities to recoup a $21 million investment in efficiency projects through rates. Under a previous board order, CVPS was required to share that amount of money with ratepayers in the event of a profitable merger.
The obligation stems from a contract many Vermont utilities entered into with Hydro-Quebec in the 1990s. The board allowed the utilities to raise rates on the condition they would share future profits in a profitable sale or merger with ratepayers.
This past session some lawmakers had pushed for legislation that would require this money to go to ratepayers in cash or a refund. In the end, that legislation failed.
Rep. Paul Poirier, an independent from Barre, was one of the lawmakers who spearheaded an effort to ensure the Public Service Board did not allow the utilities to recoup the so-called “windfall” money in rates.
Poirier said he was disappointed but not surprised the board approved the merger and the windfall mechanism.
He said some Democrats who voted down the legislation that would have required some sort of cash refund or electric bill rebate will have to answer to voters in November.
“I would be encouraging all people challenging incumbents to make that an issue,” Poirier said.
The Legislature did send a letter to the board asking it to consider their concerns. Poirier said that fell on deaf ears. He said the board appears to be out of touch with rank and file Vermonters.
AARP Vermont had challenged the windfall piece of the deal before the Public Service Board and in a widespread media campaign.
AARP Vermont state director Greg Marchildon said the decision was disappointing. The advocacy group may appeal the decision to the Vermont Supreme Court. Marchildon said the group wants to take time to dig into the 172-page order and decide whether it makes sense to appeal.
“Today was a great day for Gaz Metro and CVPS shareholders and a lousy day for the ratepayers that bailed CVPS out when it was in financial crisis,” he said. “Company shareholders and executives will reap $150 million in profit from this merger while 135,000 Vermont ratepayers get nothing. In fact they will be paying more rather than getting paid back.”
The AARP does not endorse candidates, but Marchildon said the organization would communicate with its members to sort out what the decision means in layman’s terms.
He said the issue could carry through to election season and could be a major issue, particularly in districts with CVPS customers.
In dozens of pages dedicated to explaining the windfall issue, the board pointed out its decision relied exclusively on the evidence in its record, not what was happening in the court of public opinion.
“[W]e have received large numbers of public comments on this issue,” the board said of the windfall. “Furthermore, we are aware that this issue has been the subject of contentious debates in various public forums. As a result, we are compelled to clarify that the basis of our decision today is the same as the basis for all our decisions: the evidence in the record in the particular proceeding, regulatory precedent, and Vermont law.”
The board determined that the proposal was substantially similar to a fund it approved in 2007 when Gaz Metro bought Green Mountain Power and was consistent with its precedent.
DPS gains concessions
Elizabeth Miller, commissioner of the Vermont Department of Public Service, said the board did a thorough job of discussing issues like the windfall.
In large part, the decision mirrors the memorandum of understanding entered into between the utilities and the department.
The board made some clarifications like ensuring efficiency investments be made in CVPS territory. Since CVPS is being sold, it has the responsibility of returning the windfall to its customers.
Miller said she is pleased with the order. The department achieved some concessions by the utilities. Initially, Green Mountain Power and CVPS proposed that the $144 million it guaranteed in savings would satisfy the windfall requirement. In the agreement with the department, the utilities agreed to invest an additional $21 million in efficiency. The department also entered into an agreement with the utilities that would prohibit them from unilaterally controlling the state’s electric transmission system.
The order also requires, as agreed to in the MOU, that the board of VELCO, the company that manages the transmission system, include three independent directors.
Miller said despite all of the controversy surrounding the MOU, which the department entered with utilities in March, the state was able to strike a better deal than the utilities brought forward.
“We worked really hard on this and despite all the controversy we really thought the proposal we put together was a significant improvement on what they proposed initially,” Miller said. “We really thought it would provide a lasting benefit.”
Miller said it was a little discouraging to have so much of the controversy surrounding the merger focus on the windfall issue, which had basically been discussed and settled in the board’s prior orders.
For now, the utilities are fine tuning the details of closing the deal. Before then, the department will come up with an initial list of people who could be trustees on the board of VLITE (Vermont Low Income Trust for Electricity), the low-income trust that will appoint independent directors to the VELCO board.
After the deal goes through, assuming it does, Miller said the department will shift its focus to ensuring the utilities actually save all of the money they said they would.