Editor’s note: This commentary is by Gerry Silverstein, who is a personal and global health educator with an interest in planetary ecology. He lives in South Burlington. He has no formal training in law, so all reference to legal issues should be viewed as those of a layperson.
[D]id the Vermont Public Service Board and Vermont Gas Systems violate the spirit of a U.S. Supreme Court ruling in matters related to PSB 7712 (natural gas pipeline expansion)?
In 1976 Justice Thurgood Marshall, one of the Supreme Court’s most well known and respected liberal justices, spoke for the majority in the case of TSC Industries v. Norway. In brief, the case involved shareholders of a corporation who were voting on an issue of importance, but felt they were not provided all relevant material to the issue in corporate proxy statements (if true, this would violate sections of the Securities and Exchange Act of 1934).
Justice Marshall held that stockholders needed to understand the question they were voting on, and misstatements or omissions in proxy materials prevented them from doing that: “so long as the misstatement or omission was “material,” there was a causal link between violation of the law and injury to the shareholder.” What were the standards of materiality? The answer was simple: An omitted (or misrepresented) fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.
In March 2011, Vermont Gas Systems Inc. (VGS) a Vermont energy company owned by Gaz Metro of Canada, petitioned the Vermont Public Service Board (PSB) to allow it to cancel a 5.4 percent legally mandated decrease in natural gas rates owed to its 45,000 current customers for a period of 20 years.
The purpose of this request was to use the funds saved to pay for an expansion of VGS’ natural gas pipeline to 3,000 new customers in Addison County. The original cost estimate of the expansion was $88 million; it has now increased to $154 million, or more than $50,000 in costs for each new customer hookup (if there are 4,000 new customers, the cost for each hookup will be about $38,500).
Some current VGS customers are low-income Vermonters, while one of the new Addison County customers is Middlebury College with an endowment of greater than $1 billion. VGS and its corporate parent Gaz Metro would retain all dollar profits from the expansion.
The Vermont Department of Public Service (DPS), which is supposed to be an advocate for Vermont ratepayers, supported the petition of VGS to the PSB.
The PSB approved the petition (PSB 7712) but told VGS that it had to inform its current customers of the planned expansion, as it was those customers who would be paying for the expansion.
The initial attempt of VGS at informing its current customers involved placing in small type on customers bills the following: “FUTURE RATE CHANGE: Effective with bills on or after April 22, 2011, the Natural Gas charge will remain at $0.8306/ccf. Visit www.vermontgas.com for more information.”
As customers were due a legally mandated 5.4 percent reduction in natural gas rates (but they did not know that), the statement by VGS that rates were to remain the same was a confusing and non-informative way of carrying out the mandate of the PSB. Neither the PSB nor the DPS was satisfied with the initial attempt of VGS, and so ordered VGS to be more informative using, for example, a mailer insert that would be clear as to what VGS was proposing.
It is sobering to realize that 45,000-50,000 current VGS ratepayers (including many low-income Vermonters) will involuntarily contribute $134 million to achieve such an inconsequential reduction.
In April 2011 VGS informed its customers by postal mail that it was going to hold meetings to explain the planned expansion. The mailing said nothing about the cost of the expansion, nor that current ratepayers would be paying for the expansion (with all profits going to VGS).
The mailer did however detail that in the previous 30 months (November 2008-April 2011) the company had reduced its rates nine times (total decrease of 46.7 percent). The clear message was the company was doing a very good job keeping rates low.
The PSB followed with a notice placed in newspapers announcing a public forum where they wanted to solicit comments from the public on the proposed VGS expansion to Addison County and its financing. The same exact information detailing nine rate reductions over a 2.5-year period appeared in the PSB notice.
What was not provided in either notice was the fact that during the 30 month time interval described there was also one significant rate increase (8.7 percent). In addition, a few months before and a few months after the November 2008-April 2011 time period, two significant rate increases were instituted by VGS (August 2008: 14.2 percent increase and August 2011: 16.6 percent increase).
One could argue that a VGS rate increase that occurred after the two announcements were posted should not be considered in any analysis of the actions of VGS and the PSB since both VGS and the PSB were informing customers of past performance. It is a reasonable point except both VGS and PSB certainly knew of the upcoming 16.6 percent rate increase (August 2011), as rate change requests must be submitted to the PSB well in advance of the actual increase date (the DPS must also be informed). Indeed this was probably a major reason why VGS was trying to get PSB approval as quickly as possible for the expansion.
Adding a cancelled 5.4 percent decrease (to pay for the Addison County expansion) to a 16.6 percent increase in rates in August 2011 meant VGS customers were effectively being assessed a 22 percent increase in natural gas rates (at a time when U.S. domestic rates were essentially flat).
In the Supreme Court’s ruling in TSC Industries v. Norway the key question in that case centered on whether misrepresentation and/or omission of material information occurred to such a degree that there was a substantial likelihood a reasonable shareholder would consider it important in deciding how to vote.
With regard to the actions of VGS and the PSB that led to PSB order #7712 was there a substantial likelihood that VGS customers (equivalent to shareholders) would have considered important (in deciding whether or not to support the expansion) the following information they were not provided and/or that was misrepresented:
(1) no cost estimate of project provided in mailings;
(2) no declarative statement that current ratepayers would be paying for the expansion with all profits going to VGS and its Canadian parent, Gaz Metro;
(3) only past rate decreases presented by both VGS and the PSB in their mailings or announcements;
(4) a time interval detailing rate changes that appears to have been chosen to carefully avoid two very large rate increases that occurred immediately before and immediately after the 30-month time interval presented to ratepayers.
A few last points deserve mention:
How is it possible that both the flyer sent to VGS customers by VGS in April 2011 and the public meeting announcement posted by the PSB soon thereafter contained the exact same “subset” of information regarding natural gas rate changes by VGS? VGS and the PSB are two separate entities. How could they both fail to include the same information that was not favorable to VGS?
Using numbers employed by VGS in a past expansion, the pipeline expansion to Addison County could be expected to prevent the release of 6,000 tons of greenhouse gases every year into the environment. On a global scale, this would mean (using 2014 numbers) that the VGS expansion would reduce yearly global greenhouse gas release into the environment from 37,000,000,000 tons to 36,999,994,000 tons.
It is sobering to realize that 45,000-50,000 current VGS ratepayers (including many low-income Vermonters) will involuntarily contribute $134 million to achieve such an inconsequential reduction (VGS has agreed to contribute $20 million to the expansion).
VGS customers are not shareholders in a corporation so it is unlikely that a legal challenge that argued for material misrepresentation and omission of material information by both VGS and the PSB would be possible in the legal system. But that does not mean that the actions of the PSB and VGS (and the DPS??) cannot be placed it the “court of public opinion” so that citizens in the future have a prominent voice in how government and industry determine policy when citizen interests and well-being are impacted.
In this citizen’s opinion, the past few years have seen the governor, some legislators, the Department of Public Service, the Public Service Board, and private corporations/individual “titans” of industry: (1) treat Vermont citizens as nuisance obstacles to what they define as good energy policy in Vermont and (2) treat the priceless beauty of the Vermont landscape as a giant construction zone for their vision of an ecologically sound green future. It is a very sad commentary for a state that considers itself at the forefront of respecting both the environment and the incomparable importance and value of citizen interests and rights.
An earlier version had an incorrect number for the difference in the reduction in global greenhouse gases from the Vermont Gas expansion.
