Published June 5, 2011 in the Times Argus
Stan Marshall, middle, the president and CEO of Fortis, the company in the process of buying Central Vermont Public Service Corp., took a tour of the Rutland Town facility and met employees earlier this week. Here Marshall talks with Joe Kraus, CVPS senior vice president for engineering, operations and customer service, left, and Dan Mackey, CVPS director of transportation.
Photo: Vyto Starinskas / Staff Photo
Vermont's power vacuum
Given a choice, Richard Saudek would rather see ownership of Vermont utilities remain in local hands.
But last week's blockbuster announcement that Fortis Inc. of St. John's, Newfoundland agreed to purchase Central Vermont Public Service Corp., the state's largest electric utility, for $700 million, is just the latest acquisition of a Vermont utility by an out-of-state or foreign company.
“I think the governor is absolutely correct in wanting to look carefully at this deal,” said Saudek, the former chairman of the Vermont Public Service Board and between 1981 and 1985 the state's first commissioner of the Department of Public Service, the state's utility watchdog. “Fortis is not in business to be charitable to Vermonters.”
Saudek, a partner in the Montpelier law firm of Cheney, Brock & Saudek, said the litmus test is that “Vermont regulators find that is in Vermont's interest.”
He said the record of out-of-state ownership of Vermont utilities has been mixed. GazMetro purchased Green Mountain Power Corp. in 2007 for $187 million. Saudek said the Quebec-based parent company has left GMP alone to continue its mission of being responsive to its customers. On the flip side, he said Entergy has been much less responsive in its dealings with the state. He said regulators also have encountered similar problems with out-of-state telephone companies.
“Obviously, a company that is doing business in Vermont, is a regulated company and is controlled within Vermont, is going to be particularly responsive to regulators and to people who are in authority in the state,” Saudek said, “and I think that it does give a measure of confidence to Vermonters when their companies are local and are controlled here and are responsive to our Legislature, and responsive to our consumers and so on.”
Under the Fortis deal, CVPS shareholders will receive $35.10 a share, a 44 percent premium over the CV closing stock price on May 27.
Richard Sedano, who served nine years as commissioner of the Department of Public Service, said that's one area regulators should take a look at as well.
“As for the stock price, it's a pretty significant premium,” Sedano said, “which means one of two things: either the buyer has an expectation of long-term value … the other is somehow they expect to extract some premium from this and the only real place they can get it from is either from ratepayers or from liquidating useful assets.”
He said the latter would not be in the interest of the state or CV's ratepayers.
Donald Kreis, assistant professor at Vermont Law School and former general counsel to the New Hampshire Public Utilities Commission, also questioned what the payback is for Fortis.
“When a company pops up like Fortis and says we're paying a big acquisition premium but we're not going to raise the rates and we're not going to change anything about the way the company operates, you do have to scratch your head and say what do they know the rest of us don't know,” said Kreis, associate director, Institute for Energy and the Environment.
Stan Marshall, Fortis president and CEO, said as its first entry into the United States, Fortis was looking to acquire a well-run company but not too large a utility that fit the “decentralized” Fortis business model.
“You can buy a utility that is poorly run and go in with the intent of turning it around for a profit,” Marshall said during an interview last week, “or you can buy a well-run utility and strategically it will help us in the long term and your greatest asset is the people.”
In announcing the deal, Fortis also said the acquisition would add to its earnings during the first year of ownership.
In addition to its electric and gas distribution subsidiaries in Canada and the Caribbean, Fortis owns 21 hotels, with more than 4,100 rooms, in eight provinces. The company also owns 2.7 million square feet of commercial office and retail space, primarily in Atlantic Canada.
Fortis earned $285 million (Canadian) in 2010, an increase of $23 million over the prior year.
Sedano said the CVPS deal could benefit Vermont ratepayers. He said a “chronic problem” smaller utilities like CVPS have is access to capital for power purchases and infrastructure investments.
Both Saudek and Sedano said having Fortis as the parent company would allow CVPS to borrow money more readily at better interest rates. Sedano said in the world of finance that makes CVPS a better risk.
“So, reducing risk, reduces cost and over time that could help customers,” said Sedano, a lawyer with the Regulatory Assistance Project in Montpelier. “So, if that is found to be the case, then customers would be better off.”
In announcing the deal, Marshall emphasized the parent company's philosophy of allowing its subsidiaries in Canada and the Caribbean substantial autonomy. CVPS will remain headquartered in Rutland and retain its own officers and board of directors with no layoffs among the 520 employees.
Although not the only issue, Sedano agreed local control is important. He said that's worked out with GazMetro taking a largely hands-off approach with GMP and Vermont Gas Systems, its other Vermont subsidiary.
If that approach is in fact taken by Fortis, Sedano said that would benefit Vermont.
“I think most important is responsiveness to local concerns and as we see from GMP and Vermont Gas Systems, that's certainly possible,” he said.
Gerald Tarrant, who served as PSD commissioner between 1985 and 1988, also expressed concern about the possible loss of local control should the sale go forward.
Except for IBM, Tarrant said the largest companies in the state have been the state's two investor-owned power companies — Central Vermont Public Service Corp. and Green Mountain Power Corp.
“How does someone outside the state or outside the region or outside the country view Central Vermont's goals,” said Tarrant, a partner in the Montpelier law firm of Tarrant, Gillies, Merriman & Richardson. “I guess I would suggest they would view them differently than if the owners and the operations were really grounded in Vermont.”
Saudek was puzzled by Fortis' offer to voluntarily kick in $21 million to benefit CVPS customers in a manner to be determined by the PSB.
He called it a “unique feature” of the deal and indicated it could be a way to smooth the approval process. “I've called it $21 million of lubricant,” he said.
Brian Keefe, vice president of government and public affairs at CVPS, said Saturday the payment is based on a precedent begun during an earlier Public Service Board ruling and fulfilled during the sale of Green Mountain Power to GazMetro, in which the Board requested money be set aside to benefit consumers as part of the approval process. Keefe said the Fortis offer simply anticipates a similar stipulation. He said the money would go to a “customer benefit,” and the company has started discussions with the Shumlin administration as to what form the benefit should take.
Saudek said Friday if the PSB goes along with the sale, the $21 million would be better spent directly benefiting CVPS customers as opposed to investing the money in renewable energy sources or energy efficiency.
“It would be good, if it would be spent lowering rates,” he said.