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Editorial: CVPS deal holds big potential

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Posted on June 6, 2011 |
By Angelo S. Lynn



Last week’s news that Fortis Inc., a Canadian power company, has proposed to buy Central Vermont Public Service (CVPS) is mostly good news for CVPS customers as well as shareholders.

Fortis Inc. is the largest investor-owned distribution utility in Canada and has a decentralized business model, which would allow CVPS to continue to operate independently with the same board of directors, the same employees and the same public service commitment. If the initial proposal is approved by the Vermont Public Service Board, a review process that is expected to take six to 12 months, employment levels will remain at current levels and the current team — which has done well by Vermont — would continue its service-oriented approach.

The purchase makes sense on several fronts. CVPS is one of the country’s smallest utilities and the last independent utility of its size in New England. It simply doesn’t have access to capital at the same level provided larger utilities, and its bond rating is barely investment grade, which means that when it borrows money it borrows at a higher rate than its competitors. That places upward pressure on rates. With Fortis’ balance sheet standing behind CVPS, those borrowing costs would be cut substantially. The Vermont utility would also benefit in not having to pay for the costs of running a public company, which is not a small thing.

If the utility’s costs can be reduced without cutting staff, thus protecting its level of customer service to its 160,000 customers, and if the company’s public service commitment is maintained and its access to potential new sources of environmentally friendly power (primarily hydro) is improved, then it should garner solid support when reviewed by the Public Service Board.

How could the PSB find fault with the proposed purchase? Arguments can be made suggesting that Gaz Metro, another Canadian utility which bought Green Mountain Power in 2006 (and reportedly made a bid on CVPS), could bring even better value to ratepayers (though a lower bid would bring less to shareholders) by bringing the state’s two largest utilities under a single management and ownership structure. By consolidating management teams, several jobs could be shed and the state would arguably end up with a less unwieldy power system serving the vast majority of Vermont households.

That potential advantage, however, must be balanced against the laws of competition, even in a regulated industry. While the state’s utilities don’t compete within each other’s markets, there is competition in innovation, rates and customer service, among other areas. As it has been in the past, whenever one utility makes a significant advancement, the is other is close to follow, if for no other reason than the appearance of being the lesser utility and the public clamor for like improvements.

Another looming advantage to the Fortis deal is that CVPS owns 52 percent of VELCO, the state’s transmission utility, with the remaining percentage owned by the state’s other power companies. Vermont’s transmission system is central to the state’s ability to grow and to provide power to our customers and to the grid. At present, our transmission infrastructure is in need of a massive upgrade, an undertaking that will costs hundreds of millions of dollars to accomplish.

CVPS, along with the others, has been chipping away at this need, but only in baby steps. That’s hardly a surprise given the company’s cost of capital and its small size. By agreeing to purchase CVPS, Fortis is essentially agreeing to be part of this enormous investment, but still it seems comforting to know that all the marbles (when it comes to the state’s transmission lines) are not in the same pouch. Spreading out the burden and keeping the competitive juices stoked is also a good thing for development of the state’s distribution system.

CVPS is also the Canadian company’s first purchase of an American utility and Vermont could be a propitious opening into the U.S. market — certainly a potential worth nurturing — and one that could help the state with its nascent efforts to launch its smart grid operations.

In sum, this is not a story about a foreign company absorbing one of our own with the tales of mass layoffs and loss of customer service to follow, but rather it has the potential to be a story of a neighbor who will allow us to keep what we have, and to build something better. The PSB has the responsibility to be sure those potential advantages are realistic and that all the appropriate details are included in the proposal to buy.

Editor’s note: Emerson Lynn of the St. Albans Messenger contributed to this commentary.

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