Editorial: Gaz-Metro's play for CVPS
Vermont ratepayers are sitting in the bleachers in terms of the pending negotiations that will determine who will own Central Vermont Public Service, even though they have the most to win or lose in the transaction. But even fans in the bleachers have a voice that can be heard as long as Vermont businesses and residents pay attention to what’s going on at the plate.
At issue is the current Gaz-Metro offer to buy CVPS, which would give the combined company control over 70 percent of the Vermont market. The bid, made last Tuesday in a surprise offer, is a counter to the May 30 offer of $700 million made by Fortis, Inc., the $13 billion holding company from Newfoundland. Gaz-Metro, another giant Canadian energy company, made an offer of $702 million — a meaningless difference in the purchase price.
What’s different in this Gaz-Metro offer is the political conundrum it creates. This isn’t the first time around for Gaz-Metro. They had made a previous offer to buy CVPS, but lost out to Fortis, Inc. In the second offer, they hit many of the political buttons that Vermont politicians and regulators will find attractive, while also making it difficult for the CVPS board of directors to reject the offer as the best proposal for its shareholders.
The Gaz-Metro bid cites savings of $144 million in the first decade, and about $500 million in savings over the first 20 years. The savings come through consolidation, but without shutting down Rutland’s CVPS base of operations and without significant lay-offs. The bid promises substantial investments in renewal power projects, including making Rutland the ‘solar city.’ Furthermore, because Gaz-Metro would own 70 percent of VELCO (the state’s electric transmission system), if the deal were approved, the proposal creates a public trust that would pass to the state 30 percent of the transmission utility’s value. From that trust, a new state fund would generate $1 million annually to be used to support rate reductions to the poor and the elderly.
That’s why Gov. Peter Shumlin is wearing a smile these days. In a sea of difficult economic news, here’s a proposal that saves ratepayers loads of money, promotes renewable energy projects, and puts 30 percent of VELCO under state control.
And it could be that the Gaz-Metro proposal is the better offer. The obligation of the CVPS board of directors, as with any publicly traded company, is to pursue all offers to the fullest extent and react in the best interests of shareholders.
But is that in the best interest of the ratepayers?
As the St. Albans Messengersaid in a recent editorial, “the obligatory exercise that needs to be undertaken is the need to verify the numbers and to explore the underbelly of being controlled by a single company. It may be that a singly owned operation would produce $144 million in savings. But the Public Service Board (and the board of directors for CVPS) needs to be shown the math. It’s understandable that two presidents are not needed, or two accounting departments, or two public relations departments. But, relatively speaking, that doesn’t account for much. Most of the savings would need to come from general operations. If the two utilities presently operate in separate districts, with no overlap, how are those efficiencies realized?
“The efficiency may be there, it just needs to be explained and verified.
“The greater challenge is questioning something that, on the surface, sounds reasonable, but in practice rarely happens.
“When one entity controls everything, is greater efficiency always realized? If we consolidate our hospitals into a single unit, do costs go down … If there is only one of something, what is the competitive process that brings costs down?
“…Fortis (is also put) in the position of needing to improve upon the offer if it’s interested, which would be difficult if the Gaz-Metro numbers are to be accepted at face value. The governor has already made it clear that he doesn’t worry much about the shareholders. He wants to be able to tout the savings that would be realized by Vermonters. How could Fortis counter a claim for $144 million in savings, if both utilities remain in operation?”
There are reasonable responses to these questions. Green Mountain Power CEO Mary Powell noted in a Wednesday phone conversation that the natural turn-over and attrition rate nears 40 percent over these projected time periods, meaning that most of the consolidation of employees would be done with the least amount of impact to current employees. She notes that responses to power outages and line maintenance would actually improve customer service to ratepayers with a larger, coordinated system. She maintains that efficiencies that drive down rates, would in turn help Vermont attract more industries and drive up the amount of power sold — driving the total dollars up, even as rates decline.
On the issue of competitiveness, Powell reminds us that the combined companies would control 70 percent of the state market, but the other 30 percent is controlled by more than a dozen other utilities; and that because the industry is highly regulated (CVPS and GMP each have a monopoly over their market and don’t compete for each other’s customers), a “best-practices” approach to management has more impact on how efficiently the company is run than does the specter of competition.
In short, she says she’s confident the “one-company, one-team” approach that would come from a combined entity (operated under Green Mountain Power) would make a huge difference in the company’s ability to better serve Vermont ratepayers with lower cost and higher quality.
The challenge will be to verify Gaz-Metro’s numbers on the projected savings, but that’s not easy in a way that’s initially transparent. Until the CVPS board renders its judgment on the Gaz-Metro deal (at which point its reasoning on why it accepts or rejects the offer will be made public), the proof behind the rhetoric remains more of a promise than simple math — and therein lies the conundrum.
On the surface, it’s a deal that looks very appealing and already has growing political support. However, the public’s role — those fans in the bleachers — is to urge the state to play good defense and not jump prematurely to pre-disposed conclusions. Or, put another way, those fans in the bleachers need to yell for defense, not for the offense to swing for the fence.
We’ll take both, of course, but it’s important we get it right.