(Host) There’s still time this summer to head for the beach with some
light
reading in your beach bag. And commentator Don Kreis, who teaches energy
regulation at Vermont Law School, has a recommendation for you.
(Kreis)
I’ve been doing some summer reading. And after all the teasers, who
could resist picking up this romantic story? I refer, of course, to the
June 15, 2012 order of the Vermont Public Service Board – all 172 pages
of it – approving the merger of Vermont’s two big electric utilities.
Although
somewhat less entertaining than a real love story, the Public Service
Board’s order merits scrutiny in part because it demonstrates how
misguided the public discussion was of the infamous 21 million dollars
that wasn’t refunded to the customers of the now-departed Central
Vermont Public Service Company, or CVPS. The 21 million relates back to a
2001 agreement in which the Public Service Board forgave CVPS for some
bad decisions the utility made in buying power from Hydro-Quebec. What
the Public Service Board said back in 2001 was that, to prevent "unjust
enrichment" of CVPS shareholders in light of this forgiveness, it was
essential that there be, quote, "a mechanism by which ratepayers will
share in the above-book proceeds of any future sale or merger of the
Company." The so-called book value of the company is the actual value of
the utility’s assets as calculated for rate-setting purposes.
It
turned out that there would be above-book proceeds galore. Back in
2010, shares in CVPS were trading at slightly more than 20 dollars. Then
a bidding war ensued. And, when a winner emerged, the Canadian parent
company of Green Mountain Power had agreed to pay CVPS shareholders the
very nice price of 35 dollars and 25 cents a share. Altogether, that’s
197 million dollars in above-book proceeds. All of which has now been
paid to the former owners of CVPS.
The regulators approved the
merger because the new and bigger GMP guaranteed that it would share
with its customers the sum of 144 million dollars in savings achieved by
having one big utility instead of two smaller ones.
What the
critics essentially argued is that Green Mountain Power should have
taken the $21 million from that rate agreement 11 years ago and added it
to the $144 million in guaranteed customer savings.
Instead,
GMP agreed to invest the 21 million in various energy efficiency
measures. This benefits both shareholders, who get a return on this
investment, and customers, who are ultimately expected to receive 25
million dollars’ worth of benefits.
I urge people who care about
this to read the Board’s actual order. But read the whole thing – the
courtship of GMP and CVPS is a complicated tale.
Sure Mr.
Rochester was weird, but Jane Eyre still declared: "Reader, I married
him." Jane had her reasons for taking such a chance – and so did the
Vermont Public Service Board in blessing the union of our two big
utilities.