Mallary: Bidding on CVPS

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(HOST)  Commentator Dick Mallary says that the idea of a merger between CVPS and Green Mountain Power isn’t entirely new.

Welcome to the bidding war for the purchase of Central Vermont Public
Service Corporation (CVPS), Vermont’s largest electric utility.

few weeks ago, I was surprised to read that Fortis, a Canadian utility
holding company, offered to buy CVPS for $470 million, a 44% premium
over CVPS stock price. Then, last week, I learned of a competing bid to
purchase the company by Green Mountain Power (GMP) and its owner, Gaz
Metropolitain, another Canadian utility. The price is similar, but the
terms are different.

I was last employed by CVPS almost 30 years ago, and I retired from Vermont Electric Power Company 17 years ago.

when I was in the business I strongly believed that significant savings
and benefits would result from a merger of CVPS and GMP. A single or
unified company could streamline its management and reduce redundancy in
some areas. Furthermore, it could achieve real efficiencies by
rationalizing the overlapping service territories of the two companies.
Such a merger could mean tangible benefits to Vermont ratepayers.

appears very probable that the ownership of CVPS will be transferred to
one of these Canadian purchasers. The question is which one, and what
are the implications for the shareholders, the customers, the employees,
and the state of Vermont.

With either purchaser, the current
shareholders will get a very nice windfall – a significant increase in
the value of their shares.

For the customers, service and
reliability should continue under either new owner. If GMP is the
successful bidder, any efficiencies and cost reductions that result from
the merger should mean somewhat lower rates for customers.

most employees, there should be little change. If a purchase by and
merger with GMP achieves labor efficiencies, there will probably be some
attrition in employment as the companies are integrated..

purchase will need the approval of the Vermont Public Service Board.
Under Vermont’s regulatory scheme, the Board will continue to permit the
company to recover in rates from its customers its prudently incurred
expenses and earn a “just and reasonable” return on its investment. But
it will not permit either purchaser to charge in rates anything to
recover the millions of dollars of premium it paid above CVPS book

A final, significant element in this transaction is the
control of VELCO, the Vermont Electric Power Company. It is the company
that owns and controls the high voltage transmission system in the
state. At present CVPS and GMP control most of the board of VELCO but
are prevented from using that control to discriminate against smaller
utilities in the state. If the GMP bid to buy CVPS is to be approved by
the Public Service Board, I expect that suitable provisions will be
required to assure that VELCO continues to operate in the broad public

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