The two major electric utilities in Vermont have asked the Public Service Board for permission to merge. The two utilities are Green Mountain Power (GMP) a wholly-owned subsidiary of Gaz Metro of Quebec, and Central Vermont Public Service (CVPS). Public Service Board docket 7700 has been opened to consider this merger, and public comments are still accepted.
In the proposed merger, Gaz Metro (the company that owns GMP) would buy CVPS, putting both utilities under Canadian ownership.
This merger may not be good for Vermont. With this merger, 72 percent of Vermont’s electric utilities would be under Canadian ownership. The transmission line companies (TRANSCO and VELCO) that are jointly owned by the utilities would also be Canadian-controlled. Also, Gaz Metro owns Vermont Gas Systems (VGS) and VGS owns the only gas pipeline into Vermont. After the merger, one Canadian company would own most of Vermont’s electric utilities and all Vermont’s natural gas pipelines.
Problems with the Merger
Issues with the merger can be classified into three main categories:
- Foreign Ownership of so much of the energy infrastructure in Vermont.
- Consolidation of Ownership by one powerful company.
- Weak Regulatory Control by Vermont, including conflict-of-interest issues.
This blog post will discuss the first two issues. Later posts will consider other issues.
It is not popular to make too much of the foreign ownership question, because it appears xenophobic to do so. Nevertheless, when countries export electricity or gas to other countries, they attempt to make a large part of their profits from the exports. The profits from the exports allow the country to sell energy (electricity or gas) more cheaply at home.
For example, according to the 2010 HydroQuebec annual report, HydroQuebec sold 7% of its electricity outside of Quebec, but made 17% of the company’s net income from those sales. According to Thierry Vandal, President of HydroQuebec (in the annual report):
…tight control over our energy market transactions and risks meant that every kilowatthour exported was highly profitable.
A graphic about profits heads this blog post: it is from the HydroQuebec annual report. You can click to enlarge it.
Gaz Metro Profits
Gaz Metro does not break out its profits sources so neatly, and a careful reading of its annual report shows its GMP and VGS investments to be less profitable compared to its Canadian sales. Still, Gas Metro profits from GMP and VGS increased 40% between 2008 and 2009. One factor in the increased profitability was an increase of $3.8 million in GMP’s share of TRANSCO’s earnings. Since total Gaz Metro profits (all divisions) were $160 million dollars, this increase is quite significant. A United States Federal tax credit of $40 million dollars for the Lowell Mountain wind farm project will also be highly significant to the Gaz Metro bottom line.
In other words, Vermont sales are becoming a growing and profitable business for Gaz Metro (To review the financial material more closely, go to the Management Discussion and Analysis section of the Gaz Metro Annual Report.)
Canadian Regulators and Vermont
Gaz Metro will make a profit by entering the Vermont market: that is to be expected. They would not begin business in Vermont if they did not expect to be profitable. Still, no matter how physically or emotionally close Vermont may be to Canada, we should be aware that Canadian regulators often require companies to supply Canadian customers with energy at lower prices than foreign customers. Gaz Metro is required to supply natural gas at cost to most of its Canadian customers.
If Canadian companies are a modest part of Vermont’s energy supply, Canadian regulatory constraints are not too much of an issue. If a single Canadian company owns most of Vermont’s electric distribution and all Vermont’s gas distribution, the requirements of Canadian regulators can have major impacts on Vermont’s customers.
Consolidation of Ownership
Consolidation of ownership issues tend to be the issues most discussed by commentators. So much of the infrastructure being owned by one company has been heavily discussed and challenged. In a recent article in Vermont Digger, Avram Patt, general manager of Washington Electric Cooperative, explained that whoever controls VELCO will make all of the major infrastructure decisions in the state. Because of this, municipal and cooperative utilities (including Washington Electric) have intervened before the PSB, hoping to protect their interests.
John McClaughry echoes this concern in an article in Vermont Tiger entitled Senator Illuzzi and the Utility Merger Case. Vermont State Senator Illuzzi has also intervened in the merger hearing. As McClaughry writes: Illuzzi argues, rightly in my opinion, that VELCO is the big prize here, because the Canadians want to ship a lot of hydro power south to the major US markets in New York and Boston. VELCO essentially owns the transmission corridor.
Illuzzi has also intervened about the merger at the federal level, at FERC. Once again, Illuzzi’s intervention rests on the fact that the combined utility will own the VELCO’s transmission corridor. In their application to merge, GMP and CVPS tried to address this concern by saying that some of the VELCO stock will be placed in a new trust fund, the “Vermont Low Income Trust for Electricity.”
Illuzzi’s intervention filing rejects this as a solution: Apart from a pro forma share transfer agreement that appears as part of Exhibit I to the Application and some vague assertions, the Applicants’ claims about the “VELCO Conveyance” do nothing to remedy the concern that this merger, between the two largest utilities in the State of Vermont, would give them effective control over the decision making of the State’s only owner of high voltage transmission facilities.
The Gas Pipeline
At the same time as the electric utility merger, Gaz Metro is planning to expand further into Vermont as a gas company. Right now, Gaz Metro only supplies gas to the Burlington area, but they hope to extend their pipeline to Rutland. Guy Page of VTEP reviewed the proposed Vermont Energy Plan: the plan supports Gaz Metro extending its pipeline south.
Once the Gaz Metro pipeline is built, natural-gas-fired plants can make electricity. As Page said on VPR: "Well, it (the plan) talks a lot about building natural gas plants in Vermont, medium sized natural gas plants."
Right now, there are no natural gas power plants in Vermont. However, after the utility merger and the pipeline extension, there may be many such plants. Gaz Metro may build the plants, GMP may build the plants, or other entities might build them. Gaz Metro will certainly own the pipeline, and profit by the existence of the new natural gas plants.
In other words, natural gas or electricity, Vermont’s energy supply and energy transmission will depend heavily on Gaz Metro. This would be a major consolidation of energy supply sources in one foreign company.
Vermont and Regulation
Vermont has regulated utilities. The Department of Public Service (DPS) is the consumers’ advocate when utilities come before the Public Service Board (PSB) in a docket about service and rates. After the merger, no matter how concentrated their holdings are in Vermont, Gaz Metro still must submit to the rulings of the PSB.
People in favor of the merger point this out, and say that the DPS and PSB will protect consumer interests. So far, this is not happening. In later posts, I will discuss recent DPS and PSB actions, and on-going issues about conflict of interest.
This post originally appeared at True North Reports. I am grateful to Rob Roper for permission to repost it here.