Wednesday, March 7, 2012

The Gaz Metro Merger: The Consumers Are Not Being Protected

About the Public Service Board

In today's post, I show that the Public Service Board and the Department of Public Service have not protected consumers about other utility issues. This post was published first in True North Reports, and is updated here. When we write the PSB about Vermont Yankee, it is worth knowing some related history.

If you don't have time to keep reading this post, here's the summary:

Question: Are Vermont consumers being protected by the Public Service Board (PSB) and the Department of Public Service (DSP)?
Answer: No

The Merger

Green Mountain Power (owned by Gaz Metro) plans to merge with Central Vermont Public Service. If this merger is approved, Gaz Metro, a Canadian gas pipeline company will own or control most of the energy infrastructure in Vermont. They will own the two electric distribution companies and the gas distribution company (Vermont Gas Systems). They will also (probably) control the two large transmission companies, TRANSCO and VELCO.

The Agencies That Protect Consumers in Vermont

Vermont has two agencies that regulate utilities and protect consumers. Vermont’s Public Service Board (PSB) oversees utility actions and sets rates. The Department of Public Service (DPS) acts as the consumer advocate in cases before the PSB. If these two agencies do their job, Vermont citizens should feel comfortable, no matter who owns the utilities.

Unfortunately, PSB and DPS are not doing their job to protect ordinary citizens and ratepayers.

Conflict of Interest at DPS

DPS is charged with protecting consumers, and many people are concerned with Shumlin’s appointment of Liz Miller as Commissioner of the DPS. Ms. Miller’s husband is managing partner of the law firm that represents Green Mountain Power, a conflict of interest situation that puts her actions as Commissioner in doubt.

Senator Vince Illuzzi was particularly concerned that Miller would not be able to do an appropriate job of supervising the merger. A major issue is preventing Green Mountain Power having monopoly control of the transmission companies. Such control by one massive company could hurt all smaller utilities. Illuzzi filed interventions at both the federal and state levels, asking for an independent counsel to supervise the merger. Many small Vermont utilities joined his interventions.

In response, the state appointed Michael Dworkin to study the matter. Dworkin made some recommendations on managing the transmission companies. Meanwhile, Ms. Miller said that the governor expected DPS to “kick the tires” on the merger deal.

However, even the appearance of conflict of interest can make DPS actions look biased. No matter how fair Miller tries to be, and how many tires she kicks, she is a Commissioner whose husband’s law firm represents one of the biggest players in the merger. Dworkin only studied one aspect of the merger case: the transmission companies. There are other issues about companies that Gaz Metro owns or will own, and these issues directly affect consumers.

Regulating the Pipeline

Gaz Metro (owner of Green Mountain Power) had another docket before the PSB recently. Gaz Metro plans to expand its Vermont Gas Supply pipeline from Burlington to Rutland. The docket before the PSB included the question: whose money will be used for this expansion? Surprisingly, PSB has allowed the pipeline company to raise rates on existing customers in order to extend the pipeline from Burlington to Rutland.

Not everyone of the PSB was in favor of raising the rates to consumers before the pipeline is built. Board member John Burke said that taxing Vermont ratepayers before they get any benefit was "unfair and improper.” Burke pointed out that Gaz Metro has hundreds of millions of dollars available for investment. He was overruled by the others on the board. Existing customers will pay for the new pipeline, even though these customers are already served by a pipeline. Existing customers will see higher gas rates, but will have no personal benefit from the pipeline expansion. The benefit goes to Gaz Metro, which will be able to build a longer pipeline without spending its own money.

Update: Gaz Metro just negotiated a $600 million dollar line of credit agreement. They have plenty of money to build the pipeline without being financed by Vermont ratepayers.

DPS, the designated protector of the consumer, did not take a stand on this case before the PSB.

Following Some Old Money on the Merger

There are other situations in which the ratepayers are not being protected. Since DPS did not step in to protect consumers, AARP is intervening about electric rates in the proposed GMP-CVPS merger.

To understand the AARP intervention, we have to follow some old money. Years ago, the PSB granted Central Vermont Public Service a rate increase, but the PSB stipulated they had to give that money back to the shareholders and rate-payers if their company was purchased. Half the rate increase money was to return to the shareholders, and half to the ratepayers. Since Central Vermont Public Service (CVPS) is now expecting to be purchased by Green Mountain Power, CVPS is obligated to give the money back to these two groups.

CVPS plans to give immediate per-share payments of $10 to their shareholders (share-holders half) while paying back the rate-payers by lowered rates due to the supposed $114 million savings from the merger over a 10 year period (rate-payers half).

Paying back the rate-payers through merger-caused savings is not going to be real money, not like a $10 bill in the shareholder’s pocket. PSB recently gave CVPS a rate increase of 4.8%, or approximately $17 million per year.

This new higher rate will more than offset the $11 million dollar per year “savings due to the merger” that CVPS expects to pass on to customers. AARP is intervening in the merger docket to protect low-income seniors (and everyone else). The DPS has not intervened.

DPS has not intervened to urge the PSB to protect the ratepayers in the gas pipeline or CVPS returning money they are obligated to return to ratepayers. Why not?

Update: The latest updates from AARP imply that the consumer rebate situation is even worse than I described. Two links:

Conflict and the Appearance of Conflict

Conflict of interest is impossible to prove. If the Commissioner were not married to a lawyer whose firm represents Green Mountain Power, the DPS might well have taken the same stands. DPS might have approved of pipeline financing by existing customers. They might have been fine with CVPS plans to return money to shareholders with a check and return money to ratepayers through questionable future savings. No one can say that DPS acted this way because of this, or because of that.

However, once again, we are back to the reasons that governments and judges attempt to avoid even the appearance of conflict of interest. With conflict of interest in the background, all decisions the government makes have the possible taint of bias.

Governor Shumlin is an astute politician, and he should take notice of these concerns. For any rate case involving a current or potential subsidiary of Gaz Metro, owner of Green Mountain Power, Governor Shumlin should appoint an independent counsel as consumer watchdog. He should ask Ms. Miller to step aside for that case, since her husband is an executive in a law firm representing Green Mountain Power. The independent counsel should do some serious watching over consumer pocketbooks!

If he does not take this type of action, Shumlin is just handing ammunition to his opponents.


Earlier articles in this blog have described concerns with this merger. The probable monopoly ownership was covered in Who Owns the Infrastructure. Some conflict of interest concerns were covered in Governor Shumlin and GMP. This article focuses on the probable effect of these mergers on consumers.

I wrote this post for True North Reports. I am grateful for the opportunity to reprint in this blog.

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