A Modest Proposal for GMP and Gaz Metro: Use the Shareholder Money

Gaz Metro

Gaz Metro of Quebec, sole owner of Vermont's Green Mountain Power (GMP), wants to acquire Vermont's other electric utility, Central Vermont Public Service (CVPS). This is generally referred to as the GMP-CVPS merger, though I see it as the GazMetro take-over of most of the utility infrastructure in Vermont. (I've got a few links about that at the bottom of this blog post.)

However, there is a problem with the merger. It's the CVPS balance sheet. It turns out that about ten years ago, CVPS made a bad choice buying power from Hydro-Quebec. That power was too expensive for the amount CVPS was allowed to charge its customers so CVPS was about to go broke. It asked for rate relief from the Vermont Public Service Board (PSB). CVPS got that rate relief, but the PSB sternly said that, if anyone ever bought CVPS, CVPS would have to return that rate-relief money: half to the rate-payers, and half to the shareholders.

Half and Half

Opinion from the blogger:

Whoa baby...hold it right there. Why did the PSB decide this? Why was half the money to be returned to the shareholders? It was the ratepayers' money that was keeping their shares from being totally worthless. So couldn't the shareholders simply thank the ratepayers and not expect any "money back" in the future?

Also, people who own stock are used to the idea that some stock prices go up, and other stock prices go down. The shareholders could have sold their CVPS stock and bought something else. They were not locked in to owning CVPS. Ratepayers, poor souls, can't switch utility companies. They just have to sit there and pay the rates.

Well, back to the story as it is evolving now. Back to the present day, when the shareholders will be paid real money, but the ratepayers will be paid in promises.

The AARP Looks at the Merger

In the original plan for the merger, GMP planned to give the money back to the shareholders as cash, but the ratepayers money would be returned as savings in their bills, due to the merger. (You can read the sordid story, including the quick rate raise that CVPS received, in preparation for these supposed savings, at my post Consumers Are Not Protected.) The AARP objected vigorously.

At that point, even the Department of Public Service (DPS) decided it had to do something. It didn't want to do anything too drastic, like insist on giving money back to the ratepayers. However, with great fanfare, DPS announced that CVPS would put the ratepayer money into a fund which would be used to make weatherization loans to some consumers. You can read about this in the Vermont Digger article: Shumlin Administration, Gaz Metro seal merger deal.

A Loan is Proposed, but a Loan is not a Refund

Speaking as an older person myself, I would say that most older people know the difference between

• receiving money that is owed to them
• borrowing more money.

The AARP was not happy with this weatherization loan plan. Greg Marchildon, Vermont State Director of the AARP, wrote in a Brattleboro Reformer op-ed

"The Vermont Public Service Board made very clear in 2001 that the ratepayers who bailed out CVPS with an emergency rate increase had to be repaid. This windfall protection provision that AARP fought for 11 years ago in front of the Public Service Board, is clearly triggered by the merger. The regulators ordered that should the company ever be sold or merged, it needed to pay back ratepayers -- before executives or shareholders profited from the sale. The bailout actually amounted to $98 million, but the Board capped it at $21 million...This is a simple matter of making good on a debt. A matter of fairness.

Instead of refunding the money back to the Vermonters who paid it, the utilities have now proposed creating an efficiency and weatherization program, which satisfies neither the debt, nor the regulator's ruling. GMP actually proposes to set up an efficiency loan fund through a third party that some ratepayers could borrow from to weatherize or make efficiency improvements. Then they would pay the utility back through their bills. Where's the refund in that?"

Emphasis added by blogger

GMP looks at that Pesky Balance Sheet, Apparently for the First Time

Well, GMP/Gaz Metro had never seen the CVPS balance sheet. They were shocked, shocked to find they might have a legal liability to ratepayers. Dottie Schnure, spokesperson for GMP, pretty much admitted this. Returning the money would be a deal-killer.

(Okay, GMP would deny this. GMP would say that of course they looked at the balance sheet. My comments are just my interpretation of Schnure's words.)

According to GMP, having to pay the money back to ratepayers puts the whole deal at risk. Here's a quote from Schnure on VPR:

"The practical outcome of the Legislature getting involved and making a decision on one aspect of a very complex case means that it does put at risk the transaction and potentially the loss of $144 million in savings to consumers."

The Legislature Looks at the Merger

Everything in Vermont gets complicated. Why does Schnure mention the legislature in the quote above?

Quite a few people in the legislature are trying to pass a bill making sure the money goes back to the ratepayer. Perhaps these legislators are concerned with the expenses of ordinary citizens, or perhaps they are concerned with what can happen to them in the next election if they are labelled as going against AARP. At any rate, they are trying to pass a bill to force GMP to refund the money.

However, other legislators and commentators object that the merger is an open docket at the Public Service Board, and the legislature should not get involved in open cases before the Board. That's what the legislature did with Vermont Yankee, and they ended up losing a court case about it.

You can see links to both sides of this question in the Vermont Tiger article: Interesting Debate.

A Modest Proposal

I have a different proposal. A very modest one. All the current excitement is centered on how the ratepayer money gets handled. Sending cold cash to the shareholders is treated as a given. I don't see why that should be the case. After all, it was ratepayer money that bailed out the shareholders when CVPS was on the verge of bankruptcy, and got emergency rate relief.

My proposal is simple.

• Start the loan fund with the shareholder half of the money, so the shareholders will contribute to weatherization in a positive way...the same way the Shumlin administration thinks the ratepayers should contribute. This should make the shareholders happy. After all, this plan was supposed to make the ratepayers happy.
• Next, send the ratepayer money right back to the ratepayers, as cold cash. These actions will keep the same money outflow rate as the current scheme, which should make Green Mountain Power happy. It's not a deal-killer. Some money (the shareholder money) will fund weatherization, which should make the DPS happy. The ratepayers will get their money as money, not loans, which will make AARP happy.

In other words, this scheme will spread happiness all around!

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Portrait of Jonathan Swift, of Modest Proposal fame, from Wikipedia