by Alan Panebaker vtdigger.orgSome lawmakers say a proposal by the Shumlin administration and the stateâ s two largest utilities to create an efficiency fund is a shell game.
On March 26, the Vermont Department of Public Service, Green Mountain Power and Central Vermont Public Service Corp. proposed a memorandum of understanding that would allow the utilities to invest money in measures including weatherization as part of a windfall sharing mechanism.
The idea was to fulfill a requirement that utilities who got bailed out by ratepayers in the 1990s share profits with ratepayers if they are bought for above book value. The $700-million proposed merger meets that threshold.
Rep. Oliver Olsen, a Republican from Jamaica, said the only problem with the deal is the money being invested doesnâ t come from the utilities at all. It comes from ratepayers.
When Vermont utilities entered into a contract with Hydro-Quebec which the Public Service Board deemed â imprudent,’they were on the verge of bankruptcy. The board allowed the utilities to increase rates on the condition that in any future merger above book value, the utilities would have to return up to $16 million (now $21 million adjusted for inflation) to ratepayers.
The money has become a hot-button issue in the Public Service Board proceeding and the Statehouse with both the AARP and a coalition of lawmakers pushing for a direct cash payment to current CVPS customers. CVPS is the utility that would be bought and is thus subject to the windfall requirement.
â Itâ s quite brilliant,’Olsen said. â They created a whole firestorm amongst advocates like the AARP and the community action agencies about how the money should be refunded. They kicked up a whole fuss around how the money should be rebated.â
Rep. Oliver Olsen. Photo by Josh Larkin.
What slipped away, Olsen said, was that $21 million was never going back to ratepayers in the first place. Under the current proposal, the utilities will invest $21 million of ratepayer money, and the proceeds that ensue will benefit ratepayers.
A group of lawmakers from across the political spectrum claims to have enough votes to put a stop to the proposal and require the utilities to pay cash rather than invest in the efficiency fund.
Olsen said he hasnâ t signed on to the bill, but he is concerned the Department of Public Service isnâ t doing enough to protect its constituents.
â At this point, the Department of Public Service is the advocate for the ratepayers, and I think in this case, theyâ ve come up short,’Olsen said. â I hope that they will look for an opportunity to bring Green Mountain Power back to the negotiating table and hammer out an MOU that more closely aligns with the objectives outlined in the [bill] and provides a more direct rebate to customers ‘a rebate that actually has monetary value.â
Olsen said the proposal in the MOU would fund state programs that have seen funding shortfalls. For example, community action agencies will see $12 million. Those programs have seen cuts in federal funding this year, and attempts to increase the gross receipts tax to fund them have failed. Funding these types of state programs at a cost to ratepayers, he said, could even pose constitutional issues.
The idea of the utilities investing ratepayers’money in projects like weatherization piqued some senators’interest as well.
The Senate Committee on Commerce and Economic Development held a hearing Thursday with Elizabeth Miller, commissioner of the Vermont Department of Public Service.
Three members of the committee have proposed another bill that would have the state study ownership of up to 51 percent of the shares of the stateâ s electric transmission system, which is owned for the most part by Green Mountain Power and CVPS. The committee chair, Sen. Vince Illuzzi, is an intervenor in the Public Service Board docket. He initially requested that the board assign independent counsel for the department since Millerâ s husband works for the law firm that represents Green Mountain Power.
Sen. Vince Illuzzi. Photo by Alan Panebaker
Pressing Miller on the windfall issue, Sen. Peter Galbraith called the proposal a â sweetheart interest-free loan’where the utilities got a loan for no interest, and in the end did not have to pay it back.
Sen. Tim Ashe called it a â mind twister.â
â If I give you a dollar and you put that dollar back into efficiency in someoneâ s home, it seems like someone else is using my dollar in a way that benefits me,’Ashe said. â But Iâ m still a net loser when it comes to 21 million dollars in the equation.â
That â mind twister,’Miller agreed, was a confusing concept. The department has supported the idea of an efficiency fund even if it is ratepayer money being invested since the benefits reaped from things like weatherization will presumably create more societal good overall.
Miller said in the boardâ s 2001 order it did not mandate a cash refund but rather that some value came back to ratepayers.
â They said you had to make sure the value actually came back and ensure the value equals or exceeds the windfall amount over time,’Miller said. â The memorandum of understanding weâ ve struck here is that itâ s appropriate to follow that precedent. The efficiency fund does that.â
Dorothy Schnure, a spokeswoman for Green Mountain Power, emphasizes that the board did not actually require the utilities to pay ratepayers money. They simply had to create a benefit.
The way it pans out, Schnure said, is the utility will invest $21 million in a fund, which will be reflected in electricity rates. The utility will guarantee a $46 million gross benefit from that. Subtracting the $21 million ratepayers essentially invested in rates, $25 million will benefit customers, she said.
In 2007, when Gaz Metro bought Green Mountain Power, the board approved a similar efficiency fund, which was paid for with ratepayer dollars.
Schnure said comparing the windfall to a loan is inaccurate, and the benefits of the merger with the efficiency fund will be a good deal for Vermont. Originally the utilities claimed $144 million in savings the merger will create in 10 years and $1 million a year investments in a low-income fund would cover the windfall requirement.
â We believe our original proposal to guarantee customers $144 million in savings over the first 10 years (with savings continuing after that) meets the PSB requirement,’Schnure said. â With pushback from the DPS, we added additional value to customers with the [efficiency fund] proposal, which on its own also meets the PSB requirement.â
Schnure said the $144 million in projected savings from more efficient operations would not be possible without the merger.
Green Mountain Power has stated publicly that legislative intervention could kill the deal.
But James Dumont, an attorney who represents AARP, said the cash payment wouldnâ t be a dealbreaker, and the utilities know it.
The merger agreement, Dumont said, outlines â material adverse effects’that would allow one of the companies to back out of the deal.
â My issue is intervening into a Public Service Board docket that is contested and very complex, more complex than people know.’~ Rep. Tony Klein
A proxy statement to CVPS shareholders, however, says implementation of the windfall sharing mechanism or a change in law would not be considered in determining a material adverse effect.
For now, the four representatives who have been waiting for a bill to hit the floor that would lend itself to tacking on an amendment requiring cash payments to utility customers will have to keep waiting.
House Bill 718, which deals with miscellaneous issues surrounding the Department of Public Service and Public Service Board, is a prime target, but that bill is stalled in the House Committee on Appropriations.
Rep. Martha Heath, who chairs the committee, said Monday she was waiting to hear from House leadership how to proceed.
House Speaker Shap Smith has said that he would prefer the Legislature not interfere with open dockets where the board is currently taking testimony.
Rep. Tony Klein, who chairs the House Committee on Natural Resources and Energy, said Monday he was working to draft a resolution the Legislature could send to the Public Service Board that he said would get the point across without a specific mandate.
â I donâ t have any issue with the subject matter,’Klein said. â Iâ m not saying giving checks is better than not giving checks. My issue is intervening into a Public Service Board docket that is contested and very complex, more complex than people know.â
Klein said the resolution would effectively mirror the amendment that Reps. Cynthia Browning, Paul Poirier, Patti Komline and Chris Pearson have proposed but would not actually require the board to do anything.
â Iâ m very concerned about the unintended consequences of the Legislature making a direct edict to the Public Service Board that it shall or shall not do anything in this particular situation,’Klein said.
Browning, who originally sponsored the amendment that would require cash payments, said she and others may have to wait and see what House leadership does.
â I remain committed to taking action that will make it more likely that a reasonable and equitable direct payback of the CVPS bailout to ratepayers will actually occur,’Browning said. â I would prefer an amendment to a bill: a resolution has no teeth. But that may be all that leadership allows.â
Browning said she still believes the proposed MOU is unfair to ratepayers even though it would result in useful investments in efficiency.
â It doesnâ t return the money, then it charges us higher rates on the investments made with our money,’Browning said.
April 2, 2012 vtdigger.org