GMP + CVPS = Savings

[Chris Santee]

Utility Combination Generates Millions in Savings
By Mary G. Powell
June 30, 2011

Last Thursday, I was in Rutland to announce a proposal for Green Mountain Power (GMP) to combine with Central Vermont Public Service (CVPS) so that together we can deliver superior value to Vermonters.  It is an exciting opportunity for two very strong Vermont electric utilities, but, more importantly, it is a great opportunity for our customers, our communities, our economy and our entire state.  By combining two companies with proven track records of quality service, social and environmental responsibility, and dedication to the communities they serve, we can deliver even greater value to our customers and move more aggressively toward an energy future that is clean, green and cost effective.

What makes the combination of GMP and CVPS a better deal for Vermonters?  For years state leaders have talked about and supported the idea of utility consolidation.  Creating a more efficient and streamlined system to deliver electricity to Vermonters will ultimately lower cost for families and businesses.  While I am proud that Vermont already has among the lowest electric rates in our region, reducing costs further will make our economy more competitive and enable job creation.  In fact, we estimate a savings of $144 million over the next 10 years if GMP and CVPS are combined.  That is $144 million that can be reinvested into businesses and communities, creating jobs and strengthening our state.

While some may worry that fewer utilities means less competition, the reality is that as a regulated enterprises utilities do not compete with one another in Vermont.  State regulators have the ultimate say in regard to the rates we charge.  To the extent that we can reduce costs by combining our forces, those savings are returned to our customers in the form of lower costs for electricity.     

Beyond the economic development and job creation benefits of a combination, GMP’s offer is unique in that we have proposed transferring 30 percent ownership interest of VELCO, Vermont’s transmission utility, to Vermonters.  That level of ownership in VELCO would yield Vermonters about $1 million annually and could be used to help reduce the cost of electricity for our low-income neighbors.

For regulated utilities, like GMP, it is a fact of business that when our customers succeed, we succeed.  As a pillar of the Rutland region, CVPS sets a high bar for community involvement and support.  That local commitment will be strengthened if the companies are combined.  Just as we at GMP have supported the communities we currently serve, the new combined utility will work for the success of all the communities it will serve.  In Rutland in particular, where CVPS is headquartered, we are committed to working with local leaders to strengthen the downtown, as well as making Rutland Vermont’s first “Solar City,” in an effort to attract innovative entrepreneurs and cutting edge new businesses to the area.     

We are very excited about what is possible by bringing together GMP and CVPS.  As a job enabler, with a focus on low cost, low carbon and reliable power, we can bring positive and long lasting change to our customers, our communities, our economy and our entire state through this superior offer.

Mary Powell is the President and CEO of Green Mountain Power.

[kevin]

That savings won't be passed on to the consumer.  I'd love to see the news story where CVPS requests a rate reduction from the Public Service Board!

[David Shea]

How much did Gaz Metro pay you to publish this PR? 

[David Shea]

This spin on this story from a different perspective: Taken From Vermont Tiger's Web Site.

July 01, 2011
Gaz-Met’s hostile offer raises key questions for Vt.

Emerson Politics by Emerson Lynn

One of the protocols involved when one company offers to buy another is a chat with the financial analysts. It’s the analysts’ responsibility to guide investors as to how good a deal the proposed purchase might prove to be.

Thus, when Gaz Metro made what is being termed a hostile bid for Central Vermont Public Service, the conversation [reviewed on the company’s website] with the analysts produced some of the same questions being asked here in Vermont.

One analyst was clearly befuddled. He said it’s rare to see unsolicited bids in the utility business and he wanted to know why Gaz Metro would pursue the CVPS deal so ardently. [Gaz Metro had been involved in the first go around, and lost to a superior bid by Fortis, Inc. of Newfoundland.]

The analyst asked company officials why they would “pay twice book for an asset that earns nine percent on book … that doesn’t sound like a very good return.”

The Gaz Metro folks responded, in so many words, that it was the right thing to do, that the synergies were there and that the people of Vermont wanted the consolidation. The deal had a “feel good” sense about it.

The analyst could only respond with a departing “best of luck.”

 

The analyst may or may not recommend the deal to his investors. He has that choice. We don’t. If the deal is approved by the CVPS board of directors and if it is approved by the Public Service Board, then we have a single utility controlling 70 percent of the market. The Vermont side of the Gaz Metro operation would have 735 employees and, counting Vermont Gas, CVPS and GMP, would have a rate base of over $1 billion.

It’s important that we get this right. It’s unlikely there will be a second-time around.

Much of the deal’s allure is predicated on the projected savings that would accrue if the merger were to be approved. Gaz Metro officials say attrition rates and the elimination of obvious duplication would result in $144 million being saved in the first 10 years.

That’s a lot of money. But it’s useful to put things in perspective. Together, CVPS and GMP have annual gross revenues of roughly $568 million, which, over 10 years would be $5.68 billion. The $144 million in savings would yield an average of about 2.5 percent.

That 2.5 percent per year savings does not include any growth with either utility. The stronger the growth, the less that $144 million in savings is as a percentage.

That’s not to disparage the effort. Savings are savings. But it’s important not to be so focused on a 2.5 percent savings that other questions are ignored.

And that’s our worry with the Gaz Metro offer. The governor has already made his preference clear: he was lukewarm to the original offer by Fortis and obviously pleased with the Gaz Metro proposal. It’s the governor who appoints the commissioner of the Vermont Department of Public Service, who has no small part in vetting the proposal.

It’s critical that the governor understands he has already prejudged the offer and that he needs to retreat. He needs to insist that the Public Service Board thoroughly explain the costs and benefits of any proposal it considers. That includes ferreting through the history of other utility mergers, determining whether the promises of savings materialized. A 2.5 percent savings rate is not something one can depend on in a world full of uncertainty.

The board will need to address other issues. For example, the rates both utilities charge are different. Does a merger mean the customers with the lower rates will see their rates increase? How would a “merged” rate work?

It’s equally important for the Public Service Board to separate the politics from the numbers. It’s nice that GMP would like to build a new headquarters in Rutland, and that it would work to see that Rutland is the state’s first “solar city.” But why build a new headquarters when the existing headquarters is suitable? Is that part of the savings? And what’s the cost/return on the investment necessary to make Rutland solar powered? Is this a feel-good that translates elsewhere?

Obviously, this is a big deal for Green Mountain Power and Gaz Metro. Being the only player in a market like Vermont is seductive. And there must be a hint of the same between Gaz Metro and Fortis, Inc., who are rivals not only in the power business, but who represent the provincial rivalries between Quebec [Gaz Metro] and Newfoundland [Fortis, Inc.]

How this will all play out is anyone’s guess. But, as the analyst suggests, the Gaz Metro offer poses some key questions that have yet to be answered. The public needs to insist that this accounting to the public occurs.

Emerson Lynn is editor & publisher of the St. Albans Messenger where this essay first appeared.

[Dick Brown]

David                 Thanks for the Emerson Lynn posting . I'm not able to pull up the Messenger on my internet as i can the Free Press , and it's always refreshing to read or hear Emerson's thoughts . Many years ago , in my role as Franklin County STW Coordinator , I was involved in several ways with Mr. Lynn and his newspaper and learned two things : first , he is extremely interested and supportive of education and the schools in Franklin County , second , he is a thoughtful and articulate man who really understands the economic forces that drive our world.   
Thanks again for posting .

[monte198]

So would this create a monopoly. 

[Henry]

I have asked The Messenger to post Emerson's Editorials as he does a great job and they are easy to understand, but have never been successful - I personally am a big fan of local news and the Messenger does a lot for our School Sports as well as our local news (Franklin County).