Power company shell game

By  Oliver Olsen

There has been considerable discussion over the past few weeks about how Central Vermont Public Service should rebate $21 million owed to its customers.

So what is all the fuss about?

We should start with some history. Back in the 1990s, CVPS, Vermont’s largest electric utility, entered into contracts to purchase electricity from Hydro-Quebec, a large power producer owned by the government of Quebec. The contracts proved to be financially lucrative for Hydro-Quebec, but not quite so for CVPS.

By 2001, CVPS was on the verge of bankruptcy. CVPS went before the Vermont Public Service Board with a request to raise electric rates to help bail the company out. The PSB agreed to a rate increase, with a condition that stockholders share the profit from any future sale of the company. This so-called “windfall sharing mechanism” dictated that 50 percent of any profits from the sale of the company should be returned to ratepayers, up to a maximum of $16 million ($21 in today’s dollars). Now, with the planned acquisition of CVPS by Gaz Metro (the parent company of Green Mountain Power), that day has arrived, and the shareholders of CVPS stand to gain a considerable return on their investment — in excess of $100 million.

In view of this windfall, CVPS customers are owed $21 million (more if it had not been capped), at least in theory.

But under the terms of a Memorandum of Understanding recently agreed to by Gov. Peter Shumlin’s Department of Public Service, it looks like many CVPS customers will see little, if any, monetary benefit from the $21 million windfall payment. In fact, CVPS customers may end up paying more in their rates than they otherwise would have to.

Try following the pea in this shell game. Instead of providing a direct cash refund or using the windfall to reduce rates, the utility plans to invest in a variety of projects that will produce broad societal “benefits,” which include intangibles like “reduced supply risk” and “emission reductions.” Under the MOU, the company has committed to delivering $25 million in “benefits” as a way of satisfying its $21 million obligation to CVPS customers.

Here is the real rub — not only will CVPS customers receive no cash refunds, the utility will actually raise money from its rates to fund investments in these projects, including projects that may not result in any direct financial benefit for the ratepayer. A dollar value will be assigned to the purported savings from all of these projects, Gaz Metro will declare “mission accomplished” when $25 million of “benefits” have been tallied, and will quietly slip out the back door with $21 million in cash.

That’s right. After forking over more money in our rates to pay for these investments, we get the “benefits” and they keep our money.
So where will our (additional) money be invested?

Gaz Metro will put $6 million into the state’s weatherization program this year and another $4 million next year. While these are worthwhile investments, there are serious questions about whether it is appropriate to invest in thermal efficiency with money from electrical ratepayers. Keep in mind that these programs are means tested, so most Vermont households won’t even qualify. According to the MOU, these investments will count on a multiple of 1.2 towards the $25 million in benefits that the utility is promising.

For example, in 2012 and 2013, if the utility funds $10 million in low-income housing weatherization across the CVPS territory, it would count $12 million towards its goal of $25 million in benefits, and then roll the cost of the $10 million investment into its rates. The typical middle-income Vermont family would receive no benefit, but would share in the incremental cost of this investment through their electrical rates.

In effect, it is a clever way of raising revenue to fund state programs that came up a little short in this year’s budget. In other words, it is a hidden tax.
Money would also be invested in electrical efficiency programs administered by the company that runs Efficiency Vermont and renewable energy projects identified by the Clean Energy Development Fund.

The problem with this whole approach is that, even though the purported benefits are being assigned to all ratepayers, the reality is that only a limited number of ratepayers will realize any tangible monetary benefit from these programs. Those who do benefit will see significant — some would say disproportionate — monetary savings, while most will receive nothing more than the satisfaction of knowing that the next-door neighbor might save a few bucks on his home heating bill next winter.

Gov. Shumlin has done a good job advocating for the utilities. But under Vermont law, the governor’s administration is charged with representing the interests of Vermont ratepayers before the PSB. They should start doing that.

Rep. Oliver Olsen is a Republican House member who represents Jamaica, Londonderry, Stratton, Weston, and Winhall.

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