Canadian Firms in Bidding War for State's Largest Electric Utility
The Quebec-based utility that owns Green Mountain Power has made an unsolicited offer to buy Vermont's largest electric utility, Central Vermont Public Service, and merge the two companies.
CVPS announced late last month that it was evaluating a purchase offer from Canadian-based Fortis, which made an offer of roughly $700 million to buy CVPS.
Gaz Métro is offering roughly $710 million, or $35.25 a share, versus the Fortis offer of $35.10 per share. Both deals include absorbing CVPS' debt of $230 million.
“This offer requires us to convene our board of directors to evaluate the proposal in depth as soon as possible,” said CVPS President Larry Reilly in a statement reacting to the proposal. “Until the board of directors has an opportunity to examine the offer, we are precluded from making any further comment.”
Gaz Métro already owns, through a U.S.-based subsidiary, both GMP and Vermont Gas Systems. Gaz Métro has been the parent company of Vermont Gas since 1986 and of Green Mountain Power since 2007. GMP is Vermont's second largest utility. Gaz Métro has more than $3.6 billion in assets and is considered Quebec’s leading natural gas distributor.
“Gaz Métro continues to demonstrate its commitment to Vermont with increased investment and superior service for customers,” said Sophie Brochu, president and CEO of Gaz Métro, in a prepared statement. “Our partnership in Vermont has proven that keeping smart, local management and providing them with the capital to grow is the right approach. Our plan to combine GMP and CVPS is an extension of that strategy.”
GMP CEO Mary Powell, in announcing the deal, said combining the two utilities would save money for ratepayers in the long run. Combined, the two utilities would reach about two-thirds of Vermont's power customers.
“By combining our forces and collective wisdom, we expect to bring significant benefits to electric customers across the state,” said Powell. “Having a locally-run company working to keep costs low for customers is the Vermont way. This is an opportunity to secure long-term cost savings for customers of both companies, invest in renewable energy and protect local jobs, while strengthening the Vermont economy. It is positive for the customers and communities served by the combined utility.”
At a morning news conference, Powell said about 40 percent of the two utilities' workforces are scheduled to retire in the coming years. A merger would allow the new combined company to reduce costs more evenly as workers retire. She promised no layoffs of staff, other than perhaps changes at the most upper-levels of management at the companies, Powell added.
In addition, the new mega-utility would seek to partner with local organizations to build Vermont’s largest solar orchard in Rutland County with the goal of making Rutland “Vermont’s first solar city.”
According to details of the proposal, the merger would save ratepayers an estimated $144 million in the next 10 years.
Other highlights of the deal include:
• $144 million in savings to CVPS and GMP customers over first 10 years;
• No layoffs at CVPS, other than certain executive management positions due to the consolidation of leadership teams;
• Establishment of new southern head office in downtown Rutland;
• New Rutland County solar development to make Rutland “Vermont’s first solar city”;
• Establishment of a public trust with $1 million in annual income to support a low-income rate plan benefiting elderly and lower-income customers. This income stream will be made possible by an annual dividend generated through contribution by GMP and CVPS post-closing of an approximate 30 percent ownership interest in Vermont Electric Power
Company (VELCO) — operator of the state’s transmission lines — to a permanent public trust. It will be supplemented by a donation from the combined entity;
• Offer of $35.25 per CVPS share; and,
• Right for CVPS’ shareholders to receive regular quarterly dividends until closing.
As I noted in a previous Blurt post, a Canadian purchase of CVPS would mean that Canadian-based companies would own a substantial part of Vermont's power grid and electrical output. All of the dams along the Connecticut River are owned by TransCanada, and Gaz Métro owns both GMP and Vermont Gas.
By default, a Canadian purchase of CVPS would also mean that the Canadian firms would have a majority stake in VELCO, the state's power grid operators. CVPS owns a 42 percent stake in VELCO and GMP owns a 30 percent stake in VELCO. According to Gaz Métro's offer, 30 percent of that ownership would be turned over to a public trust, and revenue from those shares could be used to subsidize rates for low-income Vermonters.
The deal, if approved by CVPS shareholders, would have to be approved by the Vermont Public Service Board.
* * Update * *
Late this afternoon, Gov. Peter Shumlin issued this statement about the Gaz Métro / GMP offer to buy CVPS. It was a far more supportive — and lengthier — statement than the one he issued after the news broke about the Fortis offer. Perhaps that has something to do with GMP's CEO Mary Powell heading up his inaugural ball committee? Nah, probably just a coincidence.
Here's his statement in full, followed by his statement given last month in response to the Fortis deal.
On the Gaz Métro / GMP offer:
"I have always said that I prefer Vermont ownership of our state's utilities, but if that goal is not achievable, I have also said that I have three criteria for any sale involving utilities. First, I want to know that the transaction is good for ratepayers. Shareholders will do just fine in any acquisition — my interest is in getting the best rates for Vermonters and growing jobs. Second, I want to know that our transmission infrastructure will be modernized to distribute community-produced power. Third, I want to know that this will lead to greater use of renewables, because I believe our energy future depends on growing our renewable portfolio.
"With those criteria in mind, I have given initial review of the offer made today by the parent company of Green Mountain Power to consolidate GMP with Central Vermont Public Service. At first glance, I believe this proposal has value for Vermonters and for job creation.
"While the details need careful review, the proposal addresses a set of key goals, by bringing significant savings through consolidation without worker layoffs. The savings are very important — we all know that energy costs and transmission costs likely will rise into the future, and we need smart efficiencies to counteract those pressures. The proposal as described also brings a piece of Vermont’s transmission company, and the value it generates, to state ownership, giving all Vermonters a seat at the table as we meet our transmission challenges. Finally, GMP has a strong commitment to investing in Vermont’s renewable energy future and a track record to prove it.
"I have asked our Department of Public Service to review this proposal carefully. Ultimately, they and the Public Service Board will determine the outcome of the regulatory process.”
On the Fortis offer (his statement was issued May 30):
"Today the Central Vermont Public Service Corporation announced that its Board of Directors has voted to accept an acquisition offer by Fortis Inc., Canada's largest investor-owned utility. In the coming days, my administration will carefully examine the terms of the proposed acquisition. In a utility acquisition such as this, it is critical that the transaction serve the best interests of Vermont's ratepayers and job creators. While CVPS's Board has cited benefits of retained management and control, I will examine this transaction for strong value to the customers in furtherance of our state's priorities. I will also insist on a continuation of the extraordinary corporate ethic we expect here in Vermont."