Vermont: A Wholly-Owned Subsidiary of Canada?

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Vermont's power future can be summed up in two words: "O Canada!"

On Monday, Fortis, a Newfoundland-based power company, announced a $700 million deal to buy Central Vermont Public Service, Vermont's largest utility. The deal includes Fortis buying up about $230 million in CVPS debt. Fortis owns several utilities across Canada, as well as the Caribbean and Belize.

If approved by Vermont regulators, CVPS would become the third major state utility owned by a Canadian firm. Quebec-based Gaz Métro owns Northern New England Energy Corporation, which, in turn, owns Green Mountain Power and Vermont Gas.

GMP's sale to Gaz Métro was approved in 2007, while Vermont Gas was taken over back in 1986.

In addition, all of the dams along the Connecticut River are owned by TransCanada, which is based in Alberta. They purchased the dams in 2005 from USGen New England.

Who's got the power now, eh?

Maybe this is Gov. Peter Shumlin's way of bringing single-payer health care to Vermont? One utility at a time. Canada gets Cow Power and we get cradle-to-grave, universal health care. Sweet.

I guess it's good to have a back-up plan if Vermont can't get the waivers it needs to move ahead with a first-in-the-nation single-payer health care system. Vermont can become a wholly-owned subsidiary of Canada. I doubt the other 49 states would notice, or care.

"In the coming days, my administration will carefully examine the terms of the proposed acquisition," Shumlin said in a statement. "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."

In addition to the $700 million in cash, Fortis is also proposing to pump $21 million directly back to Vermont consumers — as regulators see fit. It will also allow CVPS to maintain its current workforce of about 520 employees and its headquarters in the greater metropolitan area of Rutland.

The all-cash transaction will provide CVPS shareholders $35.10 per share, a 44 percent premium over the CVPS common share closing price of $24.32 on Friday, May 27. Cha-ching!

And, yes, that's in U.S. dollars, not Loonies. Though lately the Canadian dollar is trading just about par with its U.S. counterpart ($1 U.S. was worth 97 cents Canadian when I checked last night).

CVPS' new president Larry Reilly said Fortis was chosen out of several suitors. Fortis is the largest investor-owned distribution utility in Canada, with total assets of approximately $13 billion and fiscal 2010 revenue totalling approximately $3.7 billion. Fortis serves approximately 2.1 million gas and electricity customers.

"Fortis brings financial strength to CVPS, giving us strong access to capital markets not available to smaller utilities," Reilly said. "And we look forward to sharing best practices with the other operating companies of Fortis, with the goal of finding new ways to reduce costs and improve service to our customers."

Fortis execs praised CVPS for being a top-notch utility that fits well with the Fortis model, which is allowing its subsidiaries to operate as autonomously as possible.

"CVPS is a well-run utility whose operations and operating philosophy are very similar to those of our Canadian regulated utilities," said Stan Marshall, Fortis' president and CEO.

CVPS, the largest electric utility in Vermont, serves nearly 160,000 customers in 163 cities and towns across Vermont. CVPS Cow Power™ won the 2009 U.S. Department of Energy Utility Green Program of the Year Award and the company has been listed by Forbes Magazine as one of the most trusted companies in America for 60 straight months.

"This is a great opportunity for CVPS, our customers, employees, the Rutland region and the state as a whole," commented CVPS Chairman Bill Sayre. "A partnership with Fortis brings additional strengths to help us achieve our vision of becoming the best small utility in America."

Yeah, that's code for get ready to learn the Canadian national anthem. China's got nothing on Canada when it comes to buying up the U.S. on the cheap.

So, Vermont power consumers, I suggest you start to learn the following lyrics to the English version of "O Canada," the national anthem of our neighbors to the north.

O Canada!
Our home and native land!
True patriot love in all thy sons command.
With glowing hearts we see thee rise,
The True North strong and free!
From far and wide,
O Canada, we stand on guard for thee.
God keep our land glorious and free!
O Canada, we stand on guard for thee.
O Canada, we stand on guard for thee.

Comments

[99bonk]

thank goodness Vermont doesn't have a border with Mexico - otherwise we might be facing a takeover by Carlos Slim :-(!

[murphy]

It's perfectly ok that Vermont's entire energy infrastructure, and a large chunk of the energy supply itself, is owned by a single foreign country, but heaven forbid that we should buy a single watt of electricity from a US company like Entergy that actually employs hundreds of Vermonters and pays taxes in this state.

[Neil]

Are you implying that if a company is based in Canada it doesn't pay taxes in Vermont and its employees in state aren't Vermonters? Or are you just going off on a random tangent?

[murphy]

Whether Gaz Metro, Fortis, and TransCanada pay taxes here isn't the issue. The issue is that virtually the entirety of Vermont's electricity infrastructure and supply, and its entire natural gas infrastructure and supply, are owned by foreign countries, and a single foreign country at that. Gee, is that smart? We foolishly get all hot and bothered about Vermont Yankee, but don't even pay attention to the fact that a single foreign government could decide to shut off all our lights and gas on a moment's notice.

[Neil]

Except that the PSB wouldn't let them. Power is a utility which is under fairly strict regulation. You can't just "shut the lights off" at a utility. It doesn't work that way. That's part of the reason the PSB is involved with Burlington Telecom. Their video and phone business is regulated as a utility and they can be forced to continue to operate for a period of time to allow people to migrate to other services. In the case of electric utilities there would be fines and probably more drastic measures should a company violate its CPG by just shutting off their system.

[Sukie Knight]

This is a very sad day. This is the second news article which I have read that states the good business acumen, ie financial succes,s of the Canadian companies. So, we are, in Vermont, cast in a very negative light regarding all the debt CVPS has, $230 million, that Fortis will now pay, in addition to paying the $700 Mil price in CASH. How well run can CVPS be when it has massive debt and must sell to get even? HOpefully, all of our businesses in VT are not in such poor shape financially. And, I do not like the idea that Canada owns all these utilities, PSB or not. Why can't we manage our own stuff, for crying out loud? Are we a bunch of incompetents?

[Jcarter]

While our politicians cry for energy independence, here in VT there have been two major "energy events" The purchase of out of state nuclear power from seabrook, and the sale of the larges electrical utility to Canada.

If anyone ever doubted that Vermont was an ass-backwards state, they need look no further.

[one_vermonter]

So you support buying power from Entergy Nuclear, even though their price was higher than Seabrook nuclear?

[murphy]

"So you support buying power from Entergy Nuclear, even though their price was higher than Seabrook nuclear?"

Well, Vermont taxes and employment benefit from purchasing the electricity from Yankee as opposed to Seabrook.

[One_vermonter]

So is Entergy Nuclear a jobs program or a business? For years we've been told how essential it is to have cheap electricity in the state. Now you say that all Vermont ratepayers and businesses should pay MORE to keep Entergy Nuclear on line?

I doubt that many Vermont businesses would agree with that.

[Jcarter]

Do you support buying from local farmers even though it's more expensive? Same food higher prices, keeps people off the gov't dole though and when factored in results in lower costs overall.

Moreover, I'm just guessing here, but do you wonder if GMP said, we have a price of X can you match it? Do you think Entergy might have matched it? And lets not forget,both Entergy and Seabrook are cheaper then HydroQuebec AND are just about free compared to wind/solar/and biomass.

[one_vermonter]

"Do you support buying from local farmers ... ?"

I support government (and public service provders) awarding contracts to the lowest qualified bidder. For months, VY has run ads of 'local farmers' saying that they need the cheapest availalbe supply of power. Seabrook Nuclear is it. My personal shopping habits effect only myself. Not hundreds of thousands of other people.

"Do you think Entergy might have matched it?"

Entergy Louisiana knew that they were in a very competitive situation. They knew full well that GMP was in negoitations with other power suppliers. Entergy Louisiana had EVERY chance to put forward their best price. They couldn't compete on price. They failed and the ratepayers won.

[Jcarter]

"I support government (and public service provders) awarding contracts to the lowest qualified bidder."

Then clearly you must oppose wind, solar, biomass and the contracts with Hydro Quebec....

"they were in a very competitive situation. They knew full well that GMP was in negoitations with other power suppliers."

And they put forth the cheapest price, and were denied prior to the Seabrook deal. Moreover, considering their hefty contribution to the CEDF, it is in fact a better deal then Seabrook, which will not be putting 10 Million + into the CEDF.

[one_vermonter]

You said it, "they put forth the cheapest price ... PRIOR to the Seabrook deal."

Shop around a little bit, get a better deal. That's life.

Entergy Louisiana got couldn't compete.

[Jcarter]

So what you are saying is if Entergy offers the same or lower price to say CVPS, then you support CVPS accepting said offer?

And I remind you that Seabrook will not be contributing to the CEDF, so it isn't in total a better deal. Also, even at GMP's touted cost of 8 cents the lowell wind will cost, Entergy is far cheaper.

Since you "...support government (and public service provders) awarding contracts to the lowest qualified bidder."

Then obviously GMP should squash the Lowell wind project and instead buy that power from Entergy Louisiana...

[one_vermonter]

Only of Entergy Louisiana is a qualified bidder. That'll be ironed out by the courts.

Until it is, it isn't prudent to make long term business plans with them.

If it becomes clear that the Entergy Louisiana plant will continue running for 20 years ... and if they still have a better price ... sure, ink a deal with them.

[Jcarter]

:shakes head:

[one_vermonter]

I guess you'd give a 30 year loan to a 105 year old man, too.

[Jcarter]

That's not a valid analogy.

I assume you are talking about the age of Vermont Yankee?

[murphy]

"I guess you'd give a 30 year loan to a 105 year old man, too."

Yup, I would. In fact, banks will give a loan to a 105 yo man, because the loan is secured on the old man's house. They will get paid off by the lien on the house even if the old man dies the day after getting the loan.

The state's economic argument against VY in the pre-emption lawsuit is fundamentally dishonest. First, Vermont intentionally makes VY's future uncertain by withholding the PSB's ability to rule on relicensure. Which in turn makes it irrational for any utility to enter into a contract with it. Then the state uses the lack of contracts as an argument that VY shound't be relicensed. That's plain dishonest.

[Jcarter]

Shumlin in response to the Seabrook deal tried the age argument as well, saying that Seabrook is 20 years newer and not at the end of it's lifespan.

I'm not sure if this is political rhetoric of Shumlin or ignorance of what the lifespan of a nuclear power plant actually means? One thing I will say about Shumlin is he is an intelligent and cut throat type of guy, so I suspect its that former.

In response to giving a loan to a 105 year old man, the equivilant in this case would be if the 105 year old man was still going to live for an indeterminant amount of time. The lifespan of a nuclear power plant does not refer to how long the plant can operate, rather it is a financial statement and is based on how long it NEEDS to operate to be financially viable. A nuclear power plants "lifespan" in terms of operation is an entirely empirical determination based SOLELY on the condition of its core. So if the 105 year old man has the lungs, heart, liver of a 40 year old, why wouldn't you give him a 30 year loan?

[John Greenberg]

Thank you "One_Vermonter," whoever you are, for inserting a note or two of sanity here.

Two points in response to several of these comments.

1) Vermont's utilities negotiated with Entergy for 2 years, before Jay Thayer wrote the following to the PSB at the end of 2009: "In 2007, EVY initiated negotiations with Vermont Yankee Nuclear Power Corporation ("VYNPC") on a Power Purchase Agreement ("PPA") for the period following Nuclear Regulatory Commission license renewal pursuant to the "Sale MOU" between EVY, VYNPC, and' other parties VYNPC ultimately elected not to pursue a new PPA. Subsequently, EVY entered into direct negotiations jointly with CVPS and GMP Those negotiations have produced an extensive sharing of data and views but have not produced a new PPA governing the period following license renewal.

In a filing to be made in early January 2010, EVY will offer to exchange the 10-year Revenue Sharing Agreement ("RSA")for a 20-year Power Purchase Agreement. The pricing of the PPA will be exactly the same as the pricing contained in the RSA. ... Specifically, EVY will offer CVPS and GMP the opportunity to exchange their 55% interest in the RSA for a 115 megawatt, 20-year PPA with a 2012 starting price of $61/megawatt-hour."

Entergy and its minions and allies like to make up all kinds of happy stories about the deal they MIGHT have offered, but this is the deal they DID offer after years of negotiations, and nothing has ever been stated publicly to suggest that it has ever been improved or modified in any way.

This deal was rejected for three perfectly sound reasons: first, it is actually above market, at least for the first year. That means that the utilities would have been better off buying power from the market.

After that, the VY price would rise with an inflation escalator, whereas the market is subject to more forces, and might rise OR fall, but current oversupply makes it probable that the contract would remain above market for at least several more years, and perhaps indefinitely.

Second, in order to get the higher-than-market price offered, the utilities were being asked to give up rights which they had negotiated in 2002: namely, the RSA. There is a lot of disagreement about the value of the RSA, but even the most skeptical (which includes me)see SOME value in having an insurance policy. Entergy, on the other hand, has claimed that the RSA is worth a billion dollars. Either way, why would the the utilities agree to give up ANYTHING in exchange for an above-market deal? Third, the deal was contingent on Entergy's selling VY to Enexus, a highly dubious venture nixed by NY state regulators and finally abandoned by Entergy.

The only OTHER deal offered was for a 10 MW block of power to VEC with a 1-year teaser rate of 4.9 cents which would then become a market-rate-based contract the following year.

In other words, Entergy HAS offered 2 deals, neither of which is actually very tempting. What they MIGHT have offered is counter-factual speculation. As my father liked to say, if the queen had balls, she'd be the king.

2) It's also pretty amusing to see some folks here whining about a change of ownership in Vermont's utilities, while defending the out-of-state company which owns VY. Yes, Canada is a foreign country; Louisiana isn't. On the other hand, we fought a war with Louisiana more recently than we have with Canada, and the future probability of hostility in both cases is about as close to zero as one can plausibly get.

[Tim]

"we fought a war with Louisiana more recently than we have with Canada..."

Ah, the Katrina war. Bush kicked their cajun asses. USA! USA!

[Jcarter]

John,

Two points.

1.) As you stated, THEY WERE NEGOTIATIONS. Look that word up and then get back to us. What is interesting, is GMP/CVPS etc never stated publically what their position was. Moreover, VY's 6.1 offer was equal to that of HQ, which was acceptable to GMP/CVPS/etc. Finally VY's 6.1 offer is far and away cheaper then current projects being forced through such as the Lowell Wind Project, which are not only acceptable, but in fact heavily favored by GMP. So don't start this BS about VY's offer not being fair. None of us were privy to those negotiations, I know of know counteroffer from the utilities involved, and when you consider the payments to the CEDF the offer was better then that accepted by the utilities.

2.) I don't really think anyone here is whining about the change in ownership, rather pointing out the hypocrisy that has been displayed by our elected and appointed officials, the utilities we are forced to use, and the anti-nuke zealots.

[John Greenberg]

Fact-checking JCarter:

1) "What is interesting, is GMP/CVPS etc never stated publically what their position was." Actually, both utilities DID summarize their positions and were quoted in articles which were published on March 31 of this year in the Rutland Herald, Brattleboro Reformer, and probably elsewhere as well.

2) "VY's 6.1 offer was equal to that of HQ" The HQ deal is 5.8+ cents, not 6.1 cents, so it's a tad cheaper in the first year. But it's significantly better than the VY deal for several additional reasons as well.

First, it's for "system" power, rather than "station" power. This means that power will be provided whenever HQ's system is up and running, which is virtually all of the time. (I can remember one outage in 2 decades, but to the best of my knowledge, HQ power has otherwise been available 100% of the time).

By contrast, VY provides power when it is running, but its contracts carry no obligation to do so when it is down for repairs, refueling, etc. CVPS bought(and perhaps still carries) an insurance policy costing about $1 million per year to cover the contingency of VY being offline.

Second, the HQ contract is for daily on-peak power, meaning that the utilities are free to buy cheaper power (or none at all) during the hours when demand slacks off. The difference between peak power prices and average or 24/7 prices is significant.

Third, the HQ contract did NOT require the utilities to abandon their RSA rights. (see previous post)

It's worth noting that these contracts also represent very different types of risk -- which in the world of utility planning, is a significant consideration.

The VY contract was for a fixed price, escalating annually with an inflation index (in this case, specifically tailored for nuclear utilities). The HQ contract is a market-based contract (albeit smoothed to eliminate some of the volatility): it can move up or down depending which way the markets move. Because long-range pricing predictions have proven notoriously inaccurate, prudent planners use both. Having eggs in different types of baskets is a reasonable strategy to diminish risk.

Unlike the first two points, however, this is NOT a question of better or worse: just different (i.e. NOT "equal.")

[Jcarter]

John i disagree,

I don't buy any of your long winded rant as backing up your claim HQ is a better deal. When you factor in VY's contribution to the CEDF, Payments in lieu of taxes and the economic benefit's its a no brainer.

[murphy]

I agree.

Not to mention that the environmental destruction caused by HQ is hardly non-controversial. So much so that the VT Legislature had to re-designate HQ power as "renewable" to justify the deal, after years of at best an ambivalent attitude towards HQ by the politically-correct in Vermont.