Vermont state Sen. Vincent Illuzzi told FERC that the proposed merger of Central Vermont Public Service (CVPS) and Green Mountain Power (GMP) will harm competition by concentrating the control of Vermont Electric Power Company (VELCO), the only owner of high-voltage transmission in Vermont, in the hands of the post-merger company.
Illuzzi said that according to the companies, CVPS owns 48.5% of the voting stock of VELCO, while GMP owns 29.5% of that voting stock. The combination of the two companies would put 78% of the voting stock of VELCO under the control of the merged company, which would in turn be controlled by the various Canadian interests that would be its ultimate owners.
The applicants rely on a “transfer” of 72,592 shares of the VELCO stock held by CVPS, or about 33% of the total VELCO voting stock, to a non-profit company called the Vermont Low Income Trust for Electricity, or VLITE. Illuzzi also said the applicants argue that this “VELCO Conveyance” somehow “divests the merged company’s holdings of VELCO stock down to 45%, or a little less than the 48.5% that CVPS holds today.
However, the VELCO Conveyance claims do nothing to remedy the concern that the merger would give the applicants effective control over the decision-making of VELCO.
Real divestiture, Illuzzi continued, requires that “the relief in an antitrust case must be ‘effective to redress the violations’ and to ‘restore competition.’ … Complete divestiture is particularly appropriate where…stock acquisitions violate the antitrust laws.” Divestiture that leaves an effective veto, or undue influence, in the hands of a merging party is ineffective and unacceptable, he said.
The VELCO Conveyance fails to meet these standards and FERC should at least allow discovery and require a hearing to determine the facts behind the VELCO Conveyance. Illuzzi also said this is important as high-voltage transmission in Vermont is subject to an old transmission agreement, the Vermont Transmission Agreement, instead of to a tariff consistent with FERC’s open access rules.
In a separate FERC filing, the applicants responded to Illuzzi, saying that his objections related to the VELCO Conveyance are without merit. “In the first place, no Canadian entity will acquire any direct or indirect ownership of VELCO through the VELCO Conveyance, the purpose of which is to transfer VELCO common equity to a domestic Vermont entity,” the companies said.
Secondly, the participation by a foreign entity in the transaction does not cause an otherwise appropriate transaction to lack consistency with the public interest and this is particularly so in the case of a Canadian entity, the companies said, noting that the United States and Canada are each other’s largest economic partner and the cross-border movement of goods and capital has been to the countries’ mutual benefit.
Illuzzi’s concerns also seem oblivious to ISO New England’s control over access to and the day-to-day operations of the VELCO system, the companies said. “Under ISO-NE’s mantle, the operation of the higher voltage Vermont transmission system cannot be dedicated to serve the parochial interests of any particular party,” the companies said.
Furthermore, transmission owners in New England and eastern Canada must comply with the same regional reliability standards that are developed and enforced by the Northeast Power Coordinating Council.
The companies also noted that Vermont regulators exercise oversight over VELCO’s activities and the development of its system.
Illuzzi’s allegation that the transaction will harm competition is “entirely unfounded,” the companies said, adding that transmission is a closely regulated business that is not susceptible to the exercise of vertical market power. Additionally, the partial divestiture of the companies’ common stock ownership of VELCO to VLITE cannot be viewed as not “consistent with the public interest,” as VLITE is in the public utility business and does not own public utility assets.
Among other things, the companies said their 45% post-merger ownership share is less than their combined pre-merger ownership share and no more than the pre-merger ownership share of CVPS, which is VELCO’s largest shareholder.
The VELCO Conveyance will also restructure the VELCO board of directors by reducing the current CVPS and GMP votes to a minority level.
Illuzzi responded to the companies in a Dec. 1 FERC filing saying that even though the post-merger shares held by the merged company would represent about the same interest in VELCO as the pre-merger ownership share of CVPS alone, the merger also eliminates independent CVPS and independent GMP as counterweights to one another’s dominant shareholder interests.
“[T]he elimination of a significant, knowledgeable, and competing owner of VELCO by the merger creates undue control over decision making with respect to high voltage transmission in Vermont, even if the stock holdings of the acquiring party consolidated as a result of the merger are reduced to pre-merger levels,” Illuzzi said.
Among other things, he said Gaz Métro, through GMP, will own 70% of Vermont’s retail electric customer base and, directly own about 40% of VELCO. By effectively controlling VELCO, Gaz Metro will be able to block other electric suppliers from selling electricity into and through Vermont. It will give VELCO the ability to decide if, when, and where to construct high-voltage transmission lines to move electricity produced by Hydro-Québec to southern New England, where there is substantial base load demand.
Gaz Métro is the parent company of GMP.