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Mallary: Bidding on CVPS

06/30/11 5:55PM By Dick Mallary
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(HOST)  Commentator Dick Mallary says that the idea of a merger between CVPS and Green Mountain Power isn't entirely new.

(MALLARY) Welcome to the bidding war for the purchase of Central Vermont Public Service Corporation (CVPS), Vermont’s largest electric utility.

A few weeks ago, I was surprised to read that Fortis, a Canadian utility holding company, offered to buy CVPS for $470 million, a 44% premium over CVPS stock price. Then, last week, I learned of a competing bid to purchase the company by Green Mountain Power (GMP) and its owner, Gaz Metropolitain, another Canadian utility. The price is similar, but the terms are different.

I was last employed by CVPS almost 30 years ago, and I retired from Vermont Electric Power Company 17 years ago.

Back when I was in the business I strongly believed that significant savings and benefits would result from a merger of CVPS and GMP. A single or unified company could streamline its management and reduce redundancy in some areas. Furthermore, it could achieve real efficiencies by rationalizing the overlapping service territories of the two companies. Such a merger could mean tangible benefits to Vermont ratepayers.

It appears very probable that the ownership of CVPS will be transferred to one of these Canadian purchasers. The question is which one, and what are the implications for the shareholders, the customers, the employees, and the state of Vermont.

With either purchaser, the current shareholders will get a very nice windfall – a significant increase in the value of their shares.

For the customers, service and reliability should continue under either new owner. If GMP is the successful bidder, any efficiencies and cost reductions that result from the merger should mean somewhat lower rates for customers.

For most employees, there should be little change. If a purchase by and merger with GMP achieves labor efficiencies, there will probably be some attrition in employment as the companies are integrated..

Either purchase will need the approval of the Vermont Public Service Board. Under Vermont’s regulatory scheme, the Board will continue to permit the company to recover in rates from its customers its prudently incurred expenses and earn a “just and reasonable” return on its investment. But it will not permit either purchaser to charge in rates anything to recover the millions of dollars of premium it paid above CVPS book value.

A final, significant element in this transaction is the control of VELCO, the Vermont Electric Power Company. It is the company that owns and controls the high voltage transmission system in the state. At present CVPS and GMP control most of the board of VELCO but are prevented from using that control to discriminate against smaller utilities in the state. If the GMP bid to buy CVPS is to be approved by the Public Service Board, I expect that suitable provisions will be required to assure that VELCO continues to operate in the broad public interest.


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