The proposed $1.5-billion purchase of Central Hudson Energy Group by Fortis, Inc., a Canadian-based holding company, doesn’t have too many friends willing to speak on its behalf, if the April 18 public hearing held by the state Public Service Commission (PSC) in Kingston’s city hall was any indicator. All 27 people who spoke at the session, attended by about 80 persons, were adamantly against the deal.
“How could it be good for our community to allow a foreign company, with no particular expertise in the area of energy transmission but rather expertise in the area of profits for stockholders, to buy our monopoly electric utility?” asked Carey Kittner, a local resident. “Our community is at grave risk of having our only course of electricity being used as speculation by a foreign holding corporation.”
Central Hudson and Fortis, which serves two million customers through its Canadian utilities, asked the PSC for approval of the merger in April of last year. A joint proposal for approval signed by the companies was filed late this January.
Under its terms, rates would be frozen through July 1, 2014. Central Hudson jobs would be guaranteed for two years. A $5-million community benefit fund would be established for local economic-development initiatives and to provide assistance to low-income customers. And $9.25 million would be credited to ratepayers over a period of five years — which works out to a savings of about $35 per customer.
A litany of objections
Speakers found none of these provisions adequate to protect the public interest. Loss of jobs was one concern. “Their intent is to outsource work,” declared John Kaiser, president and business manager of IBEW Local 320, at the press conference. Kaiser said Central Hudson had “moved aggressively toward outsourcing” since early 2012, when the acquisition was first announced.
Kelleigh Mckenzie, who said she valued Central Hudson’s service during the severe storms, said she feared the loss of that knowledge base because “there’s only a two-year commitment to keep their employees.”
Opponents said the freezing of rates for a single year was meaningless, since Central Hudson hadn’t requested a rate increase and rates wouldn’t have gone up in any case. They also criticized the paucity of the $9.5 million in credits to be distributed in $1.85-million annual increments over the next five years.
The previous corporate takeovers of New York utilities approved by the PSC had been more advantageous to ratepayers, resulting in decreases of much larger amounts, noted attorney Daniel Duthie, representing Citizens for Local Power. The settlement for the 2009 sale of New York State Electric & Gas and Rochester Gas & Electric to Iberdrola, a large Spanish-owned utility, “resulted in an average savings of $220 per customer, compared to less than $35 [per customer] in the current proposal,” according to a statement by Assemblyman Kevin Cahill. Contrasted to the $275 million in ratepayer savings the PSC required in the Iberdrola deal, Cahill said, the proposed Fortis $10-million community benefit fund “should be renamed the shareholder protection plan.”
Under the Fortis-Central Hudson proposal, $5 million would be allocated to the five-county Central Hudson service area. According to the Public Utility Law Project of New York (PULP), a not-for-profit organization serving the needs of residential customers, only $500,000 of that money would be directed to low-income customers. Citizens for Local Power found that a pittance, considering that in 2011 one of every ten Central Hudson customers either had their service cut off for non-payment or were more than 60 days in arrears.
Paltry ratepayer protections
Opponents said the $5 million in community benefits would be dwarfed by nearly $25 million in payouts to five top Central Hudson executives. The biggest beneficiary, according to Citizens for Local Power, would be President and CEO Steven Lant, who would receive $8.74 million in cash plus $2.5 million in stock.
In a phone conversation, Central Hudson spokesperson John Maserjian said that the merger would benefit Central Hudson by giving it better access to capital. “We project more reasonable terms [on our debt] than what we are paying now,” he said. “That capital would help us with infrastructure projects, including upgrades to electric and natural-gas systems …. Fortis would support our equity investment, or they would make those investments themselves.”
Duthie, who has more than 30 years’ experience in utilities cases, disputed that argument. Fortis had a lower S&P credit rating than Central Hudson, he said, which meant the cost of borrowing would be higher. He noted that the merger announcement had raised Fortis’s credit rating and lowered Central Hudson’s.
Fortis’s lack of commitment to investing in renewable resources was another concern. On its website Fortis states its preference for natural gas over alternative energy sources, thanks to the former’s low price and “an abundance of shale gas reserves.” The Iberdrola deal had brought an investment in wind through a subsidiary. That set a better precedent, according to Manna Jo Greene, environmental action director at Clearwater and a founding member of Citizens for Local Power.
Maserjian said that the merger would not result in substantive changes to Central Hudson’s existing commitment to clean energy. “All of Central Hudson’s environmental initiatives will continue, such as net metering and energy-efficiency incentives and programs,” he said. “The energy sources for Central Hudson will remain the same.”
Randolph Horner, a local renewable energy developer and consultant, said the need and vision for building a smart grid with a greater focus on renewables was “the furthest thing from what a group of foreign investor franchises want to happen.” He said the deal, which would be partially funded by $500 million in debt, was a leveraged buyout. “Fortis says they will obtain economies of scale because they’re no longer a public company,” said Horner. “Sounds like Enron to me. By taking a public company private, they will evade and avoid appropriate public scrutiny and regulations in their dealings.”