In pressing the case that the proposed $1.5 billion acquisition of Central Hudson by Canadian holding company Fortis would be bad for ratepayers, Citizens for Local Power (CLP), an Ulster-based grassroots group which has risen to oppose the merger, is pointing to what they say is Fortis’ poor record in dealing with projects in Belize and British Columbia and warning the same could happen here.
“We’re seeing a trend in Belize and British Columbia of misinformation and a lack of trust, and we’re seeing this the more research we do,” said CLP attorney Daniel Duthie at a press conference May 23 at the County Office Building in Kingston. At the conference, several — including some from the Central American nation and the western Canadian province brought in via an occasionally balky Skype connection — spoke in opposition to the deal, which could, activists say, be approved as soon as the Public Service Commission’s next public meeting on June 13.
CLP and the Municipal Consortium in Opposition, representing the 12 municipalities that have so far passed resolutions against the takeover, also filed a Brief on Exceptions with the commission that claims multiple financial, regulatory and energy-related risks of the takeover. The brief was issued in response to the recent Recommended Decision by the two PSC administrative law judges evaluating the deal, in which they said the negatives of the deal outweighed the positives. The CLP said it agreed, but also said it didn’t go far enough. “The ALJs could have made their case more strongly,” said CLP’s Jennifer Metzger, chair of the Rosendale Environmental Commission, at the press conference.
To bolster its case that Fortis — despite the claims of the current marketing blitz of ads by Central Hudson — is a bad corporate citizen, CLP presented live via Skype two groups of activists fighting Fortis-owned subsidiaries, one based in Belize, where Fortis operates three dams on the Macal River (two of which it built), and the other representing the Heritage Hills & Lakeshore Highlands Homeowner’s Association, located in British Columbia.
Candy Gonzalez, president of the Belize Institute of Environmental Law and Policy (BELPO), and her husband, George, co-chair of We Belizeans Against the Dam and secretary of BELPO, said Fortis gained a monopoly over the country’s utility Belize Electrical Limited, when it acquired the company that was building a hydro-power dam supplying it with power, giving Fortis complete control over the price of electricity.
The Gonzalezes said activists took the Belizean government to court numerous times, accusing it of failing to ensure Fortis followed an environmental compliance plan for the Chalillo dam, as required by law. They noted that an earlier court case brought by Belize-based conservation groups prior to the dam’s construction brought to light a secret pact between the government and Fortis that granted the company the rights to build the dam tax-free and without having to obey environmental rules. Fortis was also guaranteed annual rate increases of at least 1.5 percent until 2036.
Candy Gonzalez said the company also fudged surveys to conceal that it built the dam on soft shale instead of granite and that it was sited over a fault line. Further, she said, “Fortis totally ignored the impact on wildlife.” (The dam was built in a pristine rain forest that was home to many rare species, including Belize’s last known nesting population of scarlet macaws.)
More than seven years after the dam was built, “we still can’t get information about water quality from the company or information on levels of mercury in the fish,” she said, noting that the river has been polluted with sediment. Cracks in the dam have been reported, putting over 16,000 people who live downstream at risk, but there is no emergency plan in case the dam breaks.
If the dam should break, Fortis isn’t liable, said the Gonzalezes. “They could collect insurance and sell the dam to the government for $1,” said George.
As a developing country, Belize might seem particularly vulnerable. But The Heritage Hills & Lakeshore Highlands Homeowners Association of the eastern Lake Skaha region in British Columbia represents the other extreme — affluent homeowners in a resort area. Yet its experience with the local Fortis-owned utility, FortisBC Energy, has parallels with Belize, according to comments by Harry Levant, who addressed the conference via Skype. Levant was joined on the Skype phone by two other members of the association, Douglas Lychak and Robert Advocaat, who spoke about misrepresentations made by the utility about its upgraded transmission line, which runs through a right of way in the lakeside residential community.
“We were told [the new line would consist of] small brown creosote poles, and residents were not concerned,” Levant said. But the actual metal poles that replaced the wooden H frames were “enormously taller” than FortisBC’s depictions and “did not represent what we were told would be built,” he said. (Photos were projected and passed around showing the old poles, FortisBC’s simulations of the new poles, and the actual new poles).
The new, 70-kilometer transmission line, which was installed in 2010, has depressed house values 20 percent, said Lychak, contradicting the assertion by a Fortis-hired expert that the upgrade would not impact values. In a follow-up e-mail, Levant noted that “the homes that are now for sale in our area are mostly located along the power line and none are selling … who wants a home next to a giant high-voltage power line?”
In addition to depressed property values, FortisBC customers have had to cope with, according to local news stories, electric rates increasing by 10 to 20 percent. The rates “are rising faster than the actually approved amounts due to a new two-tiered rate system, in which above a certain threshold of monthly usage the utility rates jump to a new level,” wrote Levant in an e-mail. “The threshold is set so low that it is impossible not to exceed it.”
Levant worried the same thing could happen to Hudson Valley customers. “I strongly believe they are just adding to the rate base to wrest more money from ratepayers,” he added, noting that Fortis’ $900 million Waneta hydro-dam, under construction near the U.S. border, “will only elevate the need for further rate increases.”
Further objections detailed
After the Skype was shut off, the conference returned to a local focus. Issues from CLP’s legal brief were detailed, including the $1.5 billion cost of the merger itself, which comes with $500 million of new debt and $600 million subscription — money put up by investors which, the CLP says, must be returned by June 20 if the deal doesn’t go through, though an extension is possible. CLP in its brief also warned of financial problems which may arise from “the possible late delivery of the … Waneta dam construction project in Canada.” Further, CLP stated in the brief that Fortis has a lower credit rating than Central Hudson’s and the risk of a credit downgrade is “so strong to be inevitable,” once the protections against a lower credit rating, spelled out in the joint proposal for the deal, expires after three years.
The brief also argued that Fortis’ cost of approximately $440 million in “goodwill”—“a non-productive bookkeeping asset that Fortis must not allowed to be impaired,” states the brief — is another “financial stress point,” which “will inevitably lead Fortis to raise rates or cut costs at the expense of jobs and quality of service, or both.”
Gerald Norlander of the Public Utility Law Project of New York, repeating one of the major worries of the takeover opponents, said Fortis’ ability rights under the North American Free Trade Agreement could override the state’s regulatory authority.
It isn’t just ratepayers who’d lose out if the merger is approved, according to Karl Budmen, a retired SUNY New Paltz English professor and Central Hudson shareholder whose comments concluded the nearly two-hour press conference. Budmen, who said he has filed a stockholding resolution with the Securities and Exchange Commission asking it to reject the deal, said the merger is actually a buy-out, one that’s detrimental to Central Hudson shareholders, who will lose their generous dividends. Fortis is offering $65 a share, which is lower than the $66.23 price of the stock in April, suggesting the company has been undervalued, said Budmen. “It’s striking there was no independent study of the value and management didn’t solicit any other offers,” he said, noting that four officers of Central Hudson have already cashed in their shares.
“We’re requesting that within a year or prior to the merger the board publish a report to the shareholders detailing one other bid or an independent evaluation of Central Hudson’s value from a Morningstar or the like,” Budmen said.
Kennedy opposes merger
Meanwhile, Citizens for Local Power last week sent around a letter from Robert F. Kennedy Jr. sent to the PSC is opposition to the merger. An attorney for the Natural Resource Defense Council, Kennedy was involved in the fight to prevent the construction of the Chalillo dam in Belize. “My own experience with Fortis, Inc. has shown Fortis to be a corporation that pursues growth and expansion at the expense of, and with breathtaking disregard for, the people its utilities were created to serve,” Kennedy has written. “This record alone should be sufficient grounds for the PSC to deny the acquisition.”
Kennedy cited numerous examples of bad corporate behavior regarding the Belizean dam, including, in his words, “suppression of information that put the economic value of the dam in doubt, failure to disclose mercury contamination of water due to the pre-existing Mollejon dam, failure to disclose information about a seismic fault at the dam site, and inadequate testing of water flows, followed by a year-long delay in producing an emergency evacuation plan in case the dam should fail, and a shocking lack of active concern to get this information to those who would be in harm’s way, plus failure to properly test for other forms of water contamination.”