But Duthie said he discovered information about Central Hudson that might provide a toehold. In the order, Commission staff indicated that a company called National Fuel Gas was exceeding its authorized return on equity (ROE, i.e., profit), which is regulated by the commission. In reading through the order, Duthie discovered that in defending its ROE of over 11 percent, an amount the Commission said should be closer to 9 percent, National Fuel Gas pointed the finger at other utilities that had similar profit levels. One was Central Hudson, which is enjoying a ROE of 10.65 percent.
According to Central Hudson’s three-year rate plan — currently in its third year — the ROE rate was set by the Commission at 10 percent. If the ROE reached 10.5 percent or more, the plan stipulated that Central Hudson would be required to split the excess return 50-50 with customers and shareholders, rather than just let the shareholders keep it all. Duthie said Central Hudson also over-earned its ROE in 2011, though within the 10.5-percent limit. “We suspect if Central Hudson had overearnings in 2011 and 2012, that’s a trend,” he said. “We think the Commission should have looked at that.”
Furthermore, since the “whole premise of the enhancements in the Fortis deal was to benefit the ratepayers,” Central Hudson’s over-the-limit profits, which benefit shareholders at ratepayers’ expense, present a contradiction.
Freezing the rates to mid-2015 is one of the touted benefits of the deal. However, this actually does not benefit customers, since it means Fortis-Central Hudson would continue to receive the overly generous ROE of 10.65 percent. Actually, the rates should come down and the utility’s ROE adjusted to 9 percent, Duthie said.
“We’re saying the commission is applying a double standard,” he said. “National Fuel Gas is taken to task for overearnings, but you didn’t address the fact that [Central Hudson’s] rate extension harms the ratepayer. Maybe that’s arbitrary and capricious.” But don’t customers benefit by getting back half the excess return? Not at all, given that “splitting the amount with customers over 10.5 percent is very small compared to setting the return on equity to 9 percent,” according to Duthie.
Couldn’t withstand charm offensive
Cahill also castigated Central Hudson’s “multimillion dollar media campaign blitz in the closing weeks of the approval process, which created the false impression there was growing public support.” In fact, one of the commissioners who voted in the unanimous decision to approve the deal alluded to that “support,” Cahill said. Half of the not-for-profit groups listed in a Central Hudson ad hailing the merger had a Central Hudson executive or employee on their board, he said, and “virtually all had been recipients of the utility’s public giving programs” — programs that are funded by ratepayers, he noted. “More than one of these organizations came to me and said they were intimidated into supporting the Central Hudson and Fortis proposal.”
Such tactics do not bode well for the future, Cahill said. Had there been more community activism and media coverage early in 2012, when the acquisition was first announced, perhaps the outcome would have been different, he said — although again, the lack of a groundswell of attention early on “was largely because there was no consumer apparatus out there to develop that critical view.” As it is, Citizens for Local Power did “a remarkable job,” Cahill said. “What we didn’t have at our disposal was a multimillion-dollar media ad campaign and giant sledgehammer that we are going to kill your funding.”
Cahill said Tuesday, June 18, he was planning to sit down with Duthie to talk about an appeal. In the meantime, he vowed to “hold Fortis and Central Hudson’s feet to the fire, to maximize their public commitment made in their revised proposal and continue to work with the company to restore some of the public trust that was lost,” Cahill said. “I don’t have an answer at this point and am examining all these options right now.”
At least somebody’s happy
As one might expect, Central Hudson and Fortis hailed the commission’s vote. “Our new association with Fortis provides substantial and lasting benefits for our customers, and the Fortis business model retains Central Hudson as a standalone company,” said Steven V. Lant, chairman of the board and president of CH Energy Group, in a release issued in the wake of the commission vote. “In our capital-intensive and increasingly consolidating industry, becoming a member of the Fortis federation of utilities ensures we are able to effectively serve our customers now and in the future. Central Hudson’s ability to make required energy infrastructure investments, which are expected to be more than $100 million annually over the next five years, is strengthened by being a part of the Fortis federation.”
“Central Hudson is a well-run utility whose employees, like those throughout the Fortis federation of utilities, are committed to serving their customers and their communities,” stated Stan Marshall, president and CEO of Fortis, in the Central Hudson release. “We welcome the employees of Central Hudson to the Fortis team, and we look forward to their contribution as we continue to meet our customers’ energy needs safely, reliably and cost effectively,” he said.
According to the PSC, the deal brings numerous benefits to Central Hudson customers: $35 million for storm restoration costs, a $5 million community benefit fund, a nine-year commitment to the utility’s 2011 charity levels and various fiscal safeguards. Further, Central Hudson extended its deal with Local 320 of the International Brotherhood of Electrical Workers, which represents 526 of the utility’s 875 workers, through June 30, 2017; an assurance of no layoffs through June 30, 2017; the addition of 35 new union jobs; and “a commitment to hire, retain and train skilled union craftspeople.”
