The Public Utility Law Project of
New York, Inc. (PULP), along with numerous community groups, opposes the
proposed acquisition of Central Hudson by Fortis, Inc. and supports the
ultimate conclusion of the Recommended
Decision handed down by Administrative Law Judges (ALJs) Epstein and Prestemon
on May 3, 2013, which advises the Public Service Commission to reject a
“Joint Proposal” of some of the parties to the case who agreed to settle the
merger case without full litigation.
While fully supporting the
conclusion of the judges in their Recommended Decision, PULP
filed a brief with the PSC raising addition concerns on May
17th, 2013. These include the following points:
• THE PSC “STAKEHOLDER” PROCESS
DID NOT YIELD A CREDIBLE SETTLEMENT BECAUSE IT LACKED AN INDEPENDENT
RESIDENTIAL RATEPAYER ADVOCATE
The Public Service Commission
prefers settlement of major cases instead of litigation, and under its
Settlement Guidelines it ordinarily will defer to the results of a confidential negotiation
process supported by a broad group of active parties in a case who represent diverse and
normally adverse interests. Although their decision ultimately
disapproved the merger, the ALJs found that the Joint Proposal for merger is broadly supported. PULP contends the settlement
process which culminated in the Joint Proposal lacks participation and support of any independent advocate on behalf
of residential customers. The Department of State's Utility Intervention
Unit (“UIU”) supports the merger but it lacks the indicia of an independent
advocate for residential customers, including control over its budget, staff
hiring, priorities and power to seek judicial review of utility actions or
rulings of utility regulatory agencies. PULP urges the Commission not to defer to the settlement result, and to closely scrutinize the settlement
proposal and heed the direct voices and strong views of citizens, residential
ratepayers, community groups, and local government officials who oppose the
Joint Proposal.
• WHILE REACHING THE CORRECT
RESULT, THE RD DID NOT SUFFICIENTLY RECOGNIZE RISKS TO RATEPAYERS AND THE
INSUFFICIENCY OF CLAIMED BENEFITS
PULP’s brief highlights for the Public Service Commission substantial
risks that were not fully recognized in the Recommended Decision. These
risks to consumers include the continuation of the existing rate plan which: a)
incentivises inadequate disaster risk prevention and disproportionately shifts
risks to consumers; b) tacitly endorses aggressive service termination
practices where rapidly growing numbers, now approximately 12,000, of
Central Hudson residential customers experience the hardship of service
interruption for bill collection purposes each year; c) provides insufficient
protections to low-income customers, and d) negates a thorough examination of
rates that could correct potential overearnings. Furthermore, the $35 million
offered as a sweetener to the deal,mainly to write down storm restoration
expenses and offset unknown claims in future rate case proceedings, is a poor
substitute for immediate rate reductions.
- LEGAL AND REGULATORY RISKS
Citing legal and regulatory risks
of the merger proposal, PULP questioned the proposed Central Hudson “golden
share” to be held by a trustee approved by the Commission to distance
Central Hudson’s assets from possible voluntary bankruptcy of the holding
company parent. PULP raised the possibility of a NAFTA challenge by Fortis
if the New York golden share trustee were to limit its decisions. The golden share
may also be ineffective if the golden shareholder cannot or chooses not
to vote against voluntary bankruptcy. Also, the intended protections that
the golden shares promise may be vitiated due to Chapter 15 international
cross-border insolvency rules that could require U.S. courts to provide full
legal force to orders in a bankruptcy proceeding involving all Fortis assets, including
Central Hudson, and Central Hudson funds in a Fortis money pool, if proceedings
were initiated in Canada.
In addition to shortcomings in
the bankruptcy protection offered in the merger there are unmitigated risks
from possible follow-on mergers. It remains unclear whether Fortis could transfer the proposed U.S.
holding company, which would own Central Hudson, to yet another entity, perhaps
another foreign holding company, without PSC approval, and without providing
any further public benefits or mitigating risks of a less creditworthy new
owner. The Recommended Decision also downplayed risks arising from the NAFTA
Chapter 11 investor protections, which do diverge from more stringent U.S. regulatory
taking standards under the Fifth Amendment.
Under NAFTA Fortis might lodge arbitration challenges to regulatory
actions, such as denial of permits to make major new capital investments in generation or transmission facilities, or
limiting recovery from customers on unapproved investments.
- CONCLUSION
Many years ago Central Hudson was
caught up in the web of depression era utility holding company pyramids, which
ended under President Franklin Delano Roosevelt’s reforms. Since the 1940’s,
when Central Hudson was required by the SEC to be divested from the Niagara Hudson
holding company, Central Hudson has remained a trusted local utility with some
of the lowest rates among the investor owned utilities in the state, serving
the needs of Main Street constituents in the Hudson Valley. Central Hudson is a
quintessential local utility under full jurisdiction of the Public Service
Commission and should remain so.
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