PULP Urges PSC to Follow Recommendation of Administrative Law Judges to Reject Fortis, Inc.’s Proposed Acquisition of Central Hudson Electric & Gas

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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