The New York State Public Service Commission, for procedural reasons, has issued a Notice Extending The Period For Commission Consideration Of The Proposed Holder Of A “Golden Share”
in the Central Hudson/Fortis merger case. The Commission previously issued an order approving the merger, which has been consummated. The Commission has not ruled on pending petitions for rehearing and investigation whether the utility has earned in excess of the intended return and there should be rate reductions. Comments on the “Golden Share” issue will continue to be accepted until Nov. 15.
The history of holding company ownership of regulated utilities is replete with instances in which utility affiliates, and their customers, suffered from negative financial events affecting other holding company affiliates or the holding company parent. The most famous of these was the collapse of the utility holding company empire of Samual Insull in the 1930’s, which may have prompted Congress to enact the Public Utility Holding Company Act of 1935 (PUHCA). PUHCA regulated and effectively discouraged interstate and international utility holding companies, and promoted local utilities more responsive to local communities under full state regulation, as Central Hudson was. Indeed, Central Hudson was once owned by the Niagara Hudson holding company and was required to be divested in the 1940’s by the SEC, which administered PUHCA. PUHCA was repealed in 2005, over the objection of consumer, environmental, union and credit rating groups, and replaced with a far weaker law. Subsequently, the pace of mergers and acquisitions of local utilities by interstate or international holding companies has increased.
The “Golden Share” is a corporate structure tool intended to help “ring fence” a regulated utility by preventing a holding company parent from taking its regulated utility subsidiary into voluntary bankruptcy or reorganization, where its assets could be liquidated, contracts could be abridged, and rates could be raised to generate more cash to cover liabilities. Where the holding company parent controls selection of the utility subsidiary’s directors, the directors could vote to file for bankruptcy, but for the creation of a special “Golden Share” of preferred stock which has voting power to block a voluntary bankruptcy decision by the board.
At issue is who should hold the “Golden Share”?
In explanations of the Central Hudson/Fortis merger plan, the “Golden Share” mechanism was touted as the antidote to possible voluntary bankruptcy of the local utility which would protect customers and New York State even though control of the local utility is transferred out of the state and country. Central Hudson’s nominee for holding the “Golden Share” to protect consumers and the State is not a public official, such as the State Controller or Secretary of State, but rather is a corporate services company based in New Jersey. Their proposed contract is with Central Hudson, and it contains no direct instruction for the Golden Shareholder to act in any particular way in voting on a corporate resolution to go bankrupt. Nor is there any fiduciary accountability created by law or contract. Instead there is a vague statement that the “Golden Share” holder will protect interests under the public service law. As the Utility Project pointed out in its Opposition to Central Hudson’s Nomination of the “Golden Shareholder,” and in its pending Petition for Rehearing, Rate Investigation and Temporary Rates, interests under the public service law include those of the utility. In actuality, the nominee proposed for “Golden Shareholder” has no public service duty a New York State public officer would have. Also, there is no ascertainable fiduciary duty placed on the private “Golden Share” holder to vote in any particular way, and thus there can be no real assurance that the shareholder nominee will actually protect the state of New York or customers of Central Hudson.
Public comments can be electronically filed at the Public Comment tab at the PSC website page for the Central Hudson/Fortis merger.
Gerald A. Norlander