Green Mountain Power, Bolton, Dean and devolution

Vermont Business Magazine, Mar 01, 1998

A guest commentator for Barron's, the weekly financial newspaper, stated in its January 19th issue that Green Mountain Power would be a good takeover target. In its annual roundtable discussion, GMP was identified along with a handful of other small utilities as good acquisitions for larger utilities.

James Rogers, a financial commentator and Columbia University professor, said this during the Q&A discussion:

"Rogers: There's a massive merger mania going on in utilities. I suggest you buy them. These are all companies small enough to be taken over: Green Mountain Power, El Paso Electric, Nevada Power, Niagra Mohawk, Unitil and UniSource. If you don't want to buy utilities themselves, you could buy electricity futures. But let's keep it short.

"Q: How are they valued on takeovers?

"Rogers: Usually at whatever the regulators allow. So far, they have all been valued at premiums to book."

So, on the first day of trading after the article appears, January 20, GMP's stock price rose 8.2 percent, from 18 1/4 to 19 3/4. The stock price was still in the high 19s a month later.

"The thinking around here was, 'that's one guy's opinion'," said GMP spokesperson Dottie Schnure. "We were happy to see our stock go up. Nobody minded that."

In last year's first quarter, the stock price peaked at 25 1/4, the low was 22 5/8 and the average was 24 1/4.

Schnure said no suitor has come calling, and that, "There's nothing out there waiting in the wings to happen." Schnure said Governor Dean would not sign a bill that would allow a scenario in which the utilities would get, say, 80 percent of stranded costs covered and then have its stockholders reap a windfall by selling off the company. In the bill proposed last year, that could not have happened, she said.

Governor Dean wants to keep the utility jobs in Vermont. He has fought a losing battle on behalf of restructuring the industry to allow for competition.

The contention that the utilities in general and GMP in particular are good takeover targets gives further credence to Dean's principal opponent in electricity competition, Speaker of the House Michael Obuchowski.

Obuchowski contends that a utility bailout, as he calls it, over stranded costs, particularly the contracts associated with Hydro-Quebec, would cost ratepayers millions without any benefit.

GMP and Central Vermont Public Service maintain that unless ratepayers pick up the vast majority of the stranded costs: 1) Rates will go way up; and 2) They will not be able to compete in a deregulated universe and thus will go bankrupt, and Vermont will lose a lot of good paying jobs.

Those are excellent points.

But Obuchowski's point is that rates will go up anyway, that the only way to get rates lower would be for the utilities to go bankrupt and have their stockholders eat all the stranded costs, that ratepayers should not be charged for the bad decisions of a private business, and that the utilities are going to be bought out anyway, so why should ratepayers create a windfall for stockholders by making GMP and CVPS more attractive takeover targets?

The Public Service Board must approve any takeovers and must consider both the public good and the stockholder good in making that decision.

No one thinks the Legislature will do anything about restructuring this session, but competition will arrive sooner or later, so a lot of groundwork is being laid now in preparation for next year, or at least for next fall's elections.

In the meantime, the PSB must rule by March 2 on GMP's request for a 14.4 percent rate increase (reduced from the original 16.7 percent request). The ruling, however, likely will put the PSB on record in laying blame on someone for the Hydro-Quebec contracts.

TRUSTING BUSINESS

If the business community wonders why the general public frequently is suspicious of the motives of the business community and doubt the ability of it to be caretaker of something as important as the economy, businesspeople need only reflect on the case of Bolton Valley Resort, or as it's called now Bolt'n In Vermont.

The list of mistakes and odd gambits is long. A young fellow (Mason Dwinell) buys ($2.5 million) the resort out of foreclosure from a small bank (Lyndonville Savings Bank) last August. They, their lawyers and associates fail to check on availability of trade names. The ex-wife (Lynda DesLauriers) of the former owner (Ralph DesLauriers) in October files for trade names covering several versions of Bolton Valley Ski Resort, etc. She owns a trailside hotel. What the young fellow buys does not come with the ski lodge. The owner of the ski lodge (Rolling Hills Associates) offers a lease contract to the new owner that he refuses because he believes the terms are too stiff. A lien is filed (by Evergreen Bank of Glens Falls, NY, and NORESCO of Framingham, MA) that holds up the eventual sale (closing is expected by summer), so he doesn't really own it still.

What the public sees is that everyone loses: The young fellow, because he's stuck with an operation that could not keep the previous owner out of bankruptcy and foreclosure, and that former owner had a ski lodge and a logical trade name to work with; the bank, which could get stuck with the failing resort again and whose net income and Other Real Estate Owned ($4.1 million, more than any bank in the state) have taken a beating; the ex-wife, who's not going to have any reason for people to stay at her facility if she confounds, for whatever reason, the ability of the owner to market the resort properly, if the resort is open at all; the lodge owner, who is getting zero rent now and who will continue to get zero rent in perpetuity unless the resort remains open and a lease arrangement can be made; and the skiers, who have looked to Bolton as a convenient and more thrifty place to ski.