In pressing the case that the proposed $1.5 billion acquisition of Central Hudson by Canadian holding company Fortis would be bad for ratepayers, Citizens for Local Power (CLP), an Ulster-based grassroots group which has risen to oppose the merger, is pointing to what they say is Fortis’ poor record in dealing with projects in Belize and British Columbia and warning the same could happen here.
“We’re seeing a trend in Belize and British Columbia of misinformation and a lack of trust, and we’re seeing this the more research we do,” said CLP attorney Daniel Duthie at a press conference May 23 at the County Office Building in Kingston. At the conference, several — including some from the Central American nation and the western Canadian province brought in via an occasionally balky Skype connection — spoke in opposition to the deal, which could, activists say, be approved as soon as the Public Service Commission’s next public meeting on June 13.
CLP and the Municipal Consortium in Opposition, representing the 12 municipalities that have so far passed resolutions against the takeover, also filed a Brief on Exceptions with the commission that claims multiple financial, regulatory and energy-related risks of the takeover. The brief was issued in response to the recent Recommended Decision by the two PSC administrative law judges evaluating the deal, in which they said the negatives of the deal outweighed the positives. The CLP said it agreed, but also said it didn’t go far enough. “The ALJs could have made their case more strongly,” said CLP’s Jennifer Metzger, chair of the Rosendale Environmental Commission, at the press conference.
To bolster its case that Fortis — despite the claims of the current marketing blitz of ads by Central Hudson — is a bad corporate citizen, CLP presented live via Skype two groups of activists fighting Fortis-owned subsidiaries, one based in Belize, where Fortis operates three dams on the Macal River (two of which it built), and the other representing the Heritage Hills & Lakeshore Highlands Homeowner’s Association, located in British Columbia.
Candy Gonzalez, president of the Belize Institute of Environmental Law and Policy (BELPO), and her husband, George, co-chair of We Belizeans Against the Dam and secretary of BELPO, said Fortis gained a monopoly over the country’s utility Belize Electrical Limited, when it acquired the company that was building a hydro-power dam supplying it with power, giving Fortis complete control over the price of electricity.
The Gonzalezes said activists took the Belizean government to court numerous times, accusing it of failing to ensure Fortis followed an environmental compliance plan for the Chalillo dam, as required by law. They noted that an earlier court case brought by Belize-based conservation groups prior to the dam’s construction brought to light a secret pact between the government and Fortis that granted the company the rights to build the dam tax-free and without having to obey environmental rules. Fortis was also guaranteed annual rate increases of at least 1.5 percent until 2036.
Candy Gonzalez said the company also fudged surveys to conceal that it built the dam on soft shale instead of granite and that it was sited over a fault line. Further, she said, “Fortis totally ignored the impact on wildlife.” (The dam was built in a pristine rain forest that was home to many rare species, including Belize’s last known nesting population of scarlet macaws.)
More than seven years after the dam was built, “we still can’t get information about water quality from the company or information on levels of mercury in the fish,” she said, noting that the river has been polluted with sediment. Cracks in the dam have been reported, putting over 16,000 people who live downstream at risk, but there is no emergency plan in case the dam breaks.
If the dam should break, Fortis isn’t liable, said the Gonzalezes. “They could collect insurance and sell the dam to the government for $1,” said George.
As a developing country, Belize might seem particularly vulnerable. But The Heritage Hills & Lakeshore Highlands Homeowners Association of the eastern Lake Skaha region in British Columbia represents the other extreme — affluent homeowners in a resort area. Yet its experience with the local Fortis-owned utility, FortisBC Energy, has parallels with Belize, according to comments by Harry Levant, who addressed the conference via Skype. Levant was joined on the Skype phone by two other members of the association, Douglas Lychak and Robert Advocaat, who spoke about misrepresentations made by the utility about its upgraded transmission line, which runs through a right of way in the lakeside residential community.
“We were told [the new line would consist of] small brown creosote poles, and residents were not concerned,” Levant said. But the actual metal poles that replaced the wooden H frames were “enormously taller” than FortisBC’s depictions and “did not represent what we were told would be built,” he said. (Photos were projected and passed around showing the old poles, FortisBC’s simulations of the new poles, and the actual new poles).
The new, 70-kilometer transmission line, which was installed in 2010, has depressed house values 20 percent, said Lychak, contradicting the assertion by a Fortis-hired expert that the upgrade would not impact values. In a follow-up e-mail, Levant noted that “the homes that are now for sale in our area are mostly located along the power line and none are selling … who wants a home next to a giant high-voltage power line?”
In addition to depressed property values, FortisBC customers have had to cope with, according to local news stories, electric rates increasing by 10 to 20 percent. The rates “are rising faster than the actually approved amounts due to a new two-tiered rate system, in which above a certain threshold of monthly usage the utility rates jump to a new level,” wrote Levant in an e-mail. “The threshold is set so low that it is impossible not to exceed it.”
Levant worried the same thing could happen to Hudson Valley customers. “I strongly believe they are just adding to the rate base to wrest more money from ratepayers,” he added, noting that Fortis’ $900 million Waneta hydro-dam, under construction near the U.S. border, “will only elevate the need for further rate increases.”
Further objections detailed
After the Skype was shut off, the conference returned to a local focus. Issues from CLP’s legal brief were detailed, including the $1.5 billion cost of the merger itself, which comes with $500 million of new debt and $600 million subscription — money put up by investors which, the CLP says, must be returned by June 20 if the deal doesn’t go through, though an extension is possible. CLP in its brief also warned of financial problems which may arise from “the possible late delivery of the … Waneta dam construction project in Canada.” Further, CLP stated in the brief that Fortis has a lower credit rating than Central Hudson’s and the risk of a credit downgrade is “so strong to be inevitable,” once the protections against a lower credit rating, spelled out in the joint proposal for the deal, expires after three years.
The brief also argued that Fortis’ cost of approximately $440 million in “goodwill”—“a non-productive bookkeeping asset that Fortis must not allowed to be impaired,” states the brief — is another “financial stress point,” which “will inevitably lead Fortis to raise rates or cut costs at the expense of jobs and quality of service, or both.”
Gerald Norlander of the Public Utility Law Project of New York, repeating one of the major worries of the takeover opponents, said Fortis’ ability rights under the North American Free Trade Agreement could override the state’s regulatory authority.
It isn’t just ratepayers who’d lose out if the merger is approved, according to Karl Budmen, a retired SUNY New Paltz English professor and Central Hudson shareholder whose comments concluded the nearly two-hour press conference. Budmen, who said he has filed a stockholding resolution with the Securities and Exchange Commission asking it to reject the deal, said the merger is actually a buy-out, one that’s detrimental to Central Hudson shareholders, who will lose their generous dividends. Fortis is offering $65 a share, which is lower than the $66.23 price of the stock in April, suggesting the company has been undervalued, said Budmen. “It’s striking there was no independent study of the value and management didn’t solicit any other offers,” he said, noting that four officers of Central Hudson have already cashed in their shares.
“We’re requesting that within a year or prior to the merger the board publish a report to the shareholders detailing one other bid or an independent evaluation of Central Hudson’s value from a Morningstar or the like,” Budmen said.
Kennedy opposes merger
Meanwhile, Citizens for Local Power last week sent around a letter from Robert F. Kennedy Jr. sent to the PSC is opposition to the merger. An attorney for the Natural Resource Defense Council, Kennedy was involved in the fight to prevent the construction of the Chalillo dam in Belize. “My own experience with Fortis, Inc. has shown Fortis to be a corporation that pursues growth and expansion at the expense of, and with breathtaking disregard for, the people its utilities were created to serve,” Kennedy has written. “This record alone should be sufficient grounds for the PSC to deny the acquisition.”
Kennedy cited numerous examples of bad corporate behavior regarding the Belizean dam, including, in his words, “suppression of information that put the economic value of the dam in doubt, failure to disclose mercury contamination of water due to the pre-existing Mollejon dam, failure to disclose information about a seismic fault at the dam site, and inadequate testing of water flows, followed by a year-long delay in producing an emergency evacuation plan in case the dam should fail, and a shocking lack of active concern to get this information to those who would be in harm’s way, plus failure to properly test for other forms of water contamination.”
Summed up Kennedy, “So much for the ethics, managerial expertise, and public service record of Fortis, Inc.” He also expressed financial concerns and objected to Fortis’ pro-fracking stance regarding natural gas. Kennedy joined Citizens for Local Power in calling for the PSC to hold an evidentiary hearing on the proposed acquisition, where witnesses would be able to be cross-examined by the opposing side. “Such a hearing would create a documentary record against which the truth value of Fortis’ statements could, and should, be tested,” he concluded.
‘Fabulous stuff’ — Fortis exec defends power company’s environmental record
Contradicting statements by local opponents to Fortis Inc.’s proposed $1.5-billion takeover of Central Hudson, Barry Perry, vice president of finance and chief financial officer at Fortis, claimed the Canadian-based power conglomerate has done “a lot of fabulous stuff with regards to the environment.”
In an interview last week, Perry said Fortis has been committed to green energy. He cited its record in Prince Edward Island, which Canadian province gets 30 percent of its electrical power from the wind and where the Fortis-owned utility is facilitating the connection of that power with the electrical grid. He said Fortis would be committed to governor Andrew Cuomo’s Energy Highway Initiative to bringing wind energy down to New York City through upgraded transmission lines.
Fortis’ environmental record has come under criticism from locals who want the state Public Service Commission to reject the proposed takeover of Central Hudson. Concerns about the way Fortis treated customers in the Central American nation of Belize and the western Canadian province of British Columbia were discussed at Citizens for Local Power’s May 23 press conference in Kingston. (See accompanying article.)
Fortis in the Caribbean
In 2011 the government of Belize nationalized Fortis’ BEL subsidiary. Perry said the government took over a telecommunications company and water company at the same time, suggesting the action was part of an overall “trend” rather malfeasance on Fortis’ part. He said currently electrical power generated by the three dams Fortis owns in Belize is being sold at ten cents per kilowatt-hour, “the second lowest price of power in Caribbean.”
Why had the company charged much higher rates when the dam opened — 24 percent more in a six-month period, according to Fortis’ 2006 annual report? Perry said a two-year delay linked to environmental challenges in the construction of the Belizean Chalillo dam had temporarily forced Fortis to buy more expensive power from Mexico and to rely on inefficient oil-fired diesel plants. “Over the longer term the hydro power prices have remained stable, in the ten-to-eleven-cent range,” he said.
Perry claims in a video posted on the Central Hudson website that the dam area “has been restored” and that the rare scarlet macaw is back. He said Fortis had constructed artificial nesting sites for the birds as a mitigation of the impact of the dam reservoir. The birds are presently threatened not by habitat displacement by the dam, he said, but by illegal poaching. Furthermore, “we’ve done everything we had to do for environmental compliance. [Dam opponents] lost every time they’ve gone to court.” The Chalillo dam has prevented flooding that otherwise would have occurred, he said. The Belize government was so pleased with the Chalillo dam, Perry said, that it subsequently contracted with Fortis to build a second, larger dam.
Fortis also responded by e-mail to some of the points made by Belize-based activists at the press conference: The existing sandstone contains granitic material, which is suitable for dam construction. The government, not Fortis, is responsible for the early warning system in case of a dam failure. Cracks in the dam, found in the plastering, are superficial. If the dam were to be destroyed, BECOL (the Fortis-owned subsidiary that operates the dam) has public liability, which is standard for hydro facilities. The secret, pre-dam agreement between Fortis and the government “was made available to the public through the [Belizean] Public Utilities Commission for review.”
BEL executives received “golden parachutes” when the government nationalized the utility. “BEL did not transfer assets [to BECOL], and an audit that was carried out has exonerated the executives of these claims,” said Perry.
Fortis in British Columbia
In British Columbia, FortisBC Energy received complaints about its rate increases. Fortis has had to make massive upgrades in the system, Perry said, which was in poor shape when Fortis purchased the utility in 2003 from an American company.
“The transmission system was not at the right level of reliability and we had to upgrade it to bring its redundancy up to the right standards,” said Perry. Fortis has reinvested $1 billion since the 2003 purchase, he said. The two-tiered rate structure, in which customers pay a higher rate if they exceed a certain threshold of power usage — a system causing much hardship among local ratepayers, according to news reports — was implemented by the British Columbia Public Utilities Commission, not FortisBC, he said.
Contrary to claims by British Columbia activist Harry Levant, Perry said the poles the company erected through the right-of-way “were the same poles we said we’d put up.” Fortis forwarded an April 18, 2011 letter from the British Columbia Public Utilities Commission in response to multiple complaints about the upgraded transmission line. The letter confirmed that the project was in compliance with Canadian regulations, and that FortisBC had properly met its obligations.
Fortis in the Hudson Valley
As noted in its application before the Public Service Commission, Fortis plans to spend $600 million over the next five years should the merger be approved in maintaining infrastructure, a rate close to what Central Hudson has been spending, Perry said. “There are a couple of areas where we might increase the investment. One is on the transmission side. A separate initiative would be extensions of natural gas distribution to more customers.”
Regarding Fortis’ $1.5 billion of good will — the amount paid for assets above their “book value” — which will increase by $500 million more if the CH merger is approved, “there’s no customer impact associated with that good will.” He said the corporation’s total amount of debt “on a consolidated basis” is 55 percent, comparable to Central Hudson’s level.
Fortis raised $600 million in subscription money from its shareholders for the CH purchase. The funds must be returned on June 30 if the deal is not approved, Perry claimed. The company, which is pushing the PSC to approve the deal at its June 13 meeting, is applying for an extension. If it doesn’t get one, Fortis would pursue private financing, Perry said. The final deadline for the deal is August 20.
Might Fortis attempt to circumvent state regulations by invoking provisions of the North American Free Trade Agreement (Nafta)? Perry said that issue was “a red herring.” In the two decades of Nafta’s existence, and despite the fact that other Canadian utilities are owned by American companies and vice versa, “there has never been a claim under that agreement in the regulated utility space,” he said.