FOR IMMEDIATE RELEASE
CONTACT: Jennifer Metzger, 845-658-896
Susan Gillespie, 845-658-9820
Manna Jo Greene, 845-807-1270
Dawn Meola, 845-658-3036
Dan Duthie, 845-988-0453
Ulster County, N.Y. - Citizens for Local Power (CLP) congratulates IBEW 320 on obtaining concessions from Central Hudson ahead of the decision on the proposed Fortis-Central Hudson merger, calling it “a victory and testament to the strength of the opposition to the deal.” At the same time, CLP warns that the security of jobs beyond the duration of the negotiated contract remains at risk, given the company’s financial profile and foreign investment track record.
In a legal brief submitted to the NYS Public Service Commission on May 17, CLP and the Municipal Consortium in Opposition present overwhelming evidence concluding that the proposed Fortis-Central Hudson merger is not in the public interest and should be rejected. The “Brief on Exceptions” responds to the Recommended Decision handed down by Administrative Law Judges (ALJs) Epstein and Prestemon on May 3. In that decision, the judges state: “We find it relatively easy to conclude that the benefits of the merger transaction pursuant to the Joint Proposal are outweighed by the detriments remaining after mitigation”—a conclusion that has now received significant added support in the CLP/Municipal Consortium legal brief.
In contrast to extreme and unsupported allegations by Central Hudson and Fortis calling the Recommended Decision “irrational” and claiming that it “confiscates shareholder property,” the CLP/Municipal Consortium brief offers reasoned arguments, supported by new evidence, detailing why the Recommended Decision did not go far enough in recognizing that the Fortis acquisition would not produce a net benefit for the mid-Hudson region and would, on the contrary, be risky in the extreme.
FINANCIAL RISKS:
According to the brief, large financial risks inherent in the proposed merger transaction were not taken into account in the ALJs’ Recommended Decision, and must be considered by the Public Service Commission (PSC) in making its final decision. These financial risk factors include: 1) the strong probability of a credit downgrade based on Fortis’ lower credit rating and increasing debt load; and 2) the fact that if the merger is allowed to go through, Fortis will carry the stunning total of over $2 billion in “goodwill” (the amount paid for assets beyond their book value) out of total assets of $15 billion—a total of 14% of its assets that cannot earn a rate of return. Over time, pressure to satisfy Fortis’ stockholders desire for quarterly dividends on the company’s assets must inevitably lead to large rate increases and/or cuts in jobs and services. The proposed acquisition agreement, known as the Joint Proposal (JP), falls far short of addressing these risks since its provisions for securing Central Hudson against financial risk expire after three years, while the Fortis deal is forever (or at least for the duration of Fortis ownership).
Central Hudson and Fortis claim, both in their joint legal filings and in their recently launched advertising campaign promoting the merger, that under the ownership of a bigger holding company like Fortis, Central Hudson Central will be better able to meet its five-year, estimated $660-million need for infrastructure investments. The CLP/Municipal Consortium legal brief shows clearly that the opposite is true. Fortis’ riskier financial profile will only make Central Hudson more vulnerable, and this vulnerability will translate into higher rates for Central Hudson customers, cuts in jobs and service, or both. The CLP/Municipal Consortium also point to the empirical record of mergers and acquisitions generally, which shows that half of all mergers and acquisitions fail, and in the majority of cases, they do not achieve the goals predicted by management. The findings of the academic business literature underscore the risks involved, even without considering the risks associated with Fortis, in particular.
LEGAL AND REGULATORY RISKS:
The CLP/Municipal Consortium brief shows that the Recommended Decision underestimates the risk that the North American Free Trade Agreement (NAFTA) could be used by Fortis as a trump card to defeat the PSC’s regulatory efforts in the public interest. Fortis Vice President of Finances and CFO Barry Perry pointedly refused to rule out using NAFTA. In an interview conducted by the Kingston Daily Freeman on April 14, 2013, Perry noted that U.S. companies doing business in Canada have used NAFTA as a ‘very legitimate course of action’ and said Fortis won’t pledge to avoid using the agreement’s provisions if there are disputes involving CH Energy. ‘That would be a strange thing to do,’ he said. Fortis is no stranger to NAFTA claims, having recently booked a $22 million one-time extraordinary income gain derived from a NAFTA claim by U.S.-based AbitibiBowater against Canada. Even a threat by Fortis to invoke NAFTA would likely influence a tenaciously independent Commission, and therefore must not be discounted as a risk in the proposed merger agreement.
One of the most important omissions from the judges’ Recommended Decision, identified by the CLP/Municipal consortium brief, is Fortis’s own track record with investments elsewhere. Fortis’ investment history in the Central American country of Belize is riddled with examples of corporate stone-walling, obfuscation, and malfeasance in efforts to get its proposed hydroelectric dams approved. Moreover, the company’s failure to comply with the water quality and safety provisions of its signed compliance agreement with the government, even after the Supreme Court of Belize ordered compliance, shows a callous disregard for the health, safety, and well-being of the communities in which it invests. The court decisions and signed affidavits of numerous witnesses involved in the Belize case, provided as exhibits in the CLP/Municipal Consortium brief, demonstrate the danger posed to New Yorkers by Fortis’ corporate culture and multi- layered holding company structure. The company’s record also casts doubt on its repeated assurances that its subsidiaries have a “stand-alone” character, and that nothing at Central Hudson will change under Fortis ownership. To the contrary, Fortis top management intervened directly in Belize and treated its subsidiaries as “stand-alone” only when it directly served Fortis’ own purposes. Fortis President and CEO Stanley Marshall, in an interview with Channel 5, Belize, on May 21, 2008, threatened to cut off investment, as well as “rolling blackouts,” if the Belize government did not approve the rate increase requested by the company.
ENERGY-RELATED RISKS:
Citizens for Local Power points out that Fortis’ stance on energy issues, as reflected in its “forward-looking assessments” (www.fortisinc.com), are in conflict with New York State and regional policy and planning. A company that depends for its future profitability on shale gas extraction at the expense of (“versus”) clean, renewable energy sources, as Fortis’ website states, cannot be expected to submit willingly to the energy directives of the state, or to support local, county, and regional sustainability initiatives. Fortis’ energy stance strongly conflicts with the preferences and goals of the citizens of our region, as demonstrated by the strong grass-roots and municipal opposition that emerged following the publication of the Joint Proposal in January.
The intense resistance of mid-Hudson municipalities to Fortis’ acquisition of Central Hudson is reflected in 11 unanimous resolutions from towns and villages (a number that continues to grow), the outspoken opposition of many hundreds of citizens, and the universal opposition to the acquisition expressed at four public hearings. In acknowledging this outpouring of opposition, ALJs Epstein and Prestemon cited a letter by former Congressman Maurice Hinchey concluding, “surely, in a democratic society such as ours, the decision as to what constitutes ‘public benefit’ is not unrelated to the will of an informed public and its elected representatives.”
“Fortis’s and Central Hudson’s top management make clear their disdain for this viewpoint and for the concerns of citizens of the Hudson Valley, whose opinions they labeled as ‘irrational’ in their most recent filing with the PSC” said Jennifer Metzger of Citizens for Local Power. “In so doing, they express the same dismissal of fundamental democratic processes that Fortis exhibited when it disregarded the well-being of the people of Belize, and when it failed to attend even one of the four public hearings held in New York for the this merger.” Pointing to the recent public relations campaign by the companies in support of the merger, Susan Gillespie, another member of the grass-roots CLP observes that the advertising is “nothing more than an effort to white-wash the proposed deal, after coming under heavy fire from the public, government officials, and the ALJs. ” The recent concessions to labor, said Gillespie, “were clearly made in the hope that it would smooth the path toward approval, but fundamental problems with the proposed merger remain unaddressed.”