CVPS customers' refund, rate cut doubled
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By Bruce Edwards Rutland Herald - Published: April 6, 2005
A miscalculation means customers of Central Vermont Public Service Corp will receive double the refund and a larger rate reduction than announced last week by the Public Service Board.
CVPS announced Tuesday that its customers will receive a refund of $6.3 million, plus interest — more than double the $3.1 million refund that was ordered by the PSB last week.
The company also said customers will see a rate cut of 2.75 percent, greater than the 1.8 percent rate reduction originally announced.
The rate reduction took effect April 1.
In its March 29 decision, the PSB ordered a refund and rate reduction after an investigation determined that the state's largest electric utility had overcharged its customers between 2001 and 2004.
CVPS said Tuesday that in response to the board's initial rate and refund order, Standard & Poor's, one of the major credit rating agencies, placed CVPS on credit watch with negative implications.
CVPS said S&P did not downgrade the company's overall corporate or debt ratings.
The rating agency said it expects to resolve the credit watch listing once the rate order compliance is finalized and the company adjusts its plans for future capital expenditures and liquidity in light of the rate cut.
The utility's current corporate credit rating is BBB-minus, one step above junk-bond status. Its first-mortgage debt is rated at BBB-plus.
In general, a downgrade increases a company's borrowing costs and hampers its operational flexibility.
The head of the state agency that serves as the consumer watchdog in utility rates cases said CV customers will receive a larger refund and rate reduction because of a mathematical error in the PSB's original calculations.
"There was a lot of moving parts to the financial end of this and a lot of adjustments, and then adjustments that flowed through that affected other numbers and just the sheer complexity of that is always a challenge," David O'Brien, commissioner of the Department of Public Service Department, said Tuesday.
CVPS president Robert Young said the company was developing a plan to maintain customer service, reliability and to ensure the company's financial strength.
"We have borne the brunt of plenty of storms in our 75 years of service, and we will bear this one," Young said in a statement. "We take our responsibility to our customers and shareholders seriously and will work to ensure both are well served."
He noted that despite the board's order, the company has enough cash on hand to remain on solid financial ground for the near term.
"We have cash reserves to help us weather this situation, but this order leaves us with a disparity between costs and revenue, and we will have to bring the two into line," Young said. "At year's end, CVPS had $52.9 million in cash, cash equivalents and available-for-sale securities."
O'Brien found fault with some of the assumptions that led Standard & Poor's to place the company on a credit watch.
In particular, O'Brien said he took exception to S&P's characterization of the regulatory climate in the state that led to the rate reduction and refund.
"We feel this is a just and reasonable driven rate analysis of the company and there's nothing about that that's out of the ordinary for a regulatory climate," he said. "That's what you'd expect regulators to do."
O'Brien said the actions of regulators are not intended to put the state's utilities in financial jeopardy.
"We want their credit rating to be strong and favorable," he said. "We hope that this is not going to over the long term result in a lower rating for the company."
Young said the company's department heads have been asked to review their budgets for possible recurring savings or one-time savings.
"While this is an important assignment, we do not intend to make budget changes that hamper our ability to provide high-quality customer service and reliability," Young said.
The company also announced other steps it is taking to address the impact of the rate order:
CVPS is scheduled to release its first-quarter earnings and 2005 guidance and hold a quarterly earnings call with electric industry analysts at the end of the month.
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