Central Vermont Public Service Corporation

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Central Vermont Public Service Corporation

77 Grove Street
Rutland, Vermont 05701
U.S.A.
Telephone: (802) 773-2711
Toll Free: (800) 649-2877
Fax: (802) 747-2199
Website: http://www.cvps.com

Public Company
Incorporated: 1929
Employees: 572
Sales: $303.4 million (2002)
Stock Exchanges: New York
Ticker Symbol: CV
NAIC: 221100 Electric Power Generation, Transmission and Distribution

Central Vermont Public Service Corporation (CVPS) is Vermont’s largest utility. In addition to more than 143,000 customers in Vermont, CVPS also serves over 10,000 customers in New Hampshire through a wholly owned subsidiary, Connecticut Valley Electric. As part of a diversification strategy, initiated in anticipation of deregulation, CVPS also has interests in global independent power projects, energy-related services, and a home maintenance contracting business.

Roots of CVPS Reaching Back to Mid-1800s

CVPS was created as a holding company in 1929 to combine eight Vermont electric companies. The oldest was Rutland Railway Light and Power Company, which was formed as Rutland Gas Light Company in 1858. The first electric companies in the state were founded in the 1880s and by 1900 some 50 communities had electricity to some extent. All the companies were small and either privately controlled or owned by municipalities, powered by “white coal,” Vermont’s many rivers and streams. This abundant natural resource attracted the attention of outside speculators who wanted to build large dams and hydroelectric plants in order to supply electricity to the more industrialized communities in southern New England. Providing electricity to the mostly rural state of Vermont, however, was of secondary interest. In 1908 Vermont created the Public Service Commission (PSC) in order to regulate utilities at the state rather than local level. But by eliminating the complications of town-by-town regulation and oversight, the commission made Vermont even more attractive to speculators. Moreover, CVPS was packed with pro-business members skeptical of municipal projects.

The man who cobbled together CVPS was the most notorious power speculator of them all, Samuel Insull, Thomas Edison’s erstwhile private secretary. Born in London, England, in 1859, Insull left school at the age of 14 to work as an office boy for an auction house. By night he studied accounting and shorthand, then turned these skills to his advantage as he pulled himself up in the world. By age 20 he was serving as private secretary and bookkeeper to Edison’s London agent, Col. George E. Gourard, and in the process gained an education in a wide range of technical and financial matters and also made important contacts. He met the chief executive of Edison’s electric business, Edward H. Johnson, who was so impressed with the young man that in 1881 he arranged for Insull to come to New York to become Edison’s private secretary. Not only responsible for Edison’s private finances, Insull soon became a trusted companion. In 1886 Edison relied on him to transfer his electric manufacturing companies to Schenectady, New York, and Insull stayed on. Three years later Edison General Electric Company was formed in 1889, and although Insull was officially a vice-president he essentially ran the operation and was instrumental in developing an organizational structure that would soon be emulated by many other businesses. In 1892 the company merged with Thomson-Houston, creating General Electric Company (GE).

Insull, firmly believing that more money could be made in the generation of energy than in the manufacture of electric equipment, quit GE to take over as president of Chicago Edison Company at a third of his salary. It was here that he pioneered all the basic concepts involving electric supply, including load and diversity factors to determine rate structures and the “natural monopoly” principle. After 15 years in charge of Chicago Edison he controlled the entire electric business in the city. In 1910 he conducted an experiment, networking a number of small central stations in Lake County, Illinois, into a unified system. He learned that the larger system could produce electricity at 40 percent the unit cost of the individual stations. As a result he transformed the industry, as utility operators now rushed to buy and interconnect utilities. Insull dreamed of creating a mammoth system to supply power to the Midwest, and in 1912 he established the Middle West Utilities Company.

Samuel Insull Forms CVPS in 1929

At the same time, Insull also became interested in Vermont utilities. In 1912 he purchased Twin State Gas and Electric Company, which owned electric companies in the towns of Bennington and Brattleboro. A year later he acquired St. Johnsbury Electric Company. Meanwhile, Eastern Power and Light Company purchased Rutland Railway, Power and Light Company as well as other area utilities, then in 1919 merged the smaller utilities to create Vermont Hydro-Electric Corporation. In 1929, in addition to Rutland and Vermont Hydro-Electric, Insull combined six other state electric companies—Black River Power Company, Bradford Electric Light Company, Middlebury Electric Company, Pittsford Power Company, Public Service Corporation of Vermont, and Windsor Electric Light—under a holding company called Central Vermont Public Service Corporation, employing a uniform rate schedule. During this period the parts of Vermont’s second largest utility, Green Mountain Power, were also accumulated. CVPS was just a small part of Insull’s empire, which totaled $2 billion in assets. The stock market crash and subsequent Depression, however, would result in his ruin, as well as many shareholders who trusted him. He became a ready-made scapegoat for the crash and ensuing Depression, and eventually stood trial for mail fraud and embezzlement. Ultimately acquitted, he lived out his remaining years in Europe, living off his pensions.

The name Insull became shorthand during the presidential campaign of 1932 for corporate corruption and the abuse of the public trust by utilities, the reputation of which was far from sterling. Aside from overcharging its customers, CVPS and similar holding companies were castigated for their reluctance to extend service to rural areas. Over the course of its first two decades in existence, CVPS gradually expanded into the less populated areas of the state, either by extending lines or acquiring small, local operations. In 1930 alone the company strung 70 miles of line, adding 370 customers. The following year saw another 65 miles of new lines and 269 new rural customers, as well as the acquisition of Gulf Road Light and Power.

In 1936 CVPS elected a new president, Albert A. Cree, who would serve in that capacity well into the 1970s and during his tenure be a major influence on both the company’s fortunes and Vermont’s energy industry. After 15 years with Wall Street investment banker Lee Higginson & Company, Cree first came to CVPS in 1934. (In addition to his post at CVPS, Cree was also named president of Twin State Gas & Electric Company, which in 1943 was finally merged with CVPS.) By the end of the 1930s CVPS added some 500 miles of rural lines, servicing 1,600 new customers. CVPS also acquired utilities that supplied a number of smaller companies, inheriting hundreds of those customers as well.

Although wartime restrictions in the 1940s caused a drop in usage by commercial customers, CVPS increased revenues because of industrial customers who were now heavily involved in military contracting. The company also grew by external means during this period. In addition to the merger with Twin States, CVPS also acquired Vermont Utilities, Inc., Granville Electric Company; Plymouth Electric Light Co.; West River Power Company; and Shrewsbury Light & Power Co.—in all adding about 3,000 new customers.

It was also during the war that CVPS became a pioneer in the use of wind to generate electricity. The project was initiated in 1939, financed by S. Morgan Company, a York, Pennsylvania, hydraulic turbine manufacturer. GE contributed the electrical equipment, and American Bridge Company constructed a 110-foot-tower and the massive windmill blades that were to power a wind turbine engine designed by Boston engineer Palmer C. Putnam. CVPS was responsible for the experiment’s site and connecting the turbine to its transmission lines. A number of other companies, as well as experts from such prestigious universities as Harvard and MIT, were also involved in the planning and construction of the project. In 1940 CVPS settled on a test site, choosing a hill 12 miles west of Rutland, which was then named “Grandpa’s Knob” to commemorate the grandfather of the farmer who owned the bare hill. More than a year would pass before the huge windmill with its two eight-ton blades was erected, the structure so tall it was visible from 25 miles away. Finally on October 19, 1941, the windmill was tested in 25-mile-per-hour winds and after some adjustments electricity generated by its blades was fed into the CVPS power lines, the first time in history for such a feat. The windmill at Grandpa’s Knob would be tested and refined for another three-and-a-half years. The unit was planned to be dismantled but in 1945 one of the blades broke free in a heavy wind. Injury to workers was avoided but the windmill never operated again. Moreover, the experiments never resulted in the production of a commercial unit, the cost to produce electricity simply too high, but the idea of wind generation would come to fruition decades later.

Company Perspectives:

We believe the critical dimensions of service quality are: Reliability —deliver promised service, dependably and accurately; Responsiveness —listen to customer requests and provide service promptly; Assurance —use knowledge and courtesy to build trust and earn confidence; Empathy —show the customer that you care with careful, personal attention.

With the close of World War II CVPS continued in its efforts to electrify rural Vermont. Because so many residents were eager to be connected, the company had little difficulty in securing the necessary real estate and right-of-way easements. During this period CVPS also became the first New England utility to introduce a two-way radio system to communicate between its offices and trucks, resulting in cost savings as well as more timely line repairs. By 1954, 25 years after it was formed, CVPS had grown from a utility serving 20,000 customers to one with over 62,000 customers, while operating revenues increased fourfold. Also in that year, it acquired the Public Electric Light Company of St. Albans, adding four hydroelectric generating stations, plus steam and diesel generating units.

CVPS and Cree were not, however, without critics, who questioned the utility’s actual level of commitment to electrifying Vermont’s rural areas. Elected as the state’s governor in 1948, Ernest Gibson, Jr., castigated private power companies such as CVPS, and attempted to dam the St. Lawrence River and create a Power Authority to supply electricity to the state. Cree led the opposition to this idea, which came up in a bill before the legislature four times between 1949 to 1954. He was so successful in having the bill gutted in committee that even its sponsors dropped their support. In the end, the only reform that passed was the requirement of PSC approval on rate increases. Eventually PSC would be authorized to buy power wholesale, but it was only able to sell to Vermont utilities, not directly to consumers. Cree further undercut PSC in 1956 when he was instrumental in the creation of the Vermont Electric Power Company (VELCO), a transmission line company, to ship Canadian power through Vermont and into other New England markets. Although many questioned Cree’s commitment to serving the public in good faith, the Canadian power proved so cheap that it resulted in lower rates for Vermont consumers.

Involvement in Atomic Energy: 1950s–70s

Cree also involved CVPS in atomic power in 1954 when it and a score of other New England utilities organized the Yankee Atomic Electric Company in order to construct the first atomic generating plant in New England. The 136,000-kilowatt facility went on line in November 1960. When Vermont Governor Phillip Hoff proposed in 1965 that the state build a transmission line through a nonprofit corporation to bring in cheap Canadian power, Cree again spearheaded the defeat of the measure, arguing that an atomic power plant built by Vermont utilities would actually supply even cheaper electricity to the state. Again, he won the day, but when the Yankee nuclear plant came on line in 1972 it was well over budget and would never come close to generating power as cheaply as Cree promised.

The 1970s were a period of transition for CVPS, not only because of a change in leadership (Cree died in 1976 at the age of 77), but a shifting energy environment with the emergence of OPEC and the rise in fuel costs, as well as the deleterious effect of inflation that drove up the price of upgrading CVPS in order to meet continued growth in demand. Nonetheless, the utility initiated a three-year, $18 million program to upgrade the VELCO grid. During this period CVPS was forced to request rate increases and introduce methods in controlling load management, offering customers seasonal rates as well as time-of-day rates.

Struggling to Remain Profitable: 1980s-2000s

A small utility, CVPS struggled to find a way to prosper in the final decades of the century. In order to achieve some diversification it formed Catamount Energy Corporation in 1986 to be involved in small generating plants in both the United States and Europe. They either relied on renewable fuel or natural gas or wood. In the early 1990s Catamount returned CVPS to wind power projects, and after several years of work in that field the subsidiary devoted itself exclusively to wind energy projects. Finding new revenue streams through diversification took on even greater importance for CVPS as it approached 2000 because of other developments. The utility had posted a $17 million loss in 1987 after selling its share of the Seabrook, New Hampshire, nuclear power plant. By cutting its losses in Seabrook, management hoped that CVPS would now be better positioned to become involved in competitive power bidding. The utility then bought too much Canadian electricity on a longtime contract in the late 1980s, only to have an excess supply when the economy underwent a recession in the early 1990s. A decade passed before information that was part of a rate increase proposal surfaced to shed some light on the reasoning behind the purchase of power that proved to be overpriced. According to an Associated Press article in 1997 by David Gram, CVPS, as well as Green Mountain Power Corp. (GMP), were “motivated at least in part by an effort to squeeze the state out of the power business.” Vermont’s Department of Public Service had already been involved in some power buys from Hydro-Quebec, then in 1987 the legislature passed a bill that reinforced its ability to both buy and sell electricity. Both CVPS and GMP were concerned that the state was entering the retail electric business. According to Gram, “Testimony filed at the Public Service Board by a consultant to the DPS alleges that the utilities, led by GMP and CVPS, deliberately set out to flood the state’s transmission grid with Hydro-Quebec power so the department would be blocked from making its own power purchase deal.” As a result, Vermont utilities were stocked with too much power at too high a price.

With the prospect of deregulation becoming a distinct possibility during the 1990s, CVPS prepared for the new world of “customer choice,” in part by branching into non-regulated businesses. It established Home Services Solutions (HSS) in order to connect homeowners with a network of approved plumbers, electricians, and carpenters who worked on a contract basis. In addition to screening the contractors and guaranteeing their work, HSS provided billing and accounting services for its contractors. The service was marketed around the country through Wal-Mart affiliate Sam’s Club.

Key Dates:

1929:: Eight electric utilities combine under the holding company Central Vermont Public Service Corporation.
1936:: Albert A. Cree is elected president of the company.
1941:: Company is involved in the successful completion and testing of the first wind-generated electricity site in the country.
1956:: Transmission line business Vermont Electric Power Company is created to ship Canadian power through Vermont and into other New England markets.
1986:: Catamount Energy Corporation is formed.
1987:: Company posts a $17 million loss after sale of its share in the Seabrook nuclear facility.
2002:: Revenues remain flat in a challenging environment for small utilities.

CVPS’s diversification efforts offered some promise, but they were not developed enough to alleviate the strain of some difficult financial years the utility suffered in the 1990s. CVPS was forced to make cutbacks in employment, eliminating about a third of its workforce. Its strategy to take advantage of deregulation was then put on hold when Vermont backed off on customer choice following problems in California, where deregulation was manipulated by traders, such as Enron, and resulted in well publicized rolling blackouts and excessively high energy prices. With the economy stalled in the early years of the new century, and deregulation uncertain, the prospects of a small utility like CVPS were limited.