Associated Industries of Massachusetts has joined Procter & Gamble, 3M and other companies in challenging a proposed insurance-company acquisition that could leave scores of Bay State businesses exposed to so-called long-tail asbestos and environmental liabilities.
The companies and AIM last week filed a petition to intervene in the Pennsylvania Insurance Department review of Trebuchet US Holdings Inc.'s proposed $2.2 billion purchase of OneBeacon Insurance Co. and Potomac Insurance Co. Trebuchet, a subsidiary of the Bermuda-based Armour Group Holdings Ltd., filed its application to acquire the two companies in February.
AIM and the other petitioners fear the proposed transaction would impede the ability of thousands of companies to get claims paid under environmental insurance coverage purchased from a predecessor to One Beacon, the Commercial Union Insurance Companies.
“Under the proposed transaction, those legacy policies, and the claims-paying obligations that are part of their core promise, will be jettisoned by (One Beacon) and shunted over to a runoff operation with a suspect capital structure and limited resources for satisfying valid claims under hundreds, if not thousands, of legacy policies issued by predecessor entities…” the petition said.
The document indicates that AIM and the other petitioners “are concerned that the conversion of the Acquired Companies into a runoff vehicle, operating with a significantly reduced policyholder surplus and decoupled from (One Beacon’s) ongoing business operations and pooled reserve and reinsurance structure, may impair the financial viability of the Acquired Companies and compromise their ability to pay valid claims arising under the legacy Commercial Union policies.”
The policies that the companies bought were in effect from the 1930s until the 1980s and provided "broad protection" against claims and lawsuits brought by third parties seeking compensation for personal injuries or property damage that allegedly occurred during the relevant policy period. The policyholders were covered even if the lawsuits or claims filed against them occurred many years after the alleged acts were committed and even if the injuries or damage weren't apparent during the coverage periods.
The companies seeking to intervene with Pennsylvania authorities say they had received "substantial numbers" of asbestos, environmental, toxic tort and other claims seeking financial recovery for "latent bodily injury and property damage that allegedly developed over the course of many years." The list of petitioners includes the Pennsylvania Manufacturers Association, ITT Corporation, Pentair Ltd. of Mansfield, Invensys of Foxboro, Belden Inc. and The William Powell Company.
Robert Rio, Senior Vice President of Government Affairs at AIM, said the association cannot estimate the number of Massachusetts manufacturing companies with liability policies that could be affected by the OneBeacon acquisition. He noted, however, that Commercial Union was a large writer of property/casualty policies in Massachusetts for decades.
“The broad coverage provided by these legacy policies is both valuable and irreplaceable, as policies providing comparable protection are no longer available at any price in the current insurance markets,” Rio said.
The petition to intervene in the case also raises concerns about the fact that most of the exhibits submitted by Trebuchet - including financial statements, business plans for the acquired runoff entities, and reinsurance arrangements – are classified as “confidential,” “proprietary” and “trade secret.”
The companies maintain that the “pervasive non-disclosure of these materials appears designed to render the Proposed Transaction as opaque as possible, and to deprive policyholders whose rights may be impaired by the Proposed Transaction of any meaningful opportunity to assess its financial impact on the security of their policies.”
Massachusetts employers and residents who already pay some of the highest electricity bills in the nation face additional and potentially catastrophic rate increases to fund a hodgepodge of ill-conceived and conflicting programs created by the 2008 Green Communities Act.
Associated Industries of Massachusetts will today urge a legislative committee to look critically at the Green Communities Act and to modify elements that do not create benefit for ratepayers. The association believes that Green Communities, which was intended to provide stable electricity prices with the promise of renewable energy to moderate costs, has in many cases raised electricity bills that already run 86 percent above the national average.
The price increases caused by Green Communities are discouraging job creation, driving companies to other states and inhibiting the weak economic recovery in Massachusetts.
According to the Department of Energy Information Administration (EIA), the average electricity price in the U.S. for industrial customers in July 2011 was 7.39 cents per kilowatt hour (kWh). The average price in Massachusetts was 13.87 cents per kWh, the highest rate in the continental United States.
The difference for commercial customers is about 35 percent, with Massachusetts the third highest. By comparison, North Carolina is 6.62 cents per kWh for industrial customers.
Green Communities contains vivid examples of inefficient solutions in search of a problem - initiatives that spend significant money on “high hanging fruit” in hopes of improving the environment.
Equally problematic is the fact that the programs operate independently and without any review.
For example, the programs called net metering, smart grid, utility owned solar are all implemented on a per-utility level – each utility running its own program. These costs are not transparent on customer bills, but are buried in the distribution charge, making it impossible for consumers to understand. Some of these programs would benefit from being coordinated (if they are worthy of being kept at all).
Similarly, long term contracts for renewable power have been implemented in a way that not only defies logic but also impacts competition. NSTAR competitively solicited for renewable power under Section 83 and received multiple bids that ultimately resulted in costs close to parity with non-renewable power. National Grid, on the other hand, separately negotiated with Cape Wind for what is currently the highest price ever recorded in Massachusetts for power.
Green Communities programs are rationalized by the need to reduce greenhouse gases, even though Massachusetts is responsible for less than 1 percent of the carbon dioxide emissions from power plants in the United States. All of New England, in fact, contributes less than 1.8 percent of U.S. carbon emissions from power plants (sulfur dioxide and nitrogen dioxide are similar), meaning that Massachusetts has a negligible impact on the global emission profile. Reducing pollutants here will have a minuscule impact on worldwide levels.
“Businesses in Massachusetts are frustrated - frustrated because they feel they are being held responsible for reducing greenhouse gases far in excess of any other state and paying the brunt of the bill in a state that already is one of the top in the nation for clean air. This is combined with a perception that here in Massachusetts we will continually strive to outdo others no matter what the cost,” said Robert Rio, Senior Vice President at AIM.
Green Communities is also preventing patepayers from receiving the benefit of recent decreases in the price of natural gas. A three-year price decline that should have provided Massachusetts employers and residents with a 20 percent reduction in electricity costs has instead produced no reduction as ratepayers have been forced to fund Green Communities initiatives as part of the distribution and transmission portion of their bills.
And it gets worse - already on-the-books increases in transmission and distribution will add another 20- 30 percent to the price of electricity over the next one to two years.
AIM has suggested many changes to the Green Communities Act since it was passed. Our changes center around three major themes:
- First, any program must use ratepayer money efficiently.
- Second, all programs must have demonstrated benefits to the ratepayer and the cost must be transparent to the ratepayer.
- Third, programs must be consistent with and maintain a vibrant competitive market that has been the law of the land here in Massachusetts for over 13 years.
“Clearly, we are risking an unprecedented increase in embedded utility costs from programs that are in some cases conflicting, overlapping or simply not cost-effective,” Rio said.
“In the end, the fundamental question to be answered is “Are the electricity policy decisions we are making the right decision for Massachusetts?”
The Massachusetts Department of Environmental Protection (MassDEP) is asking employers for ideas to help the agency restructure in the face of budget reductions.
Newly appointed MassDEP Commissioner Kenneth Kimmel has initiated a broad review of environmental regulations and practices with an eye toward increasing the agency’s efficiency. MassDEP is exploring a number of alternatives, including stepped-up use of information technology, greater reliance on self-certification and audit programs, and shifting certain tasks to third parties, as the state has done with the successful Chapter 21E program.
“It will not be easy to identify quick-fix solutions to improving our operations. However, our current budget realities require us to think and act differently,” Kimmel said in a statement.
“The current staffing levels at the agency are inadequate to guarantee timely and predictable permitting outcomes in the event permit applications begin to increase as the economy recovers … In order to avoid potential permitting backlogs and reduced compliance moving forward, and to ensure that MassDEP is well positioned to continue serving as a national leader in setting and enforcing environmental standards, we need to look seriously at all options.”
Associated Industries of Massachusetts commends the reform initiative and will serve on an advisory committee formed by Commissioner Kimmel. The business community often finds itself at odds with MassDEP decisions, but nonetheless understands that predictable and timely regulatory decisions are essential to Massachusetts companies as they seek to grow, expand and create jobs.
MassDEP has struggled for the past decade to meet increased responsibilities from lawmakers as its budget and employee count have dropped. The agency’s budget has declined from $62 million in 2002 to $46 million today, while staff has gone from 1,200 full-time equivalent positions to 840 during the same period.
Kimmel says he will consider all of MassDEP’s programs as potential candidates for regulatory or permitting reforms. He will not consider changes that require increases in staff and will prioritize those that allow the agency to accomplish its environmental responsibilities with fewer people.
The commissioner is expected to begin reviewing recommendations for reform by the summer.
If you have suggestions, ideas or comments about potential changes to the environmental regulation system in Massachusetts, please contact me at email@example.com or 617.262.1180.
Associated Industries of Massachusetts (AIM) today commended Senator Scott Brown for supporting an amendment that would have left the development of national greenhouse gas regulations in the hands of Congress.
Senators defeated by a tie 50 to 50 vote a measure that would have prevented the U.S. Environmental Protection Agency from bypassing Congress and regulating greenhouse gases under the Clean Air Act.
Senate Republicans pushed the EPA regulatory prohibition after the failure of the last Congress to pass “cap and trade” raised fears that the Obama administration would pursue the same goal administratively, without Congress.
AIM supports a national approach to greenhouse gas regulation, but the association remains concerned about the aggressive encroachment of non-elected regulators upon policy issues that should be debated in Congress. Agencies such as the National Labor Relations Board and the United States Department of Labor, for example, have fundamentally restructured the regulatory playing field on rules governing union elections, independent contractors and other important issues.
“Massachusetts employers appreciate Senator Brown’s position that decisions on broad policy issues such as greenhouse gas regulation belong with elected representatives. Allowing regulatory agencies to make those decisions deprives voters of the ability to comment, participate and ultimately render judgment at election time,” said Robert Rio, Senior Vice President of Government Affairs at AIM.
National greenhouse gas regulations will have a limited effect on Massachusetts since the commonwealth already regulates emissions under the Global Warming Solutions Act of 2008. The law imposes onerous Massachusetts-only standards to reach the goal of reducing greenhouse gasses 20 percent by 2020 and 80 percent by 2050 over 1990 levels.
The House of Representatives passed a spending bill in February that would prohibit the EPA from regulating carbon dioxide emissions.
Associated Industries of Massachusetts (AIM) intervened in the review of National Grid’s proposed power purchase agreement with Cape Wind because the deal will substantially increase the monthly electric bills of struggling commercial, industrial and institutional ratepayers.
AIM supports renewable power to diversify generation and reduce pollution. But we support a competitive approach to buying that renewable power. Transparent competition results in the most cost-effective renewable generation - blind to any technology or location bias - and builds ratepayer confidence in the outcome.
AIM on Friday filed a Reply Brief with the Massachusetts Department of Public Utilities (DPU) that questions whether the proposed National Grid/Cape Wind agreement is cost effective; whether it complies with state law and Department of Public Utilities rules; whether it will be properly charged to customers; and whether it advances confidence in the renewable generation policy of the commonwealth.
We argue in our brief that National Grid continues to maintain its tortured theory trying to justify the Cape Wind contract. The company takes a unique view that the goals of the Massachusetts Green Communities Act should trump the specific language of the Act. The company also takes a unique approach to the manner in which the bidding requirement and the supply cap in the Green Communities Act should be read (or misread). The company’s argument is nothing more than an attempt to create a legally supportable path to approval. The theory does not hold water.
The company wants Massachusetts regulators to bless its non-competitively vetted judgment that Cape Wind and only Cape Wind is the right technology, at the right location, and is far enough along in development to get built (although not so far along that it does not need a long-term contract to support construction).
National Grid also wants regulators to bless its decision to recover costs in an “equivalent” fashion to what the Green Communities Act provides and to fold above-market costs into the basic service adjustment mechanism. This string of misinterpretations and leaps in reading statutes is improper and sets precedents that would haunt the DPU and ratepayers for decades.
In the final analysis, the National Grid wants regulators to misread two laws and various DPU rules so the company can get away with collecting substantial annual commissions - “remuneration” - from ratepayers for the cost of Cape Wind while taking no risks.
For example, the company wants the DPU to sweep aside a provision in the Green Communities Act that limits to 3 percent the share of a utility’s total power load that may come from a single project. The Cape Wind deal would represent 3.5 percent of National Grid’s annual load. The company maintains that the plain limit of 3 percent is nothing more than a “floor” and that any amount of renewable supply may be proposed and justified to the regulators under the Green Communities Act.
Plainly, this is wrong. Everything the company is suggesting to advance the project requires the DPU to interpret laws, provisions of laws and even DPU rulings for the company’s benefit and not for the benefit of ratepayers.
The National Grid/Cape Wind contract is the result of a sole-source negotiation, lacks consideration of out-of-state renewable generation, exceeds the 3 percent cap, and distributes the costs of the contract improperly by misinterpreting the Green Communities Act’s strict terms for recovery and misapplying the basic service adjustment mechanism.
AIM urges the Department of Public Utilities to reject the application of National Grid to enter into a power purchase contract with Cape Wind, and to bar National Grid from charging rates to support such a contract.
The Regional Greenhouse Gas Initiative (RGGI), which sparked debate among the candidates for governor this week, is a classic example of good intentions framed by questionable policy.
The objective of the 10-state RGGI is laudable - to reduce emissions of greenhouse gasses that contribute to climate change. But RGGI falls short because it attempts to solve a global problem on a regional basis. Capping and reducing emissions in a small group of states that together account for approximately 0.6 percent of worldwide greenhouse gas production necessarily limits any dent the RGGI states might make on the broader climate-change issue.
The regional approach to climate change, moreover, exacts a heavy toll on the already struggling economies of the New England and Mid-Atlantic states. As the RGGI states dived into the water in 2007 while the Midwest and other areas of the country waited on shore, Massachusetts employers saw their competitive disadvantage widen with regions that continued to use high-carbon fuels without consequence and enjoy low electric rates as a result.
It’s as if government decided to solve a flooding problem by building levees on only one side of a river.
AIM supports a national policy on greenhouse gas emissions. We are part of a coalition that met with members of Senator Scott Brown’s office recently to explore national approaches to climate change that would create a level economic playing field.
Any national policy must:
- measurably reduce greenhouse gas emissions;
- be implemented in a fair way, with no exemptions for industries that exist only in certain states;
- return money generated to ratepayers in the form of energy efficiency or similar rebates;
- eliminate regional programs like RGGI and prohibit states or regions from setting limitations that are more stringent than national standards.
The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory, market-based effort in the United States to reduce greenhouse gas emissions. Ten Northeastern and Mid-Atlantic states have capped and will reduce carbon dioxide emissions from the power sector by 10 percent by 2018. States sell nearly all emission allowances through auctions.
Returning to ratepayers the $50-$60 million per year generated in Massachusetts through the auction of carbon allowances was one issue upon which employers, legislators, the Patrick administration and environmentalists agreed when RGGI funds became available. Other RGGI states have used the money from carbon allowances to fund state operations, a practice AIM would not want to see adopted nationally.
AIM looks forward to working with Senator Brown and others to develop a national greenhouse gas marketplace that makes RGGI and other ad-hoc regional approaches a thing of the past. New England employers don’t mind being the first ones in the water. We just don’t relish the thought of being the only ones.
Associated Industries of Massachusetts (AIM) and the Massachusetts employer community expressed deep disappointment today that the Attorney General has elected to reach a settlement with Cape Wind and National Grid that will leave consumers paying more than twice the current market rate for electricity.
The settlement short-circuits what should have been a full review by the Department of Public Utilities (DPU) of price and other issues surrounding the largest electricity rate case in recent memory. We had hoped that the Attorney General would be a stronger advocate for the interests of financially struggling employers and citizens of the commonwealth.
Meanwhile, AIM today filed testimony with the DPU contending that the proposed Cape Wind/ National Grid agreement violates the Massachusetts Green Communities Act by forcing customers who will never use power from the offshore wind farm to pay 50 percent of the excess cost of that power.
The settlement with the attorney general requires National Grid to buy power from the offshore Cape Wind project for 18.7 cents per kilowatt hour, down from an original starting price of 20.7 cents per kilowatt hour. The price escalates by 3.5 percent annually over the 15 years life of the contract. The 18.7 cent price for 2013 is still twice the current market price and well above the price of renewable power from other sources.
The bottom line: a bad deal for ratepayers negotiated behind closed doors and without public input. It is a process unfortunately consistent with the Cape Wind/National Grid agreement itself, which was concluded without competitive bidding and without regard to the objective of acquiring the largest possible amount of renewable power at the best available price.
Employers favor “smart” renewable development that is more competitive, cheaper, and less impactful on the business climate than the proposed Cape Wind/National Grid agreement. AIM remains committed to a full and fair examination of the agreement and its potential effects on the Massachusetts economy.
In its testimony submitted to the DPU, AIM urges regulators to disallow National Grid’s proposed plan to pass along the cost differential between Cape Wind and other, more cost-effective renewable power.
National Grid proposes to use Cape Wind power to satisfy “basic service customers” - small companies and residents who do not buy power from independent energy suppliers – but charge half of the excess costs of the project to “non-basic service customers” who use National Grid as their distribution company but buy power elsewhere. The non-basic service customers, most of them commercial and industrial enterprises, would end up footing the bill for Cape Wind even though they use none of the power from the project.
AIM maintains that the Green Communities Act does not allow utilities to use the power for their own customers and spread the excess cost of a long-term power contract among all ratepayers. The Act instead requires National Grid either to charge the full cost of the power to those who receive the power or to sell the power into a competitive wholesale market and only charge ratepayers the difference between what National Grid gets for the power and the contract price. AIM believes the benefits of selling the power into the market will reduce the ultimate costs to consumers.
The Green Communities Act, passed in 2008, allows distribution companies to enter into cost-effective, long- term contracts for renewable energy sources such as wind and solar, in order to meet the Commonwealths goal of having 20 percent of the electricity used in Massachusetts come from renewable sources by the year 2020.
WBZ television in Boston aired an interesting news report yesterday on the cost implications of the proposed power sales agreement between Cape Wind and National Grid. The piece, reported by meteorologist Joe Joyce, features comments by AIM Senior Vice President Robert Rio.
"The rate payers are being told to open their wallets, and pay the high cost of Cape Wind with absolutely no say in the matter. It all gets passed down to the consumer. Hospitals will pay more for electricity, healthcare cost goes up, universities will have to pay more for their electricity, tuitions go up," Rio says in the report.
Watch the Report
Boston newspapers report today that Massachusetts Attorney General Martha Coakley is demanding that the developers of Cape Wind disclose cost and profit estimates so the public may determine whether the offshore energy project is cost-effective.
The reports indicate that Cape Wind is fighting Ms. Coakley's demand, saying they believe their cost estimates are proprietary and should be kept confidential.
AIM applauds the attorney general for ensuring that ratepayers get the full story behind the proposed power-sales agreement between Cape Wind and the utility National Grid. The action comes as Cape Wind, National Grid and the Patrick administration have all opposed the request of AIM to represent Massachusetts employers as a full intervener in the largest rate case in recent state history.
Learn More | The Boston Herald
Learn More | The Boston Globe
Read AIM Articles on Cape Wind
The Patrick Administration is joining with the developers of Cape Wind in an attempt to silence the business community and general public on what could be the most significant electric rate case in Massachusetts history.
The Massachusetts Department of Energy Resources (DOER) this week filed a motion opposing the request of AIM to represent Massachusetts employers as a full intervener in the commonwealth's review of a controversial power sales agreement between Cape Wind and the utility National Grid. Cape Wind and National Grid have also opposed AIM's effort to gain a full accounting of the proposed contract and whether cheaper alternatives exist.
AIM and employers such as Wal-Mart Stores have expressed concern that the agreement to buy power at an average price of 28.9 cents per kilowatt/hour over the life of the contract will add thousands of dollars per year to the electric bills of employers who already pay among the highest electric rates in the country. Cape Wind electricity under the contract will cost Massachusetts ratepayers some $3 billion more than the current market price of approximately 9 cents per kilowatt/hour.
The total ratepayer commitment to Cape Wind will be $7 billion.
It is extraordinarily rare for an administration to oppose the request of consumer representatives such as AIM to participate in a case before the Department of Public Utilities. AIM participates frequently as a full intervener in rate cases affecting commercial and industrial customers.
The objections raise the question: Why are the administration, Cape Wind and National Grid afraid of AIM? If the proposed offshore wind development provides all the economic, energy and environmental benefits proponents have outlined, why would those proponents object to a full review of the project by an organization that has participated in many such reviews in the past?
It is particularly ironic that the ratepayer-funded Department of Energy Resources seeks to exclude from the Cape Wind debate the employers and homeowners who may end up footing billions of dollars worth of incremental costs for the project.
AIM requires full intervener status on all issues in the power agreement in order to cross-examine witnesses and responsibly represent the interests of struggling employers. Efforts to give employers limited intervener status or to restrict full intervener status to rate design amount to an abdication of state government's responsibility to provide an open and transparent review of a matter that holds significant economic consequences.
AIM wants to make clear that Massachusetts employers support a diversified energy portfolio that includes cost-effective renewable energy initiatives. The key word here is "cost-effective." Massachusetts electric and natural gas ratepayers face increases of $6-$8 billion in their energy bills during the next 15 years, due in large measure to government subsidies to non-competitive projects such as Cape Wind. AIM remains concerned that the administration's rush to embrace Cape Wind has caused it to miss opportunities to buy renewable energy from land-based wind and other sources at far more reasonable prices.
Let's work together to develop renewable energy that supports economic growth instead of burdening employers in an economy still struggling with 9 percent unemployment.