McGinnes doubles her money

On valuation of BIPCo stock
Thu, 06/10/2021 - 6:45pm

Now that the Block Island Power Company is humming along under the direction of the Block Island Utility District, it easy to forget what a complicated, sometimes contentious, and, at the time, expensive deal it was that took the utility from a privately owned, for-profit company, to where it is today.

It’s also easy to forget there were lawsuits involved. Now one of those lawsuits is over. On Thursday, June 3, R.I. Superior Court Judge Richard Licht issued a decision in the case of Island Light and Power Company versus Sara Golvinveaux McGinnes 2011Trust.
When the Block Island Utility District purchased BIPCo in March of 2019, it did not buy the stock of the existing company. Instead it bought the assets (land, buildings, equipment) and assumed some of the liabilities. The original company still remains, but its name has been changed to Island Light and Power. The town had purchased two-thirds of the stock from Al Casazza and John Pezzimenti for $1,800,000 in Nov. 2016, but the third shareholder, Sara Golvinveaux McGinnes 2011 Trust, did not want to sell her shares for $900,000. She felt they were worth more money.
It turns out that Judge Licht agreed. The Superior Court case revolved around McGinnes’s petition for a determination of the stock’s fair value.

Both of the parties had an appraiser – Island Light and Power engaged Glenn Walker of George E. Sansoucy, P.E., LLC to value BIPCo, and McGinnes engaged Dylan D’Ascendis of ScottMadden, Inc.

Each used three methods to arrive at the value of the power company, in keeping with industry standards: cost, market or sales comparison, and income capitalization. But each used different assumptions – should the value of a building be shown at cost less 55 percent depreciation, or less 60 percent depreciation?

Comparable sales data is notoriously hard to get for unusual circumstances, such as the sale of a small electric company on an island. Walker included the sale of the stock to the town as a comparable sale, leading the judge to write: “The Court finds that the 2019 sale of assets to BIUD is not an arm’s length sale.”
After explaining how the town had formed the Electric Utility Task Group, members of which became the Board of Directors of BIPCo after the town’s stock acquisition, and then resigned to become members of the BIUD, he wrote: “In what arm’s length transaction does a seller, while negotiating a purchase price, provide the buyer with its expert’s opinion of value? Surrogates for the Town were on both sides of this transaction.”
After several adjustments to each of the three estimates from each appraiser, and weighting each one, Licht came up with a “going concern value” of $6,910,000 from which he subtracted the outstanding loan the company had with the U.S. Department of Agriculture’s Rural Utility Service to come up with a valuation of $5,145,000, with the Trust’s one-third share being $1,715,000.
Since McGinnes has already received $900,000 she will get another $815,000 plus interest going back to December, 2018, and “expenses of this proceeding.”
The balance of funds owed McGinness will come from more than one source. When the BIUD purchased the assets of BIPCo, it also set aside $300,000 as a “contingent liability.” So that will be handed over and there will be no more money from BIPCo.

Presumably, Island Light and Power, after receiving $5.8 million has enough cash to pay the balance. But the company would have had to pay income tax on the gains made on the sale, especially on the increased value of land it has owned since 1925. Whether it’s enough will depend on how much is owed. At ten percent for two-and- a-half years, it could be as high as $204,000 in interest alone. Nancy Dodge, president of Island Light and Power, did not respond to an inquiry from The Times.

The Times also reached out to Town Finance Director Amy Land about how much cash is available to pay off the McGinnes Trust, but she was not able to provide the information.

The matter is still a subject of closed-session meetings.