New legal issue impacts BIPCo transaction
There are two options available that pave the way for the Block Island Power Company to become a non-profit public utility: BIPCo shares can be purchased from the two shareholders — the town of New Shoreham and Sara McGinnes — or BIPCo can go forward with a sale of its assets to the new Block Island Utility District.
Both options are being currently explored, but their forward momentum has stalled, according to BIPCo President Jeffery Wright.
Wright said last week that the utility district would prefer to buy the stocks from McGinnes and the town, but he said that talks with McGinnes have gone quiet.
Sara McGinnes, in the meantime, has filed a petition to the Division of Public Utilities and Carriers that contains a list of grievances against BIPCo and the Utility District, which also seeks to put off any asset sale until McGinnes is given the right to vote on the proposed asset sale, and until the state Superior Court makes a ruling on the fair value of McGinnes’s shares.
According, said Wright, “We’re not in any talks right now.” He said previous talks included original BIPCo Board member Norris Pike, as well as current Chair of the BIPCo Board Nancy Dodge, that did not end in a deal Wright said he also has tried to work out a deal.
“I tried to negotiate with Cliff (McGinnes) and Sara,” said Wright. He said he has received no counter offers from McGinnes. “They have forced us into this asset sale. We don’t want to, but we will if we have to.”
The asset sale would be between BIPCo and the utility district — assets transferred from the former to the latter — and the stock sale would be between BIPCo (or the utility district) and the two shareholders, the town and McGinnes.
McGinnes filed the Petition for Declaratory Relief and an Investigation of Proposed Utility Asset Sale with the Division of Public Utilities and Carriers on Aug. 31, 2018, a move that Wright said could postpone the asset sale for an unknown period of time. There is also an expected rate case in front of the Public Utilities Commission scheduled for the fall, but Wright said these issues make it difficult for BIPCo to present hard and fast numbers to the PUC.
A valuation of BIPCo on behalf of BIPCo was completed in July put a value of the company.
Based on that valuation, BIPCo Board of Directors and the Utility District agreed on a purchase price of $5.8 million.
If the asset sale were to go through, with the $5.8 million borrowed by the utility district to purchase those assets, BIPCo will use the funds toward paying off roughly $3 million in debt, and income taxes, with the remaining funds going to purchase the shares owned by the town and McGinnes. If that would occur, the assets would be wholly owned by the new Utility District.
“The day we got our appraisal we showed it to Cliff and Sara,” said Wright, but he said the results of an appraisal done for the McGinnes’s have not been shared with BIPCo.
McGinnes has a different view. Among the complaints in the petition filed before the Division of Public Utilities and Carriers, is one accusing BIPCo of “springing the Sancoucy appraisal report on McGinnes.”
The petition states that BIPCo is worth far more than the amount appraised by Sancoucy.
Stating that “The Town’s Plan has been manifested in various overt, unjust and unreasonable acts consisting… of the following: agreeing with BIUD to sell all of BIPCo’s assets for the sum of $5.8 million, inclusive of debt... a price that is $2.9 million less than the true fair value of the company, exclusive of debt, or $8.7 million.”
McGinnes’s petition protests the procedures and policies involved in the creation of the Block Island Utility District and states that “Sara McGinnes has the right to dissent from the proposed sale of BIPCo’s assets to BIUD, pursuant to R.I. Gen. Laws…”
The petition also claims that the enabling legislation that was passed in the state General Assembly “appears to have been designed and drafted in such a way as to give the District the putative power to accomplish the town’s plan to ‘retire’ McGinnes’ shareholder interest in BIPCo without paying her fair value.”
Accordingly, the petition states that “McGinnes has repeatedly advised the town, as BIPCo’s majority shareholder, and BIUD’s Board, that according to an independent appraisal, the fair value of BIPCo’s stock and assets is millions of dollars more than the purchase price BIPCo offered and BIUD ultimately accepted for the sale of BIPCo’s assets... The town willfully ignored and refused McGinnes’ repeated offers to share her appraisal with them until after its final offer to BIUD of $5.8 million was approved by the BIPCo Board, making the issue moot, since BIUD accepted that offer just days later.”
The petition also states that the town has engaged “in a pattern of oppressive conduct…for the purpose of depriving her the fair value of her stock…” that the town engaged in a “public disinformation campaign aimed at convincing the town’s voters to approve the purchase [of two-thirds of] BIPCo stock for $1.8 million…” and other grievances.
Wright said all this legal wrangling is having its impact.
Because the Block Island Power Co. remains a for-profit entity — two-thirds of which is owned by the town — it is not eligible for Federal Emergency Management Agency relief funds if the plant was damaged or destroyed in a natural disaster. This puts the company in the position, if it had to pay for damages, to either go to the Public Utilities Commission and ask for emergency financing through a rate case filing, or to go to the shareholders and “ask for a cash influx,” said Wright.
Wright also said that BIPCo has spent about $150,000 on related legal fees since the lawsuits began. There are currently six separate legal actions in court or before the PUC.
On the emotional side, Wright said “I feel like I’m a pep rally cheerleader, because people are worn down by this.”
But he added, “In the meantime, we’re trying to make as many improvements around here as we can.”