Hearing Examiner Ronald Belfon at Tuesday’s PSC meeting to discuss transfer of control of Vitelco and the Innovative cable television companiesThe V.I. Public Services Commission should let National Rural Utilities Cooperative Finance Corporation (CFC) take ownership of Vitelco telephone and Innovative Cable TV companies because it will bring in capital to modernize the territory’s telecommunications and benefit ratepayers, PSC Hearing Examiner Ronald Belfon said Tuesday.
The PSC has regulatory power over utilities and must give approval before any utility can transfer ownership or control. The phone and cable companies, which are regulated by the PSC, are solvent. But their parent companies, which can be collectively called ICC, have been in bankruptcy since July 2006. ICC owes more than $500 million to CFC’s parent company, the National Rural Telephone Finance Corporation, and CFC is offering a credit bid of $250 million. The PSC selected Belfon last fall to gather data and testimony on whether or not to allow the transfer and what conditions there should be.
Tuesday afternoon, Belfon summarized his findings for the PSC, coming down firmly in support of CFC’s negotiated offer and approving the transfer of control.
Letting CFC take over helps the utilities in several major ways, he said. First, he said CFC has access to billions in capital, has a financial incentive to invest in modernizing the phone and cable networks and has committed to investing an average of $15 million on upgrades each of the next four years. Of that, $12 million a year for four years would go to modernize the telephone network.
In contrast, if CFC does not take over, "in the present state of affairs, there was concern the entities would be unable to access capital markets," Belfon said.
Transferring control to CFC will resolve serious problems with the companies’ pension plans too, he said. Right now, phone and cable company pensions are underfunded to the tune of roughly $16 million. The Pension Benefit Guarantee Corporation, which insures pension plans, has placed liens but will release them and stop fining the company if the pensions are "adequately funded," with roughly $8 million in cash. CFC is offering to pony up that "adequate funding," if it is put on the books as a loan the cable and phone companies pay back over time. So allowing transfer will resolve the pension crisis, while disallowing it will leave the companies subject to more fines and liens.
However, CFC’s negotiated offer does leave Vitelco owing CFC $113 million. Of that, $50 million replaces existing Vitelco debts to the Rural Utilities Service and the Federal Financing Bank. And $30 million replaces a preferred stock obligation of $85 million. (In 2004, former ICC owner Jeffrey Prosser sold $85 million in high-yielding preferred Vitelco stock without prior regulatory approval. RTFC and CFC bought up all the outstanding shares for $30 million and want to put that smaller sum onto Vitelco’s books.) Another $20 million of debt would pay for future capital improvements; $8 million goes to pay off the pension funds, and $5 million replaces other existing debt.
CFC Vice President Stephen Lilly told the PSC his company would provide the financing at the same rate it offers to its members. For the first four years, CFC will offer interest-only financing of the preferred stock and pension fund debts. Phone and cable rates would be frozen at current levels for several years, and nothing will change in union contracts, Lilly said.
The PSC commissioners repeatedly asked Belfon if there was enough notice of his hearings, opportunity for the public to weigh in, and whether anyone was excluded. Belfon detailed weeks of announcements in three of the territory’s daily news publications and said very few came out to testify during several days of hearings last November.
As to whether anyone tried to give input and was rebuffed, Belfon said two statements were submitted, one by former Innovative owner Jeffrey Prosser and one apparently by one of Prosser’s attorneys, but they were both submitted long after the published deadline for comment and so were not included in the record.
Commissioner M. Thomas Jackson and Elsie Thomas-Trotman both said they were concerned about Vitelco and the cable companies hiring and promoting from outside the territory. Vitelco President E. Clarke Garnett said the company tries to hire locally as much as possible, but does hire contractors from outside the territory when in-house staff are stretched too thin and when hard to find specialized technical expertise is needed.
Testimony continues Wednesday, and the PSC may make a final decision as early as that afternoon, PSC Chairman Joseph Boschulte said Tuesday. The hearing, which is open to the public, begins at noon in the PSC offices in Barbel Plaza.
