GMP seeks use of compressed process for after-merger rate-setting
by Alan Panebaker vtdigger.org Vermontâ s two largest utilities plan to use a streamlined rate-setting procedure to â blend’their electricity rates.Gaz Metro is in the process of obtaining state approval for the purchase of Central Vermont Public Service. The Montreal-based company plans to merge its Vermont subsidiary, Green Mountain Power, with CVPS. If the deal goes through as expected, 80 percent of Vermonters will receive electricity from the new company.Once the utilities have merged, Gaz Metro will use a process called â Alternative Regulation’to request approval of its new blended rate for the combined utilities. This protocol limits public involvement but saves money by sidestepping a lengthy process with the Public Service Board.AARP-Vermont is worried that the alternative rate-setting process will limit public scrutiny of Gaz Metroâ s plan to recoup $21 million through higher rates.In 2001 the board allowed Green Mountain Power and CVPS to increase rates to cover losses associated with a power purchasing deal with Hydro-Quebec. In exchange, the board required the utilities to agree to a â windfall’sharing mechanism should either be sold. In a 2012 memorandum of understanding with the Vermont Department of Public Service, Gaz Metro agreed to return $21 million owed to CVPS ratepayers through investments in weatherization and efficiencies; it plans to recoup the money, plus 7 percent interest, through rate increases.According to one Public Service Board decision, the contract with Hydro-Quebec could have cost somewhere around $130 million in extra costs between 1999 and 2016.AARP challenged the original agreement between state regulators and the utilities. The advocacy group for seniors wanted that money to go to customers in the form of a refund or check.â If the MOU is approved, there will be no opportunity later in a rate proceeding for AARP or ratepayers to object, to submit testimony, to submit argument, or to request an investigation as to whether the $20.9 million spent on weatherization, efficiency, economic development, etc., should be in the rate base,’AARPâ s filing states.The two utilities have used the Alternative Regulation process for years. Green Mountain Power started in 2006 and CVPS in 2008. Unlike traditional â cost-of-service regulation’rate setting, which can take a number of months, the alternative process requires filings every three months. Increases or decreases in electricity costs pass through to ratepayers. Under some forms of alternative regulation, utilities can earn a larger profit if they meet performance or efficiency goals.Only CVPS, Green Mountain Power and Vermont Gas Systems, also a Gaz Metro subsidiary, use the process. They are all investor-owned rather than publicly owned. They also periodically use a full cost-of-service rate review process that allows more public input.For example, the Vermont Public Service Board approved a 7.46 percent rate increase for CVPS in early 2011, and another 4.8 percent rate increase in late 2011. On Tuesday, CVPS announced it was asking for a 2.2 percent surcharge that would go into effect in July that would cover expenses from Tropical Storm Irene.In 2011, Green Mountain Power asked for a 3.2 percent rate increase.With the more streamlined process, there is generally not a public hearing. The Department of Public Service and board decide whether to approve the new rates.Washington County Electric Co-op General Manager Avram Patt. VTD Photo/Josh LarkinThe alternative rate-setting structure is typical not controversial.Smaller, municipal or cooperative utilities generally do not use it because they have not found a way to make it work with their nonprofit structure.Avram Patt, general manager of Washington Electric Cooperative, said two years ago the community-owned electric company raised rates for the first time in 11 years, so there has not been a need for such frequent updating.Rate-setting in the context of the merger controversyDuring the last legislative session, lawmakers floated proposals to prohibit utilities from recovering money in rates for investments that do not benefit the electric system as a whole. This would include investments in thermal efficiency where a homeowner heats with fuel oil or some other non-electric source. The proposed provisions never became law.In the 2001 â bailout’agreement, the board limited the amount of money Green Mountain Power would have to share as a result of a profitable merger at $8 million and $16 million for CVPS. In 2007, when Green Mountain Power was sold to Gaz Metro, the board approved an efficiency program where the utilities would invest that money and ratepayers would benefit.Now the Department of Public Service and the utilities propose doing something similar, where the utilities will invest ratepayer money in a fund that will go toward weatherization and efficiency. That money will have to yield $25 million in energy savings for customers. Shareholders will get that $21 million investment back in rates, with 7 percent interest.That windfall requirement, which made headlines during the Legislature this session, could be approved as part of the overall docket rather than go through the more strenuous rate setting process that it would otherwise require, according to a final reply brief filed by AARP earlier this month.The utilities and the Department of Public Service agreed that investing the money in efficiency would yield more benefits than refund checks, but AARP says even if that is the case, there should be a more transparent process demonstrating how the investment benefits ratepayers.In a filing with the Public Service Board, AARP attorneys said they were worried that without the public process of traditional ratemaking, that money could be improperly spent without any recourse.â All or parts of the $20.9 million may turn out to have been imprudently spent, or may turn out to be not used and useful, and therefore not just and reasonable to recover in rates, but ratepayers will be forced to shoulder this load regardless,’the groupâ s most recent filing states.Jim Dumont, an attorney representing AARP in the docket, said it would be premature for the board to approve the expenditures before they occur.He is also concerned the process will go forward without enough substantive input from the public.â All of this elephant will pass through snake and come out the other end just the way they want it,’Dumont said.Sarah Hofmann, deputy commissioner of the Department of Public Service, said interested parties can ask for an investigation into the rationale for rate increases approved under alternative regulations.In that situation, the board would open a new case, which could take up to seven months.The advantage of the faster alternative regulation plan process as opposed to traditional rate cases, Hofmann said, is â itâ s done in real time rather than case time’and rates reflect more accurately the true price of electricity. It also saves litigation costs and allows utilities more access to credit also.Hofmann said the memorandum of understanding the department signed with the utilities offers additional safeguards for intervenors and the public.Under that MOU, the utilities must submit a report by July 1 that outlines how they will verify savings that result from the merger. Parties in the docket will be able to comment on the rate adjustments. Green Mountain Power will have to file a report each year for the next 10 years.Dorothy Schnure, a spokeswoman for Green Mountain Power, said customers will see either a rate decrease or less of an increase starting in October 2012.If the board accepts the MOU, the utilities will have to produce $2.5 million in savings for their customers in that first year. The next year it is $5 million. The utilities are required to verify $144 million in savings to customers. The $21 million in investments in efficiency, about $12 million of which will go to weatherization programs, is supposed to yield $25 million in benefits to customers through reduced electricity use.Schnure said the company is analyzing what their rate request would be this fall if nothing changed.â It will be $2.5 million less than it would be without the merger, should the merger be approved,’Schnure said. â In addition, weâ re looking for other savings to pass through to customers.âSchnure said the AARPâ s allegation that the board will not analyze the investment in the efficiency fund is incorrect. She said the board and the Department of Public Service will review how the money is spent to make sure the utilities act prudently.The utilities are asking for the alternative rate setting plan to carry through 2014, when there will be a full cost-of-service review of rates. Commercial and industrial rates will not be affected until then.Starting this summer, CVPS residential customers will pay about $87.43 on average each month. Recent rates published on the Green Mountain Power website show their residential customers purchasing a similar amount of power would pay around $84.89.Residential customers for both companies will pay the same rate starting Oct. 1, 2013, if the merger goes through. Schnure said she could not estimate what exactly the new blended rate will be. May 16, 2012 vtdigger.org