As regulators decide 2018 electric rates for Green Mountain Power customers, a disagreement between the state and GMP raises a $73 million question about regulation of Vermont's largest electric utility.
Green Mountain Power asked regulators earlier this year for a 5 percent increase in the company's 2018 customer electric rates, but the state’s Department of Public Service responded to say that the increase should be much lower.
The way electricity prices are regulated in Vermont, companies use the money they collect from customers to invest in their operations. If those investments improve the safety, reliability or service area of the company’s operation, then regulators allow the company to charge customers a “rate of return” on that spending. That "rate of return" is part of the rates that customers pay in their monthly bills.
In essence, when utilities pay for something that helps customers, regulators allow the utility to make its customers pay it back for that investment over time.
In order for that system to work, however, regulators need to have a clear understanding of the investments that the company makes. If regulators don’t fully understand how much the company paid and what costs and benefits come from the investment, then regulators can’t determine whether it’s appropriate to make a utility’s customers pay for that investment.
In 2018, Green Mountain Power asked regulators to approve 234 spending projects. If the company had its way, that would mean GMP customers would start repaying the company for 234 new projects. Before regulators can approve those projects, however, they need to be satisfied that the company’s decision to spend the money was smart and well-documented.
According to an analyst hired by the state, GMP’s spending was far from well-documented.
“The Company has not properly prepared a financial analysis for a majority of the requested projects that require such an analysis,” wrote Bill Schultz, an analyst hired by the state to review GMP’s rate proposal.
Schultz’s report included a list of $73,604,366 worth of projects that were not properly documented according to the state’s standards.
“In our review of the 234 listed projects … we found that approximately 69.7% (163) of the project files, in my opinion, did not provide a proper financial analysis,” Schultz wrote.
Kristin Carlson, a spokeswoman for Green Mountain Power, says the company disagrees with that assessment. She says the company is doing the work it needs to — regulators are simply unsatisfied with how the information is presented.
“We do have a disagreement in terms of that form over substance – and our team does do a lot of work around financial analysis, cost-benefit analysis,” she said. “At the end of the day, we’re hearing that the department [of Public Service] still has disagreement around that, and so we were given instructions on ways the department wanted that information to look and we did that. Now, it looks like there’s some … more work that they want to do.”
The disagreement over how spending should be documented dates back years. In 2014, the Department of Public Service and Green Mountain Power signed an agreement, known as “Attachment 7,” that was designed specifically to end the disagreement about how GMP should document its costs. Still, three years later, the two sides are at odds.
Brian Winn, the director of finance and economics for the Department of Public Service, said in a filing to regulators that documentation is central to sound regulation.
“Good documentation and least-cost analyses are the bounds and guard rails that protect both customers and the company as it pursues energy transformation that we need,” Winn wrote.
Winn said GMP is making that process harder.
“In my opinion, the summary information GMP provided is not adequate for regulators to draw an informed conclusion as to whether capital projects are adequately planned for, capital projects are executed efficiently, and stated benefits are realized,” Winn said in the filing.
In short, without good documentation, the regulators can’t do their jobs.
Carlson said this year’s rate-setting process — the first “traditional” rate case for GMP after a decade of “alternative regulation” — will provide an opportunity for regulators at the Public Utility Commission (formerly known as the Public Service Board) to settle the issue once and for all with a binding, precedent-setting board order.
“This will be aired, and I think we’re going to get some conclusions around this,” Carlson said. “And moving forward, customers should realize that the outcomes have been really strong and there is agreement on all sides on that.”
The Department of Public Service’s stance is that GMP customers should pay a 1.68 percent rate increase instead of the company’s proposed 5 percent increase. The Public Utility Commission is expected to decide by the end of 2017 how much GMP customers will pay for power next year.