Board Orders Review Of Utility Oversight, Including ‘Alternative Regulation’ System

Jun 26, 2017

The board responsible for regulating utility prices in Vermont is ordering a review of the state’s utility regulation system in Vermont, including the controversial regulatory model used by Green Mountain Power and Vermont Gas Systems for much of the past decade.

Both utilities have had agreements with the state to use an "alternative regulation" system to set their rates for most of the past decade. That system, created and approved by the Legislature, is designed to allow utilities to negotiate rates in a manner more similar to an out-of-court settlement than traditional regulation, which is similar to a contested court case.

Alternative regulation allows utilities to negotiate a rate deal with the Department of Public Service, then that deal goes to the Public Service Board for approval. The Department of Public Service is the state agency responsible for representing Vermonters’ interests in utility matters.

Now the Public Service Board wants to investigate alternative regulation because it says regulators never reviewed how effective the system is at holding utilities accountable and ensuring utility services are delivered in a high-quality, cost-effective way.

Now the Public Service Board wants to investigate the regulatory system it is responsible for in an effort to make sure it is properly equipped to handle modern utilities. The board’s order opening the investigation cites new renewable energy requirements, technologies such as large-scale batteries and plug-in electric vehicles and improvements in grid management.

“In light of these changes, the Department [of Public Service] recommends that the Board reexamine the manner in which utilities are regulated in Vermont and schedule one or more workshops for this purpose,” the board’s order said, citing recommendations from the state department responsible for representing utility customers in regulatory cases.

The board’s review will also include alternative regulation.

"Over the past ten years, Vermont's utilities have generally operated under alternative regulation plans, but these plans have not been comprehensively evaluated for their effectiveness, especially in light of the changing utility landscape." - Vt. Public Service Board

“Over the past ten years, Vermont’s utilities have generally operated under alternative regulation plans,” the Public Service Board said in a release, “but these plans have not been comprehensively evaluated for their effectiveness, especially in light of the changing utility landscape.”

The only two companies to have ever taken advantage of the alternative regulation model for electricity and natural gas are Green Mountain Power and Vermont Gas Systems. (Central Vermont Public Service had its rates set through alternative regulation before merging with Green Mountain Power in a deal finalized in 2012.)

Both companies are in the process of having next year's rates set through traditional regulation.

Green Mountain Power voluntarily switched from alternative regulation to traditional regulation after a VPR investigation found that Green Mountain Power was using the system to make customers pay millions of dollars a year to reimburse the company for system improvements that weren't properly documented. A few weeks later, a report commissioned by the state found that alternative regulation does not serve customers well.

Vermont Gas had similar problems; last year, regulators had to relax customer protections because the company’s paperwork was so poor that strict enforcement of the rules would cause “significant financial hardship.”

Clarification June 27, 2017 at 9:57 a.m. This story has been updated to reflect that the Public Service Board is reviewing the entire regulatory system, not alternative regulation exclusively.