GMP Opts Out Of Controversial 'Alternative Regulation' System

Dec 12, 2016

Green Mountain Power, the state’s largest electric utility, is dropping the “alternative regulation” system it has used since 2007 in favor of traditional rate regulation.

The change means that instead of negotiating customer rates with the state’s Department of Public Service and then presenting those rates to regulators for review and approval, Green Mountain Power’s rates will be set through a court-style proceeding before the Public Service Board.

The Vermont chapter of the AARP has long been critical of the state’s alternative regulation system, used only by Vermont Gas Systems and Green Mountain Power.

In traditional regulation, customer rates are litigated. There is sworn testimony, cross examination of witnesses and documents that are made public through the discovery process, just like in a court case. Basically, utilities have to make an argument that the rates they’re hoping to charge are fair, and the Public Service Board either approves or rejects the company’s proposed rates.

Traditional regulation, just like court cases, can also end in privately negotiated settlements.

Negotiated settlements are the default process in alternative regulation, which led to AARP’s criticism.

In a news release announcing GMP’s decision to stop using alternative regulation, CEO Mary Powell implied that traditional regulation offers more transparency than alternative regulation.

“There is no better way to express our commitment to customers and transparency than to have a traditional rate case,” Powell said.

“What’s most important to us is that our customers have confidence in the process and believe their rates are fair and represent a good value for the service we provide,” Powell continued.

In an interview, Powell said the decision to pursue a traditional rate-setting case instead of continuing with alternative regulation is “absolutely not” an acknowledgment that the alternative system lacks transparency.

“We feel like it has produced really good results for customers,” Powell said.

"There is no better way to express our commitment to customers and transparency than to have a traditional rate case." - Mary Powell, Green Mountain Power CEO

Powell also pointed out that alternative regulation requires companies to have rates reviewed annually, while utilities under traditional regulation often go years without a regulatory review of their rates.

A VPR investigation published in October revealed that the company failed to follow the ratemaking rules set by the state, and state regulators allowed it. The result is GMP customers reimbursing the company for infrastructure spending that wasn’t fully documented in accordance with state regulations.

The question critics and advocates of alternative regulation disagree on is whether alternative regulation provides adequate oversight for utilities, and Sen. Tim Ashe says Green Mountain Power’s decision to pursue a traditional rate case will provide an important reference point in that debate.

Ashe is the incoming president pro tempore of the Senate, and is the chairman of the Senate Finance Committee, which provides oversight to the Department of Public Service.

“We can now do something more like an apples-to-apples comparison of what we get from the two different approaches to ratemaking,” Ashe said.

Ashe added that Vermonters might not think about utility rates as much as they think about taxes, even though he sees them as similar.

“Most Vermonters probably think of a dollar in taxes paid as more painful than a dollar in their bill to the utilities,” he said. “But any dollar of their electric bill payment that is in excess of what should be required is really no different than a tax. So that’s why it’s so critical that this process be allowed to occur, and I think that Mary Powell and her team at Green Mountain Power should be commended for volunteering to do it.”

Ashe said the move also reflected the idea that Vermonters don’t trust the alternative regulation system to keep utility rates fair.

“There are clearly some Vermonters who have come to be convinced that we’re not getting the best value for ratepayers through the alternative regulatory process,” he said. “So to me, I think that to rebuild that confidence and faith in our regulatory system, it really is important that Green Mountain Power has stepped up in this way.”

In an interview, Powell was noncommittal about how the company plans to deal with regulators in the future. After the traditional rate case the company announced Monday, which will take place in 2017, the company may have the option to return to alternative regulation.

Powell spoke about alternative regulation's benefits using the past tense.

"This rate model did what it was intended to do, which was stabilize costs for customers, it was about making sure that- you know, we were under this form of regulation, required to file every single year for a review, and we feel like it worked well for customers," she said. "But we also know that it has been around for 10 years and we're open to looking at it and looking at what the next form of regulation should be, and we obviously would also be prepared if need be to stay under traditional regulation."

Chris Recchia, the commissioner of the Department of Public Service, did not respond to interview requests Monday. The department is advocating for the suspension of Vermont Gas Systems' alternative regulation model until after the company's pipeline expansion to Addison County is reviewed for potential inclusion in rates.

If the department's plan prevails, Green Mountain Power and Vermont Gas - the only two non-telecom utilities in the state that use the alternative regulation system - will be using traditional regulation in 2017. Both utilities are owned by Gaz Metro, based in Montreal. The future of alternative regulation, created by the legislature and implemented by the Department of Public Service and the Public Service Board, is unclear.

Correction 9:23 a.m. Dec. 13, 2016 This story has been corrected to reflect that Vermont Gas and Green Mountain Power are the only two non-telecom utilities using alternative regulation. A form of alternative regulation is available to telecommunication companies under Vermont law.