State Challenges Vermont Gas On How Much Customers Should Pay For Pipeline

Aug 22, 2016

The Department of Public Service said in regulatory filings Monday that Vermont Gas isn’t likely to finish its Addison County pipeline this year, and proposed that the company be forced to cover $35.5 million of pipeline costs because of “imprudent” spending.

The result, if regulators were to approve the proposal, would be a 5.68 percent decrease in rates for Vermont Gas customers next year, and would make the pipeline significantly costlier to the shareholders of Gaz Metro, Vermont Gas’ parent company.

In a filing earlier this year, Vermont Gas submitted its own proposal for customer rates. The Vermont Gas plan would lead to a rate decrease of 2.43 percent. The company is also seeking as much money as it can to cover costs related to the Addison County pipeline.

“We believe that the cost that we've asked for in rates — which, as you know, is $134 million — are justified and accurate,” said Vermont Gas spokeswoman Beth Parent in an interview Monday about the department’s proposal.

The department's proposal conflicted with Vermont Gas' earlier filing in three important ways:

Imprudent spending

The pipeline’s estimated costs are now around $165 million, but an agreement between Vermont Gas and the Department of Public Service says the company can only ask to recover $134 million of those dollars from customers.

The department’s proposal puts the customer share of the pipeline lower still: $112 million. The $35.5 million reduction for imprudent spending, paired with the department’s claim that some of Vermont Gas’ project costs aren’t sufficiently documented, led to the lower proposal.

Pipeline completion date

The estimated completion date for the Vermont Gas pipeline to Addison County is another source of contention between Vermont Gas and the Department of Public Service. Vermont Gas’ proposal assumes the pipeline will be finished and in service by early November. That means customers would have to pay the cost of the pipeline for an entire year.

“What we anticipated is that this goes into service actually in May of 2017,” Chris Recchia, the commissioner of the Department of Public Service, told VPR Monday.

May is about half-way through the “rate year” – the year during which rates are in effect. That means that a half-year of pipeline-related rates would be spread across the entire year for customers, shrinking its rate impact further.

The pipeline's completion date remains uncertain. There is a high-profile eminent domain case pending, and the company can't legally finish the project before a ruling in that case.

Before factoring in withdrawals from a controversial savings account for the pipeline, Vermont Gas’ proposal would lead to a 10.1 percent rate increase. The Department of Public Service’s plan would lead to a 1 percent rate decrease.

Using savings to offset pipeline costs

The Vermont Gas savings account, known as the System Expansion and Reliability Fund (SERF), is made up of customer money. Instead of reducing rates for customers in 2011, Vermont Gas got regulatory approval to continue charging the same rates and set the excess money aside into the fund. By the end of this year, that fund is expected to hold an estimated $25 million.

Vermont Gas, in its proposal, asked for approval to use $13.9 million from the fund in order to turn what would otherwise be a 10 percent rate hike into a 2.43 percent overall decrease in rates.

The Department of Public Service proposed using $5 million of SERF money in the coming year, effectively offsetting the amount customers pay in annually. If approved, that plan would mean a 5.68 percent decrease.

Ultimately, regulators at the Public Service Board are responsible for deciding on a fair rate for the company to charge. Vermont Gas plans to file a response to the department’s plan with the board next month.