Who Benefits From The State's Private Negotiations With Utilities?

Apr 7, 2016

Officials at the Department of Public Service were considering a policy earlier this year that would make negotiations between the department and utilities more open. Critics have said for years that deals made in private negotiations between utilities and the department are more beneficial for the companies than for their customers. The department disagrees.

The policy the department considered is already in place in the state of Maine. Critics of Vermont’s system say the policy would help ensure that there aren’t “back-room deals” that they say favor utilities at the expense of their customers.

The Maine policy makes it mandatory that everyone with legal “party” status in a given utility case has the opportunity to participate in any settlement negotiations.

That's not how Department of Public Service Commissioner Chris Recchia sees it. He says these negotiated settlements make the regulatory system work more smoothly, and that his department is always negotiating for the best possible deals for Vermonters.

“It's kind of an efficient way to get through issues if they're not in contention or if they can be easily resolved, so there's an advantage to that tool,” Recchia said.

Recchia also says the deals make it possible for the department to get promises from utilities on issues that the state doesn’t generally have the power to regulate.

“So we can often get, in some of those settlements, increased commitment to broadband buildout, for example, that we would not be able to get if we litigated the case,” Recchia said.

Recchia said a recent settlement agreement with FairPoint Communications, for example, secured a promise by the company to seek federal funding for broadband expansion.

“That would not have occurred but for a settlement,” Recchia said.

Critics say the settlements – sometimes called "Memoranda of Understanding," or MOUs – make it harder for Vermonters to see the information officials are using to make their decisions. As a result, they say, there aren't sufficient safeguards against the department signing deals that are stacked in favor of the utilities it’s supposed to regulate.

Greg Marchildon, the Vermont state director for AARP, is one such critic.

“We do think that the department’s role is to do the rigorous examination of all of the stuff that’s coming before them on behalf of ratepayers so that they can be the advocate that they need to be. Our view … is that they are not doing the work that needs to be done to make that right,” Marchildon said.

Marchildon says a policy like the one in Maine would prevent the Department of Public Service and utilities from sidelining other parties to a case. He says that’s what happened earlier this year during negotiations related to how rates would be set for Green Mountain Power.

"It's kind of an efficient way to get through issues if they're not in contention or if they can be easily resolved, so there's an advantage to that tool." - Chris Recchia, Commissioner of Public Service

  AARP was a party to the proceeding and even hired an expert to help analyze Green Mountain Power’s proposal.

“We were actively negotiating with the department and with GMP – this was going through a Friday, and then on Monday morning there was an MOU [Memorandum of Understanding] between the department and GMP,” he said.

Marchildon said the department asked AARP to join in the agreement after the fact.

“We, of course, did not agree because we weren’t going to agree to be a party to an MOU that had back-room discussions without our ability to provide our insight and our ideas,” he said. “So this is an example of the kind of thing that I think people are pretty frustrated about, particularly as it relates to how these MOUs get done, and that’s really how many of these cases are being decided right now.”

In October 2015, the Department of Public Service and Vermont Gas Systems signed a deal to limit the amount of money the company can ask to recover from ratepayers to fund its pipeline to Addison County.

The deal said that the company can try to get customers to pay up to $134 million of the pipeline’s $154 million price tag. Recchia said the deal added value for consumers by making sure they don’t have to pay for the entire project. Plus, he said, the department reserved its right to challenge the company’s cost recovery later, so the actual cost to customers could be even lower.

Opponents of the Vermont Gas pipeline say an October 2015 deal between Vermont Gas and the Department of Public Service was designed to subvert the regulatory process. The company and the department say the deal was good for customers.
Credit Taylor Dobbs / VPR File

Critics said $134 million was still too much for the company to get from customers, and accused Vermont Gas and the department of trying to use the deal to secure a favorable decision in the board’s long-running review of pipeline costs.

Marchildon said the agreement is further evidence that negotiations need to be more open, but Vermont Gas officials disagree.

In a recorded interview with the Department of Public Service, released to VPR after a records request, Vermont Gas Vice Presidents Eileen Simollardes and Ned Farquhar said the Maine policy could be counterproductive. Farquhar said the October 2015 deal wouldn’t have been possible if the negotiations were open to all of the parties to the case.

The following is an annotated excerpt of a recorded call between the Department of Public Service and Vermont Gas executives.

Vermont Gas declined a request for interviews with Farquhar or Simollardes. The company released this statement from Farquhar:

Vermont Gas and the Department of Public Service negotiated an agreement last October capping the cost of the Addison Natural Gas Project. The company is committed to working with the Department, communities, stakeholders and other parties and we respect the rights of other parties to do the same. 

Like other stakeholders, we provided comments regarding ratepayer advocacy structure, including answering questions about whether MOU negotiations should be open to all parties. Our action on the MOU served our customers’ interest in capping costs of the project.  It was subject to a thorough review by parties and the Public Service Board.  That kind of process deserves support.

Later in the Vermont Gas call with the Department of Public Service, the conversation returned to the Maine rule. Both Farquhar and Simollardes suggested the rule could make it possible for a single party to derail the negotiations.

Simollardes asked Jortner, who was senior counsel in the Office of the Public Advocate in the state of Maine until 2014, how the Maine rule affected that state’s regulatory system.

“It worked pretty well,” Jortner said. “I really don’t recall problems like the scenarios you’re describing occurring. It generally worked pretty well.”

Please be advised: The following excerpt gets wonky. The conversation highlights the tension between critics' stance that closed negotiations don't hold utilities accountable and the opposing view that open negotiations would bog down the regulatory process.

With or without the Maine rule, Recchia and his staff are trying to figure out how to make sure the regulatory system can run smoothly in a way that Vermonters trust.

The department staffer on the call with Vermont Gas, Wayne Jortner, is the one who brought up the Maine rule. Even if that isn't what Vermont ultimately uses, Jortner's goal was to make the system more open.

"If it's going to be an important means of resolving important cases," he said, "I'm trying to think of ways to make it more accessible and more transparent."

Use the player below to hear the entire recorded call between Wayne Jortner of the Department of Public Service and Vermont Gas executives Eileen Simollardes and Ned Farquhar.

Update April 8, 3:10 p.m. This story was updated to include Wayne Jortner's response to a question from Vermont Gas officials about how effective the Maine rule has been in that state.