Electric rates to rise by 5 percent
The approval ratified an agreement between Green Mountain Power and the Department of Public Service, the state agency that represents the public interest in utility rate cases.
GMP's largest single customer, Essex Junction-based GlobalFoundries, disputed the rate hike and tried to persuade the PUC to reject it, but the Department of Public Service and GMP convinced utility commissioners the rate increase was justified.
GMP initially filed for a 4.98 percent effective rate increase for 2018, and said the rate increase was needed to pay for increased transmission costs, for increases in electricity costs from the regional grid, and for increased costs associated with Vermonters' growing reliance on small renewable-energy generators.
Filings by GMP's corporate owners say the Vermont utility saw a $6.8 million drop in revenue compared to last year, and Valener — the public investment arm of GMP's parent company nergir, the largest natural-gas company in Quebec — also attributed GMP's revenue decrease to Vermonters' increased use of small renewable-energy generators.
Valener's annual filing attributed GMP's $6.8 million 2017 revenue decrease to the reduction in their customers' consumption of GMP's electricity, since those customers were making their own electricity, and not to the cost of the electricity those customers produce and sell portions of back to GMP.
The proposed rates were largely arrived at by offering GMP a 9.1 percent rate of return in 2018, and a 9.3 percent rate of return in 2019, to an average value of $1.433 billion in GMP's Vermont capital assets. As a regulated monopoly, GMP's earnings are set by the Vermont government at a certain percentage of the value of its capital assets.
The Department of Public Service initially sought a much lower rate increase of only 1.68 percent.
As part of the agreement, GMP is returning $18 million to ratepayers, part of the savings from the merger with Central Vermont Public Service.
A number of conditions changed between DPS' and GMP's initial rate requests and the Dec. 21 PUC approval of a memorandum of understanding for a 5.02 percent rate increase, signed by GMP and DPS.
One of those changes removed from GMP's "rate base" (the value of all capital assets against which GMP's rate of return is calculated) several large projects that combined solar generators with battery storage.
Those projects will reduce Vermonters' electricity rates once they're online, said GMP's vice president of strategic and external affairs, Kristin Carlson. But the Department of Public Service wasn't convinced they should be included in GMP's rate base for 2018, since the agency wasn't convinced the projects would be completed next year, Carlson said.
As a result, these cost-saving devices weren't included in the 2018 rate base — an exclusion that nudged GMP's costs upward, Carlson said.
This and other new information that emerged after DPS' and GMP's initial rate filings eventually led both entities to agree on a 5.02 percent rate increase, according to the PUC's Dec. 21 order.
The rate hike results after GMP was subjected to what regulators have called a "full rate case," as opposed to an expedited rate-setting process the utility has preferred for the past decade, called alternative regulation. The traditional rate case GMP underwent this year, proponents say, involved a more comprehensive investigation by DPS, as the department sought to balance profits that would keep GMP financially stable with electricity rates that would lead Vermonters to pay as little as reasonably possible to keep their lights on.
Importantly, this traditional rate case (also known as a "litigated rate case") differs from alternative regulation in that, under a litigated rate case, DPS and GMP argue their respective positions before the PUC, and the PUC rules on what rates shall be. Under the alternative regulation scheme, DPS and GMP have in the past simply worked out between one another what an appropriate rate would be for the following several years.
GlobalFoundries, the Essex Junction-based semiconductor firm, spent more than $30 million last year buying electricity from GMP, and as the utility's largest customer, GlobalFoundries sought to dispute some of the conclusions supporting GMP's rate increase request.
GlobalFoundries' filings with the PUC characterized GMP as trying to "short-circuit" the rate case by arriving at a memorandum of understanding with DPS, instead of simply litigating the case before the PUC until the PUC decided itself upon a 2018 electricity rate. The MOU shows that DPS is essentially "friendly" to the electric utility, a relationship that's "antithetical to the concept of a litigated rate case," the GlobalFoundries filing states.
The whole point of abandoning alternative regulation was to force GMP to argue its rate case before the PUC, and to prevent any cozy relationship between the utility and DPS that might lead Vermont ratepayers to pay more for their electricity than absolutely necessary, proponents of the litigated rate cases have argued.
DPS attorneys disagreed with GlobalFoundries' characterization of the case.
The Department of Public Service spent more than six months reviewing GMP's books, and over this period a team of experts that included DPS staffers and external consultants pored through thousands of GMP documents, in order to arrive at the MOU's terms, department attorneys argued to the PUC.
Furthermore, DPS attorneys said, a traditional rate case allows settlements like what the MOU represents. And the PUC expressly asked litigants in the rate case to work together toward agreement where possible, DPS attorney Daniel Burke said in a Nov. 28 filing.
GlobalFoundries' concerns aren't entirely misplaced, Burke wrote, but "the outcomes reflected in the MOU are reasonable compromises based on an evidentiary record that was developed through a rigorous contested process that all parties had a fair opportunity to participate in, including GlobalFoundries."
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