The Vermont Supreme Court has told a state utility board to reopen a Vermont Gas Systems rate case involving tens of millions of dollars in cost overruns for its Addison County natural gas pipeline.
The 41-mile long pipeline serves about 2,000 customers but cost around $165 million — and that price tag roughly doubled over the last several years. The high court wants to know if ratepayers were fully protected from the unanticipated increase.
Although the state's Public Utility Commission did remove about $31 million from the overall amount customers have to cover, the court wrote in a unanimous ruling handed down late last week that “There are no findings that allow this Court to understand how the Commission arrived at this conclusion.”
James Dumont, who represents AARP in the rate case and the appeal to the Vermont Supreme Court, said Vermont Gas — not its customers — should be on the hook for more of the cost overruns. AARP has argued in several cases for lower rates on behalf of its members and other customers.
“The evidence showed massive imprudence due to lack of knowledgeable staff running the company and running this project,” Dumont said.
And Dumont offered this primer on the legal meaning of the word “prudent”: He notes that law and legal precedent say that a regulated monopoly, such as a utility, can only charge customers for costs that are prudent — that is, are thoroughly documented and justified.
“Some of the [legal] treatises say that this prudence review is regulation’s principle substitute for the forces of the free market,” Dumont said. “Customers can’t get up and leave, so the utility commission has to do the work for them and say, 'Well we’re gonna disallow those costs that weren’t prudently incurred.'”
Dumont said the record shows that the company grossly mismanaged the project. For example, the state hired an expert to look at the ballooning costs of the pipeline.
“He reviewed this enormous body of documents, and he concluded there was no evidence that anything spent over the original $86 million had been prudently incurred,” Dumont said.
Vermont Gas spokeswoman Beth Parent said the company welcomes the new review.
“We appreciate the thorough review from the Supreme Court, and we plan on working closely with the PUC to resolve this matter,” Parent said.
James Porter, the public advocate for ratepayers, said the Vermont Department of Public Service has already closely examined the cost overruns.
Porter said the department is ready to keep digging into what costs for the pipeline were justified.
"I think we’ll have to see what the commission does with the remand and obviously the department will be supportive of whatever process they feel is necessary,” Porter said.
Disclosure: AARP Vermont is a VPR underwriter.