A recent report commissioned by the Vermont Attorney General’s office says the system of “alternative regulation” used by Green Mountain Power for 10 years failed to hold the utility fully accountable for its spending, and customers suffered the consequences.
“This is just not right,” says Bob Simpson, the author of the report.
Alternative regulation is the process Green Mountain Power (GMP) used to work with regulators on setting customer rates. Simpson’s report, publicly-released in December, says alternative regulation hasn’t always worked in the best interest of customers.
GMP announced in December that the company is leaving alternative regulation in favor of “traditional regulation,” which is the model used by every other electricity utility in the state. The announcement came four days after Simpson’s report, and company officials say Simpson’s report was a factor in the decision, even as they deny many of the problems named in Simpson’s report.
The Legislature created the framework for alternative regulation in 2003, and it was designed to replace the traditional rate-setting process (in which rates are set every few years in a comprehensive, year-long review) with a faster process that takes place every year.
The goal was to make it so that utilities can adjust rates more frequently in response to a changing business environment without compromising regulatory oversight of those companies.
In all utility rate regulation cases, the Department of Public Service is tasked with protecting the interests of customers.
Simpson used to work for the Department of Public Service, representing customers in utility cases.
In the early summer of 2016, he was hired by the attorney general's office to analyze the Public Service Department's work on behalf of customers during a regulatory proceeding. The review was focused on the rate-setting proceeding for Green Mountain Power, the state’s largest utility.
"This is just not right." — Bob Simpson, author of the new report
Simpson’s said that staff at the Department of Public Service were professional and cooperative with him throughout the review, and that they maintained appropriate independence from Green Mountain Power, the company they’re supposed to regulate.
But Simpson also found problems with alternative regulation itself, like the shortened review timeline for GMP’s rates.
“The Department and Larkin [the department’s contractors helping with the review] simply cannot submit GMP’s proposals to the level of scrutiny ratepayers are entitled to,” Simpson wrote.
He said the problem wasn’t the department’s staff.
“I'm certain they could have been more effective if they did not have this particular alternative regulation process,” Simpson says.
In one case, Simpson wrote, GMP’s actions amounted to an "abuse of the process."
He was describing an attempt by GMP to charge customers $752,000 to pay for new infrastructure that regulators never approved.
“That is an area that we disagree with the report,” says Kristin Carlson, chief communications, brand and marketing executive at GMP.
Carlson says that because the Department of Public Service challenged GMP’s use of the money for unreviewed projects and wouldn't allow the company to charge customers for $752,000 to cover those costs, alternative regulation worked as it was supposed to — in the best interest of customers.
"The relationship between regulators and GMP is appropriate and is exactly as it should be." — Kristin Carlson, GMP spokesperson
A department report released along with Simpson’s says the department served as an effective advocate for customers and saved millions of dollars.
Carlson also says alternative regulation has led to lower rates today than in 2012.
“The Public Service Department has been an effective advocate, and that the relationship between regulators and GMP is appropriate and is exactly as it should be,” she says.
But that’s not how Simpson describes his findings.
“The bottom line for me was: The process is not a good one for the ratepayers. It's more helpful and effective for Green Mountain Power,” Simpson says.
A big part of the reason for that, Simpson says, is because in 10 years of alternative regulation, the Department of Public Service has never brought a legal challenge against Green Mountain Power over rates — even when the company charges customers for investments they shouldn't have to pay for.
READ: When GMP Doesn't Follow Regulators' Rules, Customers Pay
These problems can get worse over the years when the department and GMP agree to settle their disagreements without litigation, because regulators don't get to rule on the disagreement and create precedent for future cases.
Carlson points out that there's nothing inherently wrong with negotiating a settlement instead of bringing a legal challenge.
“So I just want to underscore that a settlement doesn't mean that there weren't good outcomes for customers, and a settlement is not a sign of the robustness of the review,” she says. “The outcome is what matters for customers.”
Simpson agrees; he says litigation should be a last resort for the Department of Public Service as it works to get fair rates for customers.
"The bottom line for me was: The process is not a good one for the ratepayers. It's more helpful and effective for Green Mountain Power." — Bob Simpson, author of the new report
But he also says contested cases are a key part of the regulatory process, because there are 10 years of disagreement between the Department of Public Service and GMP about what exactly customers should have to pay for, and litigation answers those questions once and for all.
“If both sides know what the rules are when they're negotiating, they're not going to be fighting every single year” about the same aspects of GMP’s proposal, Simpson said.
The company has also failed to document its spending properly, but is not always held accountable for those failures by the state’s regulators.
When Green Mountain Power announced last month that it will pursue a full, traditional rate case in which regulators will have a chance to rule on the longstanding disagreements about what customers should pay for, they’d already followed one of the recommendations in Simpson’s report, which was issued four days earlier.
“Green Mountain Power evidently said, 'Look, we've got nothing to hide, we want to show that, let's have a fully litigated rate case,'” Simpson said, “which is just a great outcome.”
Not everyone is satisfied with that outcome, though.
Philene Taormina, the director of advocacy for AARP Vermont, has been saying for years that alternative regulation is a bad deal for customers. To her, it's not enough for GMP to go through the traditional ratemaking process this year.
She wants the Legislature to change the 2003 law that created alternative regulation so that the problems Simpson named in his report don't come back; as of now, no reforms have been implemented to solve the problems Simpson pointed out.
“The statutes on [alternative regulation] can't remain the same if there's a possibility — and there is — that we will be in the same situation if no one's looking in five, 10 years,” she said.
AARP will be asking lawmakers to make a fix to the system this year, and Simpson's report calls on the Department of Public Service to take a hard look on how alternative regulation has worked over the past 10 years and how it can be improved in the future.
After multiple requests for comment over several days, June Tierney, the new commissioner of the Department of Public Service, said in an email Thursday night that she needs to take more time to review the report on alternative regulation.
Tierney said she wants to ensure the department's regulatory actions are "carefully conceived and reflect a thoughtful, considered response to the entirety of the assessment of the department's performance as set out in the Simpson report."
Update 11:30 p.m. Jan 19: This story was updated to include Department of Public Service Commissioner June Tierney's response provided late Thursday evening.
Update 9:36 a.m. Jan. 20: Disclosure: AARP provides underwriting support to Vermont Public Radio.
