Legislator's Corner: GMP rate report shows need for stronger oversight
With monopoly utilities like GMP, the customer rates are set by regulation, since there are no competitive market forces to determine them. Rates are designed to cover allowable costs of providing the service and achieving a rate of return on the utility's capital investment in physical plant and equipment. Such regulation can be challenging as the utility controls the information, and there is always a risk that rulings will favor the utility over the ratepayers.
For about 10 years, GMP rates have been regulated under alternative regulation instead of a traditional rate case. A traditional rate case would be a semi judicial process in which briefs are filed by GMP and by DPS as a case before the Public Service Board. The utility's cost structure, capital base, and rate of return are set and that determines rates for providing service. Some advantages are that there is a public record and an opportunity for participation, and the PSB can rule on matters of interpretation. Some disadvantages are that this is time consuming and costly, and changing rates if a utility's costs change is hard.
In alternative regulation, rates are set through a private process between GMP and DPS. The utility requests customer rates based on operating costs, suggests including certain costs in the rate base, and asks for a particular rate of return on investment. DPS will analyze the request and make a counter offer. A negotiated settlement emerges from this private back and forth.
The advantages are that it is easier to adjust rates for changing costs and new investments in the capital base, and the process is cheaper and faster. The disadvantages are that DPS may not have the time and expertise to evaluate the complex information, that there is no public record of the process nor opportunity to participate in it, and that matters of interpretation are not resolved.
An expert named Bob Simpson has done an independent report on GMP alternative regulation for the Vermont Attorney General. He concludes that this process may have allowed millions of dollars in costs to be imposed on ratepayers for projects that did not meet proper standards, were not cost effective, and may not have even been completed when customers began paying for them. He also concludes that the rate of return on capital investment that is guaranteed to the utility may be too high given minimal risk. Altogether, this means that GMP electricity rates have been higher than they should have been.
GMP is now engaged in a traditional rate case in public before the PSB. This is good. But I believe that before any alternative regulation is again allowed the process must be reformed to ensure that a utility cannot exploit ratepayers in private. We should also have an independent public advocate during all DPS proceedings to counter the power of the utility.
The Simpson report has shown that the current public advocate inside DPS has been unable to protect the interests of ordinary Vermonters. We need better regulation for affordability, transparency, and accountability.
Cynthia Browning (D-Arlington) represents the 4th Bennington District in the Vermont House of Representatives.
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