by Timothy McQuiston Vermont Business MagazineA recently-released report sponsored by AARP Vermont shows that the Vermont Department of Public Service (DPS), which represents ratepayer interests before the regulatory Public Service Board, has an inherent conflict of interest and needs immediate reform.The report examines the actions taken by DPS over the past eight years before Vermont’s utility regulators.It finds that, time-after-time, the DPS entered into settlement agreements that were very generous to utilities, not to Vermont’s residential utility customers. The report calls into question several business decisions made by Green Mountain Power and Vermont Gas Systems and the Department's response to them. Overall, the AARP report says that the DPS is not properly advocating on behalf of ratepayers, which is its mission. Chief among AARP's recommendations is that the Legislature should eliminate the Division of Public Advocacy and the positionof the Public Advocate in the Department of Public Service. In its place, AARP says, theLegislature should create an independent Ratepayer Advocate.The Legislature will be hearing testimony on this issue in the Statehouse today.
The report (CLICK IMAGE FOR ENTIRE REPORT), with its take-no-prisoners tone, goes on to say "ratepayers are simply not getting any advocacy 'bang for theirbuck' since the Department fails repeatedly to take positions that are consistent withratepayer interests."
AARP has been the chief ratepayer advocate opposing Vermont Gas' pipeline extension to Addison County, saying that existing ratepayers will bear the brunt of cost-estimate increases of the project. Estimates have gone from $86 million to $153.6 million (which VGS has stated in an MOU with the Department that the ratepayer-related cost would not exceed $134 million).
The report also found that the Department entered into numerous settlement agreements with Vermont utilities that shifted a considerable amount of financial and regulatory risk away from these regulated electric and natural gas companies and onto ratepayers. The report was prepared by a consulting firm that has participated in over 500 regulatory proceedings in over 20 states for ratepayer advocates around the country.
“Public trust in the regulatory process has deteriorated and ratepayers continue to carry an unfair burden of cost and risk while utilities expand and reap considerable profits,” said Greg Marchildon, AARP Vermont state director. “Our legislature needs to take action to create a consumer advocate function that truly represents the interests of ratepayers.”
Beth Parent, Communications Manager for Vermont Gas Systems, responded to the report by saying in a statement:
"For the last 50 years, Vermont Gas has had a demonstrated record of low rates by providing the choice of cleaner, more affordable natural gas to its customers in Chittenden and Franklin County. We look forward to bringing those benefits to Addison County later this year. We have reduced our rates by more than 20% since early 2012, saving customers almost $300 per year – and we remain committed to bringing natural gas services to more Vermonters so that they have the opportunity to choose a cleaner, lower cost energy option.
"Keeping costs low and stable is a top priority for our company. The SERF fund will help us achieve this important goal. Those funds will be used to help with the expansion of natural gas to more Vermonters, which benefits us all by increasing reliability, lowering emissions and spurring economic growth in areas that are previously not served by natural gas.
"Unfortunately the AARP report fails to acknowledge the tremendous benefits of the current regulatory process for natural gas customers, from significant cost savings that are passed through to them to strong energy efficiency programs. Unlike other heating options, the price of natural gas is regulated. Regulated utilities also offer extensive, cost-saving energy efficiency programs that benefit consumers and the environment. AARP should help level the playing field for hundreds of thousands of Vermonters who don’t have access to more affordable and reliable natural gas service from a regulated utility.”
AARP’s report is also very critical of a self-assessment report just released by the Department as required by the Legislature in the 2015 session.The DPS self-assessment report, unsurprisingly, AARP said, found that there was nothing wrong with its past regulatory actions, and that public outcry and criticisms regarding its prior actions before the state’s utility regulators were nothing more than a public perception problem.The Department’s report also took issue with the public’s belief that their mission should be focused on residential and small commercial ratepayers, and instead, concluded that their mission rests with balancing the interests of Vermont as a whole. “This conflict highlights the need for the legislature to take action to clarify the mission of the ratepayer advocate and consider options to separate this important consumer protection function from that of the DPS’s mission of energy policy and planning,” said Marchildon.
The AARP Vermont commissioned report challenged the findings of the DPS self-assessment, and its revisionist interpretation of its mission as being akin to “anything that is good for utilities, is good for Vermont.” The AARP report highlighted in several places where the DPS was simply confused about who it was actually representing; in other places, the DPS report was simply contradictory, and yet in others, the legislatively-mandated report clearly highlights an agency that is beyond repair. The Department’s self-assessment shows that it simply “does not get it” and is quite satisfied with maintaining the status quo.
The AARP report recommends sweeping changes in the mission and organization of ratepayer advocacy in Vermont.“No other state in the UShas a ratepayer advocacy office that has a mission, nor is organized, in a fashion comparable to Vermont,” said Marchildon. “Our report recommends starting fresh by eliminating the DPS’ entire ratepayer advocacy function, and creating a new independent Ratepayer Advocate and Office of Ratepayer Advocacy dedicated to forcefully advocating for Vermont residential and small commercial utility customers -- including low-income and disadvantaged utility customers most impacted by high utility prices,” he stated.
A key recommendation is the establishment of a volunteer-based oversight committee, or board of directors, comprised of individuals representing differing residential and small commercial ratepayer interests, to create greater accountability on the new ratepayer advocate’s actions. This new oversight committee, or board, would consist of individuals appointed by elected leaders throughout government, not just the Governor.
“By all accounts, we have a broken system that time and again favors large utility companies at the expense of ratepayers,” said Marchildon. “Significant reforms are necessary in order to begin the process of restoring the public’s trust in the state’s ratepayer advocacy activities and ensuring that their voices are heard loud and clear before Vermont’s utility regulators.”
The reports states in part: "The Commissioner ofthe Department, to this date, appears to be either confused or unaware of thislegislatively-directed mission change since the DPS Report, as well as Department’sactions and policies over the past several years, still center on protecting what theybelieve re the state’s broader “public interest” considerations, not those specific toresidential and small commercial ratepayers."
The report takes to task theAlternative RegulationPlan regarding GMP's earnings and the "careless" approach the Department took to that, to overtime paid to salaried employees during power outages, and to GMP's "vegetative management activities," which were not aggressive enough, as stated by the Department's own consultant, resulting in a "high cost" of post-storm restoration (page 11).
In response to the AARP report, Kristin Carlson, GMP'sChief Communications Executive, said:
"Green Mountain Power is committed to providing cost-effective and stable rates for our valued customers while we innovate and support their desire for greater energy independence.We have a strong record of keeping rates low at a time when rates have gone up dramatically in some other New England states andrates across the country continue to also rise.We are pleased to have lowered customer bills 3 times in the last 4 years. We believe there’s always more to do to keep costs down. That’s why we are leading an energy transformation that moves us away from the grid of the past to one focused on empowering customers to generate cleaner, local energy closer to where it’s used. This transformation will help us increase reliability, improve system resiliency and above all, keep costs down.
"As a regulated organization in Vermont, our company, its operations, and its financials are regularly and rigorously examined. We expect no less. We also expect those analyses to be accurate and fair.Unfortunately there are several gross misrepresentations andinaccuracies and omissions of critical facts in AARP’s recent report. For example, our customers have received 24 million dollars in savings they would not have received under traditional regulation, inadditionto more than $800,000 in earnings sharing."
AARP said thatthe Legislature should undertake a considerable andmeaningful reform of ratepayer advocacy in Vermont in the following general fashion:
Major Recommendations
The Legislature should eliminate the Division of Public Advocacy and the position
of the Public Advocate in the Department of Public Service. In its place, the
Legislature should create an independent Ratepayer Advocate (“RA”) that
supervises an Office of Ratepayer Advocacy (“ORA”).1 The mission of the ORA
and RA should be made explicit and unequivocally clear: to focus exclusively on
residential and small commercial ratepayers.
For administrative purposes, the RA and ORA can be housed in any relevant
state agency, including the Department or the Office of the Attorney General,
provided that a high degree of independence included in the recommendations
below, or some version of the recommendations listed below, are adopted. This
recommendation is consistent with the 42 other states that possess a clearly
defined ratepayer advocate. Further, the majority of states (over three-quarters)
have ratepayer advocacy agencies as independent agencies or part of AG’s
offices.
If the RA/ORA functions are removed from the Department, it should continue to
conduct its statewide energy planning and policy activities like any other state
(1 This new office can remain in the Department if certain organizational, independence, and
accountability reforms are undertaken. If the Legislature were to choose to keep this new ratepayer
advocate in the Department, the “elimination” of the current PA would effectively consist of a name,
mission, and organizational change, rather than a true “elimination.” Likewise, a movement to another
agency could also be seen as effectively “transferring” rather than eliminating.)
energy office. Further, the dollars associated with the former PA’s activities (and
its division) should be eliminated from the Department’s future budget.
Mission Recommendations
One of the most important policy recommendations that can be made to the
Legislature in this matter is to clearly and unambiguously identify the RA’s mission as
being one dedicated to:
Representing and forcefully advocating for residential and small commercial
ratepayer interests.
Supporting low-income and disadvantaged utility customers.
Being fuel and technology neutral, focusing on securing the lowest cost, most
reliable utility service possible.
Defending residential and small commercial ratepayers from assuming utility
business, financial, and regulatory risk without appropriate and reasonable
compensation.
Organizational Recommendations
The RA and the ORA need an independent organizational and oversight
structure. This can be accomplished through the following recommendations:
A volunteer stakeholder committee (Committee for Ratepayer Advocacy or
“Committee”) should be established that provides guidance on ratepayer
advocacy and governance issues.
o The committee should be comprised of six members: two appointed by the
Governor; one appointed by the Senate President Pro Tempore; one
appointed by the Speaker of the House; and two appointed by the
Committee itself.
o Members will serve staggered four-year terms and should represent a
balanced, cross-section of stakeholder groups, including small business
groups, consumer groups, low-income groups, and environmental groups.
o Committee members can be removed by a majority vote of other
committee members.
The Committee shall solicit qualified RA candidates that have prior consumer
advocacy experience. The RA does not have to be an attorney.
The Committee will submit three RA candidates to the Governor for selection.
The Governor will appoint the RA who will also be confirmed by the Senate
Finance Committee.
The RA will serve a four year term and can be re-nominated and re-confirmed
for additional terms.
The RA can be removed for cause by a recommendation of the Governor
provided that recommendation is approved by both the majority of the
Committee and the Senate Finance Committee.
The RA and ORA may operate within any state agency. However, the RA
and ORA shall be completely independent of any agency Secretary,
Commissioner, or other type of administrative director. The RA and ORA will
have a separate line item budget from the agency in which it is housed that
will be funded through regulatory assessment fees.
The ORA shall be comprised of a moderate-sized staff that is composed
primary of attorneys with one attorney serving as a Director of Litigation.
o The RA can serve as the Director of Litigation if she/he is a Vermont Barcertified
attorney in good standing.
o The ORA should be comprised of a small number of professional staff
members such as economists, engineers, accountants, and other
policy/utility analysts to assist in case management and non-docketed
regulatory matters.
o The RA/ORA will primarily rely on outside consultants for litigated matters.
The RA will be limited to a total consulting budget not to exceed $125,000
per docket. The RA can increase this expenditure to $175,000 per docket
upon a showing of special circumstances provided this amount is
approved by the Committee. Consulting fees will be recovered through
the regulatory assessment fee, or a direct utility reimbursement, and will
not be part of the ORA’s normal operating budget.
Other Recommendations
All settlement agreements, memoranda of understanding, or other
agreements entered into by the RA with other parties (including utilities) in
litigated proceedings before the Board must be approved by the Committee.
The RA will brief the Committee on a quarterly basis. At least two of these
briefings will be on an in-person basis.
The RA shall prepare an annual report that will be submitted to the
Committee that will also be submitted to the Governor and the Senate
Finance Committee. The report will explicitly discuss: the RA's actions during
the prior year; the specific positions taken by the RA on each major
proceeding during the prior year and how those positions compare to the
Board's final decision in each matter; an explicit discussion regarding the
rationale and basis for any settlements or memoranda of understanding
entered into by the RA during the prior year (prepared in a fashion that does
not compromise the statutorily-required confidentiality of such agreements);
the RA's position and status associated with any pending proceedings; and a discussion and analysis of the value delivered to ratepayers during the course
of the prior year. Assumptions, caveats, and other conditions associated with
the analysis of ratepayer value and any quantification of this value shall be
clearly provided in the report.
AARP is a nonprofit, nonpartisan membership organization with more than 130,000 members in Vermont and 40 million members nationally. With a focus on advocacy and public education, AARP Vermont voices the concerns of older Vermonters and works to improve the quality of life for all residents. Through a wide array of special benefits, services, and information resources, we help our members make important choices, reach their goals and dreams, and make the most of life after 50.
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