The Vermont Public Utility Commission, in a May 24 order, approved Green Mountain Power’s (GMP) Multi-Year Regulation Plan, subject to certain modifications.
As noted in the order, so-called “alternative regulation plans,” like the one under consideration in this case, can allow changes in certain costs to flow through to ratepayers without following traditional rate case procedures, which can benefit ratepayers and the company by avoiding the expense of litigated rate proceedings.
The commission said that after a nearly year-long investigation, it finds that the plan, subject to certain changes, will create a fair and transparent process to set GMP’s rates for the next three years.
The plan will also encourage GMP’s efforts to innovate and implement Vermont’s ambitious renewable energy and greenhouse gas reduction goals, the commission said, adding that GMP and Renewable Energy Vermont (REV) have entered into a memorandum of understanding (MOU) that will encourage GMP to collaborate with local energy companies to develop new products and services that reduce greenhouse gas emissions.
Under the MOU, GMP and REV will meet at least annually to discuss power procurement activities and plans, as well as the net costs and benefits of net metering and the manner in which GMP accounts for net metering in its power costs, the commission said. Under the MOU, for any new GMP tariff or pilot program introduced during the term of the plan, GMP will provide a comparable, parallel third-party offering for any GMP pilot program offering where feasible. The commission also said that it directs GMP to make the information that it provides to REV under the MOU available to any renewable energy developer or other distributed energy resource provider that requests it, even if that developer or provider is not an REV member.
The commission noted that the plan will take effect 30 days after the date of the order, sets rates effective Oct. 1, 2019, and terminates on Sept. 30, 2022, without provision for extension. The term of the plan is broken down into three rate periods aligned with GMP’s fiscal year calendar: Fiscal Year (FY) 2020 (Oct. 1, 2019-Sept. 30, 2020); FY21 (Oct. 1, 2020-Sept. 30, 2021); and FY22 (Oct. 1, 2021-Sept. 30, 2022).
The commission added that GMP will file the initial annual base rates for FY20 within two weeks of the order’s date, noting that that filing will provide the projected, smoothed base rate for all three years of the plan, based on a three-year forecast of all costs. The projected, smoothed base rate is the projected average rate for each fiscal year in the plan that would be required to collect the then-forecast revenue requirement at a uniform projected rate change percentage over all three years. The commission also said that that rate will be used to set the annual base rate for FY20 and to provide the projected rates for FY21 and FY22, which will still be subject to any annual adjustments authorized under the plan for those years.
The non-power costs contained in the initial annual base rate filing will be fixed for the term of the plan. The commission added that the plan provides for annual adjustments to GMP’s power supply costs, revenue forecasts, and return on equity (ROE). Furthermore, the plan allows for adjustments to the company’s expenses for income tax flowing from changes in ROE, and the derivative impact the overall annual change in the company’s revenue requirement has on gross revenue and fuel gross receipts taxes.
Subsequent base rate filings will be made on June 1 of each year and will include the expected base rate adjustments for the following year of the plan, based on the annual adjustments authorized under the plan.
The commission also said that beginning on Jan. 30, 2021, GMP will file an annual report with the commission and department for each year of the plan, evaluating the effectiveness of the plan’s performance.
Rates will be set under the plan based on these components, the commission said:
- Locked non-power costs, including capital expenditures, which will be fixed for the term of the plan based on a forecast at the beginning of the plan – subject to certain exceptions, if approved by the commission
- Forecast power supply expenses and revenue, which will be refreshed annually and be subject to a quarterly power supply and a retail revenue adjustor to collect or return variances to customers
- A mechanism for adjusting ROE during the term of the plan to track market conditions, coupled with an earnings sharing adjustor mechanism, which will share over- or under-earnings with customers
GMP’s capital expenditures during the plan period will be locked, meaning that GMP will limit capital expenditures closed to plant in service during the term of the plan to $256.5m, or about $85m per year, subject to limited exceptions under the plan, the commission said.
Rates will be subject to several other periodic adjustments during the term of the plan, including:
- A rate smoothing adjustor, which will reduce rate variability over the term of the plan, providing customers greater certainty
- An exogenous change and major storm adjustor, which addresses costs associated with increasingly frequent significant storms
- Continuation of the merger savings adjustor, which passes savings associated with the GMP/Central Vermont Public Service Corporation merger to customers
- A time-limited adjustor to address the emerald ash borer infestation
Further discussing ROE, for instance, the commission said that the plan proposes that the ROE be indexed every year using a formula that would track the change in ROE to a mix of U.S. government bonds and utility bonds. Vermont has historically used an indexing formula to adjust ROE, the commission said, noting that the ROE adjustment formula in GMP’s previous alternative regulation plan adjusted ROE by 50% of the change in 10-year government bond yields.
Information on the movement in 10-year Treasury bond notes is publicly accessible, the commission said, noting that using only that information to adjust the ROE results in a more transparent process for the year-to-year adjustment of the ROE. GMP will fix its overall debt to equity ratio at 50/50, +/- 1% in each year over the life of the plan. The commission added that GMP’s ROE for FY20 will be indexed using the ROE established for the 2019 rate period in another commission proceeding; at that time, the ROE was set by the commission at 9.3%. In each ensuing year, indexing will occur based on the ROE in effect for the current year, the commission said.
The plan provides for GMP to offer “new initiatives,” with those being limited to transformative, customer-facing energy projects that require an initial upfront capital investment by GMP and are forecast to contribute a net positive benefit to non-participating customers through new sources of revenue or cost savings over the life of the program. The commission added that those projects may include investments in programs authorized as innovative pilots, which are products or services, beyond the sale of basic electric service, that, for instance, advance achieving the goals of Vermont’s Comprehensive Energy Plan of meeting 90% of energy supply with renewable resources by 2050 and reducing fossil fuel consumption and greenhouse gas emissions 75% below 1990 levels by 2050.
The commission said that GMP may not spend more than $5m on new initiatives during the term of the plan without seeking commission approval.
The commission also noted that the plan includes 26 new “innovation and performance metrics” that are designed to measure GMP’s performance in such areas as capital expenses, distributed generation, and customer relationship automation. Under the plan, GMP will measure those metrics on a fiscal year basis and annually report on them, with reports due by Jan. 30 of each year, starting in 2021.
Among other things, the commission said that the plan also authorizes GMP to seek approval of a Climate Resiliency Plan, which would be intended to address threats to GMP’s system from more frequent and intense storm events related to climate change, as well as to accelerate the pace of GMP’s current storm-hardening measures to maintain service quality. Any Climate Resiliency Plan filed during the term of the plan must be supported by analysis demonstrating why any proposed additional expenditures are necessary, appropriate, and in the best interest of customers, the commission said.