Editor’s note: This op-ed is by Jim Rademacher of Pittsford.
On March 20 the Vermont Public Service Board will hold a public hearing regarding a request for rate modification by Green Mountain Power Co.
On Dec. 13, 2013, a Rutland jury awarded a $1 million verdict against VELCO. VELCO had offered $25,000 for a transmission tower easement next to a home along with any potential impairments. The jury deliberated for two and a half hours and determined that $1 million was fair.
In the Rutland Herald the following day, VELCO Vice President Kerrick Johnson was quoted lamenting, “The people who pay are really the customers. That’s the reality.” He is correct that in the end the ratepayers will pay for the $ million verdict. This is because our Vermont Legislature has created and the PSB enforces the concept that regulated public utilities are guaranteed a profit. My understanding is that for VELCO that profit tends to be 10 percent or more.
Mr. Johnson was also quoted as saying VELCO needs to be “… careful stewards of the ratepayers’ dollars.” I agree. By its verdict, the Rutland court said VELCO was not a careful steward of the ratepayers’ dollars.
GMP received a certificate of public good (CPG) for the Lowell Mountain wind turbine project. As part of that process GMP represented to the PSB that “The proposed project will not have an adverse impact on system stability and reliability.” After months of argument and wrangling with regional and national regulators, and several instances of the project being curtailed due to transmission constraints, it is now clear that this was an inaccurate representation. For an electric utility, with a large electrical engineering department, to make such a representation points to a question of competency. In order to assure system stability and reliability GMP needs to install a synchronous condenser which will add $10 million to the cost of the project. Incompetency is not good stewardship. The anticipated $10 million expense will likely also be passed on to ratepayers.
If IBM-Burlington or GE-Rutland had a $100 million expansion and found out in the end their engineering department had not accounted for a $10 million necessary expense, heads would roll.
The cost (plus profit) of poor management decisions should not be borne by the ratepayers. In the Rutland court decision there should be $1 million less to be distributed as dividends to the shareholders.
As part of the Lowell Mountain project GMP changed from its initial preferred GE turbines, on which the PSB based its decision to issue a CPG, to the larger and more expensive Vestas turbines. GMP informed the board that even though the Vestas turbines were more expensive they were more efficient and would deliver a higher CF (efficiency measure) of 35 percent justifying the higher expense. Lowell Mountain delivered a CF of 20 percent during 2013. This low CF is far worse than can be explained by curtailments resulting from transmission constraints. This again speaks to competence. This board needs to protect ratepayers from the higher rates that such incompetence would otherwise lead to.
From a PSB communication of Dec. 23, 2013, concerning alternative regulation comes: “This traditional type of regulation is sometimes referred to as cost-service-regulations because regulators set a utility’s rates so that it has a reasonable opportunity to recover the ‘prudent’ and ‘used-and-useful’ costs the utility incurs to serve its customers, plus a reasonable rate of return, or profit.”
The installation of a synchronous condenser for Lowell Mountain may be prudent but for this not to have been part of the original CPG application was an incompetent misrepresentation. It is possible that had this $10 million expense been presented as part of the CPG, as it should have been, the financial analysis of the project might have been a negative resulting in a denied CPG.
Along the lines of misrepresentation, GMP in its Lowell Mountain application indicated among the various economic benefits to the state was “employment gains in the state of approximately 700 jobs (full-time-equivalent job years) during construction …” During the summer of the construction project VPR had a program about the project during which the town manager of Lowell was interviewed. He was very pleased with the 200 or so new jobs in the area. So during the high construction season there were 200-plus jobs. What happened to the 700 over a full year? If the 200 figure had been used instead of 700 what would the financial analysis then showed? Is the difference between 200 and 700 a measure of incompetence, misrepresentation or lying? How does the PSB “reward” a CPG applicant for such a gross error? The PSB should have serious reservations about figures provided in future CPG applications.
Similarly, if a public utility gets fined for violation of an environmental law or an employee safety regulation it should not be the ratepayers who pay the fine – it should be the shareholders. Society imposes fines to punish a transgressor. When ratepayers pay the fine there is no punishment to the owners of the utility. The ratepayers get punished. What sense is that?
What is even worse is that if expenses related fines, civil judgments and incompetent decisions are classified as “prudent” not only will the utility be eligible to recoup that expense, the utility will be eligible for “a reasonable rate of return, or profit.” They will make a 10 percent or more profit for their errors, for their lack of good judgment, for their lack of competence. Be a poor steward and still make 10 percent. What do you think you might do if you got a $100 traffic ticket but someone else paid the fine and then paid you $10. Certainly the fine is no longer a deterrent and you might even be looking forward to your next ticket and your next $10.
We should all expect our regulated public utilities to be careful stewards. I believe when such a utility is not a good steward that the shareholders need to pay, not the ratepayers. The cost (plus profit) of poor management decisions should not be borne by the ratepayers. In the Rutland court decision there should be $1 million less to be distributed as dividends to the shareholders.
The Vermont Legislature and the PSB have given regulated public utilities a monopoly and entrusted them to do good for society while making a generous profit. We need to properly reward competency but when public utilities violate trust and competency, they should not be rewarded. It should not be the ratepayers who pay the penalty for violated trust and incompetency. The shareholders should rightfully pay through lower dividend payments.
