A consumer advocacy group says Vermont Gas plans to use an off-limits reserve fund to pay for some of the company’s natural gas pipeline extension through Addison County.
AARP, a membership organization representing 120,000 state residents, including some Vermont Gas customers, asked regulators Wednesday to open an investigation into Vermont Gas’ June 30 proposed rate adjustment.
AARP says the company’s recent rate adjustment proposal filed with the Public Service Board would prematurely take money from a fund designed to reduce rate increases before the pipeline is complete. The group says Vermont Gas wants to use the money to soften the impact of rate increases associated with the pipeline project’s cost.
A June 30 filing with the board indicates Vermont Gas rates would increase by only 2.3 percent if the company taps a special ratepayer reserve fund called the System Expansion & Reliability Fund. If the company does not use money from the fund, rates would go up 7 percent. The rate filing is due by Aug. 28
Vermont Gas takes issue with AARP’s interpretation of its filing. Company officials say the proposed rate request does not draw money from the fund before the project is partially in service. The company said it was merely notifying regulators of its future intent to draw from the fund.
Chris Recchia, the commissioner of the Department of Public Service, said the utility is not allowed to use ratepayer dollars to pay for a project unless it is in use. Vermont Gas has started the construction of the pipeline, which is expected to bring natural gas to Middlebury next year.
“No ratepayer is paying anything for this project until it is in service,” Recchia said. He said the department has not received a formal request from the company to use ratepayers’ money in the reserve fund to pay for the pipeline. The department has not issued a statement on Vermont Gas’ proposal and will not respond until more information is available.
Jim Dumont, an attorney from Bristol representing AARP, said the company’s filing indicates Vermont Gas planned to draw money from the System Expansion & Reliability Fund (SERF), which had a total of $13 million in April. Dumont says the company wanted to use the fund to reduce the amount of its rate increase request.
Dumont said Vermont Gas’ filing indicates the company intended to use the SERF money to pay for the incomplete project. He said the only purpose of the filing was to adjust rates using the fund.
“What’s happened is they have been caught with their hand in the cookie jar,” Dumont said Thursday.
Drawing from the fund violates state regulatory precedent for utility projects, Dumont said. The Vermont Public Service Board and the utility previously agreed that the fund would only be used to pay for parts of the project that are in service.
Regulated utilities like Vermont Gas, which is owned by Canada’s Gaz Metro, have an obligation to their shareholders to maximize profits, Dumont said. State regulators have a responsibility to watch utilities closely, he said.
“That’s why we need to have aggressive push-back by the state because there is no competition. And this stuff is complicated. Without an aggressive push-back from the [public service] department, there really is no checks and balance,” Dumont said.
Vermont Gas spokesman Steve Wark on Thursday said the financial analysis in the June 30 filing is not related to the rate increase that will take effect in November.
“We would only use the fund with board approval for completed portions of the project,” Wark said. The rate increase is not associated with project costs, he said. It will cover the costs of wholesale natural gas, service, maintenance to existing systems and overhead changes, he said.
The pipeline is estimated to cost $121 million, 40 percent more than the amount state regulators approved in December.
Wark said the June 30 filing makes a reference to the System Expansion & Reliability Fund in order to notify regulators that the company would ask to use the money eventually, as sections of the project came online. He said the company will not apply to use the money in this rate year, which ends in November, because he does not expect any sections of the pipeline to be operational by that time.
A recent Vermont Gas letter to the Department of Public Service appears to contradict Wark’s response to the AARP’s claims.
Vermont Gas said it plans to use the SERF, also known as the Expansion Fund, to “smooth out” rate impacts associated with the Addison Rutland Natural Gas Project.
“It is Vermont Gas’ desire to utilize the Expansion Fund monies to smooth the rate impacts associated with the additions from the expansion project within the upcoming annual Rate Adjustment Filing, as well as future filings,” the company wrote in a May 29 letter to the Department of Public Service.
The letter says the company may provide the department with an analysis of rate changes related to the project. Vermont Gas said it would then ask the board for permission to take money from the fund to smooth rates — but only for costs associated with projects “that will be in service during the 2015 rate year.”
The 2015 rate year begins on Nov. 1 this year.
AARP says that means Vermont Gas will be tapping the fund before projects are complete.
Wark disagrees with AARP. He said if any parts of the pipeline are in operation the company will consider seeking reimbursement from the fund. But he said “it will not be likely” sections of the project are online by Nov. 1.
The company will notify customers of the rate increase in September before regulators decide whether to approve the rate adjustments, Wark said. Vermont Gas is required to give customers at least 25 days notice before rate changes take effect.
Like several other utilities in the state, Vermont Gas operates under an Alternative Regulation Plan, which was last updated in 2012. Regulators apply this sort of regulatory framework to certain utilities in order to expedite rate changes. These utility-specific plans apply to FairPoint Communications, Green Mountain Power and Vermont Gas.
Vermont Gas also plans to bring natural gas from Middlebury to the International Paper mill in Ticonderoga, New York. The paper mill will pay for nearly all of that project’s costs. The company later plans to bring gas to Rutland.
Editor’s note: This story was updated at 9:18 a.m. Aug. 15.
