[S]tate regulators have secured important concessions from Vermont Gas Systems in rate negotiations now underway and say they will continue to seek a $35 million reduction in permissible costs for the company’s nearly finished $165 million natural gas pipeline.
Subtracting $35 million in what regulators call “imprudent” expenditures from the pipeline’s cost would reduce what ratepayers must cover to around $130 million. That is just below the $134 million the Department of Public Service and Vermont Gas agreed would be the most that ratepayers could be charged for the controversial project through Addison County.
Vermont Gas’ rates for the current rate-year, which is now underway, hasn’t been decided. The state’s seeking to allow Vermont Gas a 9 percent return on its capital investments, and Vermont Gas has asked the Public Service Board to approve a 9.7 percent rate of return.
The board isn’t expected to rule until March on the additional $35 million the department hopes to block Vermont Gas from billing for the pipeline.
The “imprudent” practices the department has identified appear mainly confined to the project’s early stages, according to Chris Recchia, who led the department under former Gov. Peter Shumlin. Vermont Gas has since replaced much of its executive team. On Thursday incoming Gov. Phil Scott named June Tierney as the new public service commissioner.
Vermont Gas likely will eventually get to recover $17 million from ratepayers in additional costs that the DPS says haven’t been accounted for sufficiently enough to include in gas rates, Recchia said. These costs haven’t been found imprudent, but neither have they been documented to regulators’ satisfaction, he said. As a result, Recchia sought to block VGS from applying any of that amount to ratepayers’ bills until it’s been better supported, presumably during next year’s rate case.
If those two sums are disallowed, Vermont Gas could be allowed to begin collecting this year on only $112 million of the estimated $165 million project, said Recchia. The company will begin to include pipeline costs in customers’ rates this year, he said.
The 41-mile pipeline into Addison County is nearing completion, having been given a go-ahead from the Vermont Supreme Court to bury its final 2,000 feet of pipe beneath Hinesburg’s Geprags Park. That permission could be reversed, and the company may be forced to withdraw the pipe, depending on the outcome of a case before the Supreme Court in which pipeline foes say Vermont Gas can’t legally install the pipe beneath the park.
That operational date marks another win for the department, Recchia said, since it means another six months before the pipeline cost will begin to show up in customers’ rates. Vermont Gas originally asked the Public Service Board for permission to begin including the pipeline’s costs in the current year’s rates, but Recchia said the department appears to have successfully blocked inclusion of at least part of those costs because department officials believed the pipeline wouldn’t be complete until several months into 2017.
Vermont Gas may be able — with PSB approval — to stabilize retail prices over the next three to five years by drawing on a fund the company has built up over recent years, called the service expansion and reliability fund, Recchia said. The department hopes to keep rate increases over that period to no more than 3 percent annually, Recchia said.
Vermont Gas spokeswoman Beth Parent provided a written statement on the company’s rate case.
In it, Parent highlighted what she said was a 50-year record of low and stable rates for Vermont Gas customers and said the rate proposal seeks to reduce rates for more than 50,000 Vermonters.
“We recognize this has been a very challenging project,” Parent wrote. “We have worked incredibly hard and been very successful getting the project back on track. We pledged to keep rates affordable for customers as the Addison Natural Gas Project comes online, and our proposed rate decrease is an example of how we’re putting that commitment into action.”
As a regulated monopoly, Vermont Gas must win approval from the Public Service Board for whatever rate of return it earns on capital each year. As with other Vermont utilities, Vermont Gas may earn a rate of return only from capital assets, not from the products it sells.
The pipeline will roughly double the company’s capital assets.
The company originally estimated the pipeline would cost around $86 million. After that figure climbed multiple times by tens of millions of dollars, the DPS reached the agreement in October capping at $134 million the pipeline costs the company could pass along to customers through rates.
This was to ensure benefit to the state of Vermont as a whole, Recchia said. The pipeline project has been estimated to bring at least $180 million in economic benefit statewide, before subtracting the cost ratepayers will contribute.
