[T]he state Public Utility Commission has affirmed a decision ordering Vermont Gas Systems to pay a $23.7 million penalty for “imprudent” spending on its Addison Natural Gas Pipeline project, leaving current customers to pay the remaining $134 million it took to complete the pipeline.
Greg Marchildon, state director of AARP Vermont, which had appealed an earlier rate ruling to the state Supreme Court, called Monday’s decision one of the worst ever in its effect on ratepayers in the state.
Marchildon said the commission’s action is just the most recent example of how the regulatory system is broken and designed to benefit energy companies at the expense of the ratepayer.
“It’s clear that the Green Mountain Powers and the Vermont Gases of the world are going to get what they want, and it’s clear that the Legislature has to step up,” he said. “Until then ratepayers are going to be raked over the coals.”
Last year the Public Utility Commission issued its original order that Vermont Gas Systems — a public utility that along with Green Mountain Power is owned by Montreal-based Gaz Métro (since renamed Energir) — would only have to cover $31.6 million of the $165 million pipeline project’s cost.
AARP, the retiree advocacy group, then appealed the ruling in Superior Court, arguing the commission had been too lenient in its response to alleged mismanagement that saw the price of the pipeline rise from the original estimated cost of $87 million to $165 million.
The group contended that existing customers of Vermont Gas should not have to pay more than $130 million for what it termed a mismanaged pipeline that would not affect current customers’ utility needs.
AARP lost in the lower court but then appealed to the Vermont Supreme Court, which in April told the Public Utility Commission to provide a better justification for setting the penalty cap for Vermont Gas at no more than $31.6 million.
Much of the Public Utility Commission’s Monday ruling explored the debate among the Department of Public Service, the Public Utility Commission, Vermont Gas Systems and AARP over how to accurately assess the monetary value of “imprudent decisions.”
The Department of Public Service showed evidence that $23.7 million was directly tied to specific management failings on the project, but it also added $10 million in “global disallowance” penalties for the company’s “early missteps in planning and budgeting.”
Combining those two sums, the Department of Public Service recommended a $33.7 million penalty for Vermont Gas Systems.
AARP submitted briefs to the Public Utility Commission asserting that no costs above the initial estimated $86.7 million project cost should be covered by ratepayers.
Under AARP’s model, Vermont Gas Systems would pay $78.3 million and the remaining $86.7 million would be added to the utility’s rates.
The Public Utility Commission noted in its decision that — unlike the Department of Public Service — AARP did not present evidence “supporting specific cost disallowances for imprudence.”
The Public Utility Commission decided that there was no evidence to support the Department of Public Service’s $10 million global disallowance and therefore decided that the only penalty that there was evidence for was the $23.7 million.
Vermont Gas Systems’ spokesperson Beth Parent said in a statement that the company appreciates the “thorough review from the Supreme Court and the Public Utility Commission” and that it remains “focused on the future and continuing to provide the best service for our more than 51,000 customers.”
The Public Utility Commission also ordered that Vermont Gas’ return on equity, the driver of a utility’s profitability, would serve as an additional financial penalty for the company’s “management failings.” In February, the commission came to an agreement with Vermont Gas to cap the rate of return at 8.5 percent from 2017-2019.
Monday’s ruling is not expected to result in an immediate hike in rates, as Vermont Gas asked state regulators to approve a rate reduction that would see residential customers pay 2.7 percent less for natural gas starting in the next fiscal year.
An earlier version of this story misstated the amount to be paid by ratepayers. It is $134 million when factoring in $7 million Vermont Gas had earlier agreed to write off.
