by Timothy McQuiston Vermont Business Magazine The Vermont Public Utility Commission today approved Green Mountain Power’s rate increase of 5.02 percent for 2018. An average homeowner will see his electric bill go up about $5 a month (the average bill now is $97 and it will increase to $102). GMP and the Public Service Department had worked out a memorandum of understanding in early November that settled on a slightly higher rate than GMP’s original request of 4.98 percent by eliminating three capital projects that would have generated revenues for the Colchester-based utility. GMP is the largest utility in the state. The new rates will increase total revenues for GMP by $29.8 million, with residential accounting for $12.9 million of that.

GMP saw its revenues fall $16 million this past year, from $650 million in FY 2016 to $634 million in FY 2017. Several Vermont electric utilities also reported lower demand, which equates to revenues, to Vermont Business Magazine, attributed to unseasonably warm weather.

“Based upon the evidence in this proceeding, we conclude that the overall rate increase agreed to by the Department and GMP results in just and reasonable rates. In reaching this conclusion, we have considered the reasonableness of the individual components of the cost of service as well as the resulting 5.02% rate increase,” commissioners wrote in accepting the GMP/PSD agreement. The PSD acts on behalf of the public in rate cases.

According to the PUC’s order, GMP's request for a rate increase was primarily driven by three factors: (1) increases in transmission expenses; (2) increases in costs from the ISO New England regional capacity market; and (3) increased costs due to net-metering. Depreciation, property tax, and return on equity are also drivers. ISO shares the cost of transmission costs on a pro-rated basis among the New England states. So in a given year if costs are low here and high in other states, Vermont still pays into the system based on the ISO formula.

The PSD initially last spring had countered with a rate increase of only 1.68 percent.

GMP Vice President Kristin Carlson previously had sent VBM this statement regarding the rate case: “GMP is committed to keeping costs as low and stable as we possibly can by being extremely efficient even as pressures continue to call for higher rates. Like many utilities in the region, GMP is experiencing increased transmission, regional capacity and net metering costs. These uncontrollable costs add up to approximately 6 percent in rate pressure, which GMP off-set through operational efficiencies and by delivering additional merger savings to customers. This follows stable rates for several years, including two bill decreases, and even with this rate filing, GMP will have the third lowest overall rates in New England.”

According to the PUC, the Department and GMP entered into a memorandum of understanding ("MOU") in November that would increase GMP's rates by 5.02 percent from today's rates. GlobalFoundries in Essex Junction, GMP’s largest customer, advocated for a lower rate base and lower return on equity ("ROE") than is reflected in the MOU, but did not recommend a specific rate level.

Renewable Energy Vermont also opposed the rate increase and focused on GMP's accounting for certain costs associated with its customers' participation in the net-metering program.

Net metering accounts for about 1 percent, or about 6 million, of GMP’s costs.

The ISO New England transmission costs that the PUC references cost GMP about $17 million.

The Commission's obligation under Vermont law is to establish just and reasonable rates necessary for Vermont utilities to provide adequate and efficient service to their customers.

Such rates are usually established through a case such as this, where the justness and reasonableness of a utility's rate request are tested by the parties and the Commission through discovery, testimony, and cross-examination.

The PUC wrote: “In the present case GMP and the Department request that the Commission approve a rate increase that is slightly higher than GMP's initial request. This unusual circumstance is due, in part, to the removal of three projects - so-called "JV Microgrids" - from the rate year. The removal of these projects decreases the amount of GMP's capital investments in the rate year, and removes the countervailing rate benefits that GMP had accounted for in its initial case. The net result of this modification is an increase in GMP's rate request.

“After conducting a seven-month investigation into GMP's request and considering the parties' positions and the comments of the public, we conclude that the revisions to GMP's cost of service reflected in the MOU will result in just and reasonable rates. Therefore, we approve an increase of 5.02 percent in GMP's existing rates, to take effect with bills rendered on or after January 3,2018 (not January 1 because of the holiday).”

“The MOU Parties state that the proposed rate increase resolves all the capital reduction recommendations made by the Department in this case. Further, the MOU Parties agree that GMP's allowed ROE should be 9.1 percent for the 2018 rate year and 9.3 percent for the 2019 rate year. GF had recommended that the Commission adopt the 8.75 percent ROE initially recommended by the Department's witness, as it contends that GMP's recommendation was based on questionable assumptions about future long-term interest rates.

“GF also challenges the reduction in capital expenditures that would occur under the MOU, contending that the reduction is too small, and argues that the Department's testimony demonstrates that the reduction should be as much as $75 million. GF did not recommend a specific change in GMP's rates.

“REV disagrees with GMP's analysis of costs related to the net-metering program. REV challenges GMP's use of the term “excess" relating to net-metering credits accounted for in GMP's power supply costs. REV did not recommend a specific change in GMP's rates.

“GMP's initial rate request as filed on April 14,2017, was for an overall increase of 4.98 percent, consisting of a base rate increase of 5.33 percent partially offset by a year-over-year residual Power Adjustor decrease of 0.35 percent.

"The MOU between GMP and the Department provides for an agreed-upon rate increase of 5.02 percent, based on a revenue deficiency of $31,915,000. The rate increase consists of a base rate increase of 5.37 percent partially offset by a year-over-year residual Power Adjustor decrease of 0.35 percent."