Utilities agree with state to lock rates until 2005

July 11, 2003

By BRUCE EDWARDS Herald Staff

Vermont ’s two largest electric utilities reached an agreement Friday with the state Public Service Department that freezes electric rates until 2005 and also lowers the allowed rate of return for both companies.

The agreement with the PSD, the consumer advocate in utility rate cases, puts in writing a commitment by Central Vermont Public Service Corp. and Green Mountain Power Corp. to hold the line on rate hikes.

According to the terms of the agreement, CVPS and GMP will not seek a rate increase before Jan. 1, 2005 .

The agreement does allow GMP to raise rates a maximum of 1.9 percent on Jan. 1, 2005 , and 0.9 percent on Jan. 1, 2006 .

GMP’s last rate hike of 3.42 percent took effect on Jan. 1, 2001 .

CVPS has said its goal is to hold off on filing for a rate increase until 2006.

The agreement and any subsequent rate increases would require the approval of the rate-setting Public Service Board.

The agreement also reduces the allowed rate of return of both public utilities. CVPS agreed to lower its allowed return on equity from 11 percent to 10.5 percent.

GMP would see its allowed return on equity cut from 11.25 percent to 10.5 percent.

Any earnings in excess of that amount in 2003 and 2004 would be used to reduce expenses to benefit the ratepayers of each company. In addition, should GMP exceed its allowed rate of return, the amount would be refunded to customers in the form of credits on bills in 2005 and 2006.

PSD Commissioner David O’Brien said in a statement Friday that the agreement was prompted by the sale of Vermont Yankee, the state’s only nuclear power plant. Both CVPS and GMP had a substantial investment in the plant, which was sold to Entergy.

O’Brien said his objective was to ensure that Vermont ratepayers would benefit from Yankee’s sale. He added that the agreement “is in the best interests of ratepayers.”

“The plans provide Vermont consumers with protection from the volatility of today’s electric wholesale markets by an agreement that the companies will not seek rate increases in current electric rates for at least 18 months,” O’Brien said. “The stability is positive for all consumers, protecting residential ratepayers from unexpected household expenses, and allowing businesses to predict their medium-term costs of power.”

CVPS spokesman Stephen Costello said Friday that the agreement formalizes the company’s objective of holding rates steady.

“Our stated goal is not to file a rate case before 2006,” Costello said, adding that should a rate increase become necessary it would not take effect until mid-2006.

CVPS’s last rate increase of 3.95 percent went into effect on July 1, 2001 .

Costello said the agreement also saves the company a costly battle with the PSD, if the case had been argued before the Public Service Board.

“Litigation is costly and we felt this was a fair outcome to resolve this issue,” he said.

With the threat of litigation removed, Costello said the company can continue to focus on reducing costs.

The agreement does allow the utilities to seek rate hikes to recover costs due to extraordinary circumstances such as a devastating storm or other calamity.

The PSD said that GMP and CVPS will also file cost-of-service analysis and rate redesign to determine whether costs are properly allocated among classes of ratepayers.

Contact Bruce Edwards at bruce.edwards@rutlandherald.com