STATE OF VERMONT
PUBLIC SERVICE BOARD
Investigation into the Reform of Vermont’s
Electric Power Supply
Docket No. 6140
Consolidated Position Paper of
AARP -Vermont
Barre Granite Association
Manchester & Mountains Regional Chamber of Commerce
Rural Vermont
Vermont Chamber of Commerce
Vermont Electricity Consumers Coalition
Vermont Grocers Association
Vermont Public Interest Research Group
Vermont Lodging and Restaurant Association
Vermont Retail Association
Vermont Ski Areas Association
INTRODUCTION
On October 8, 1998, the Vermont Public Service Board (the “Board”)
requested further comments and suggestions on processes and substance for
reducing power costs in Vermont.
This filing constitutes the consolidated position paper for the AARP Vermont, the Barre Granite Association, the Manchester & Mountains Regional
Chamber of Commerce, Rural Vermont, the Vermont Chamber of Commerce,
the Vermont Electricity Consumers Coalition, the Vermont Grocers Association,
the Vermont Lodging and Restaurant Association, the Vermont Public Interest
Research Group, the Vermont Retail Association, and the Vermont Ski Areas
Association.
RESPONSE
Members of our groups have long been involved with Vermont electricity
policies to ensure the provision of safe and reliable service at the lowest
reasonable cost to consumers.
We appreciate the efforts of the Board in promoting electricity reforms,
and we specifically acknowledge its work in the context of Docket 5854, an
“Investigation Into The Restructuring of The Electric Utility Industry of Vermont."
The guideposts laid out in that document, and the process by which such
guideposts were established, remain instructive today.
At this particular moment, whether it be in this docket, other rate dockets,
or through the Governor’s Working Group on Vermont’s Electricity Future (the
“Working Group”), we welcome the opportunity to discuss new information or
proposed solutions.
The Board is currently considering requests from Vermont’s two largest
utilities, Green Mountain Power Corporation (GMP) and Central Vermont Public
Service Corporation (CVPS) for rate increases of 12.9% and 10.7%,
respectively. If there is new information or creative solutions to be presented for
review in the context of these filings, we welcome the submittal of such
information or proposed solutions.
Regarding suggestions considered in the Board’s October 8, 1998 oral
conference, we do not believe it is appropriate or constructive to suspend the
current rate cases with temporary or interim rate increases. In our view, the rate
dockets are the appropriate venue for considering rate changes proposed by
GMP and CVPS. Moreover, the rate dockets are important venues to begin
establishing a fair apportionment of above market costs between ratepayers and
the utilities. Establishing a fair apportionment is necessary prior to proceeding
with auctions, buyouts or securitization, as such actions are likely to shift risk
from utilities to ratepayers.
To the extent there is concern for the ability of Vermont’s utility companies
to have sufficient revenues to continue to provide safe and reliable electricity
service in Vermont, we think the Vermont Department of Public Service (DPS)
and IBM have submitted testimony, in the context of Docket 6107, to address
this issue.
ISSUES FOR CONSIDERATION
There are several issues that deserve further examination, including:

an analysis of the savings potential of utility merger, consolidation or
reorganization;

an analysis of the savings potential of sharing utility service
obligations, including, but not limited to, the example illustrated by the
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joint meter reading services agreement recently announced by two
utilities in New Jersey;

an independent and critical evaluation of contract performance and
compliance of the above market purchase power contracts, including
but not limited to, those of the Independent Power Producers,
Hydro-Quebec and Vermont Yankee;

a summary of the assets of the utilities, with a comparison of the “book
value” of such assets compared to the estimated market value;

a legal analysis of the potential impacts of bankruptcy of a Vermont
utility, including, but not limited to, the real ratepayer impacts of the
bankruptcy cases of:


Public Service Corporation of New Hampshire,

El Paso Electric Company, and

Louisville Gas and Electric Company.
Such review should include a comparison of rate impacts
post-bankruptcy compared to what rates would have been had rates
requested prior to bankruptcy been granted;

recommendations for state actions, in advance of a possible utility
bankruptcy, to protect consumer interests if there are subsequent
bankruptcy proceedings;

opportunities for power contract and generation plant auctions,
including, but not limited to, a review of the following events:

the portfolio auction offered by Unitel Corporation of New
Hampshire, under which all electricity contracts were packaged
for bid;

the asset sale by Bangor Hydro & Electric, which involved a
bundling of hydroelectric facilities and transmission resources;

the sale of United Illuminating, of Connecticut, which garnered
“no acceptable bids” for a stand-alone offering of its VELCO
ownership share;
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
an analysis of opportunities for utilities to exchange equity for debt in
return for power cost concessions;

an analysis of securitization, the appropriate circumstances under
which this refinancing measure should be employed, and the extent to
which securitization transfers risk from utilities to ratepayers;

a study of whether public or ratepayer financing should subsidize utility
obligations not recoverable under traditional ratemaking, as currently
proposed by the DPS in its filing in Docket 6107, and, if so, whether
there are creative and appropriate approaches to compensate the
public or ratepayers for their assumption of such obligations.
REBUTTAL OF FILED TESTIMONY
One suggestion, put forward by the Associated Industries of Vermont
(AIV), Central Vermont Public Service Corporation (CVPS), Citizens Utility
Company (CU) and Green Mountain Power Corporation (GMP) (the “AIV/Utility
filing”), is for the Board to “convene a series of technical workshops to foster the
development of a record and help forge public consensus on the subjects of this
proceeding.”
The AIV/Utility filing recommends ten separate workshop topics, and
suggests parties be prepared to attend and participate in each technical
workshop, which may be convened under oath. This structure would be less
formal than under a formal rate docket, the group suggests, in order to “allow all
interests to be meaningfully represented without the usual cost and expense” of
a formal proceeding.
In the course of the October 8, 1998 technical conference, it was further
suggested that agreement be reached to suspend the current rate cases, which
would likely include a call for a temporary rate increase. Such a suspension, it
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is argued, would free up the resources of the various parties in the rate cases to
allow full attention to this docket.
In our opinion, there is ample opportunity to achieve the stated goals of
the AIV/Utility filing without the complexity and commitment of yet another series
of workshops. We are not confident that a meaningful outcome could be
completed by year’s end (as contemplated in the AIV/Utility filing), and are not
certain how this proceeding would complement the current efforts of the Working
Group, whose work is scheduled for completion on December 15, 1998.
Moreover, we see no need to suspend consideration of the rate dockets
currently underway. In our view, the Department of Public Service has
submitted a thoughtful case for a temporary rate order which achieves the
purposes described in the AIV/Utility filing. With the hearings and decision
dates for the GMP and CVPS rate dockets already close at hand, we feel it is
appropriate to bring those dockets to a conclusion on their respective existing
schedules.
CHAPTER 11 BANKRUPTCY PROTECTION FOR A UTILITY
Had the parties to the AIV/Utility filing not placed so great an emphasis on
being granted an unprecedented immunity from bankruptcy, it is doubtful we
would have addressed the issue in any detail here. Various signatories to our
filing have previously recommended the development of a factual public record
on the issue, a recommendation reiterated above.
Not only should the utilities submit a factual analysis of their
understanding of how a bankruptcy proceeding might impact their interests, the
Board should develop an analysis of how a bankruptcy proceeding might impact
consumer interests. Furthermore, if bankruptcy is a possible outcome of
regulatory decisions under traditional ratemaking, the Board should describe
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steps to be taken to advance ratepayer interests in the event of such an
outcome.
We think it is important for the public to have access to unbiased accounts
of the history of utility bankruptcy, and actual estimates of potential impacts
should that outcome be unavoidable in Vermont. The Board should sponsor an
independent, legal analysis of the issues involved in order to minimize the volleys
of adversarial rhetoric1 and allow for informed decision making.
THE EL PASO ELECTRIC COMPANY CASE
The AIV/Utility filing states that the potential for protection under federal
bankruptcy laws requires no further investigation – it should be eliminated as an
option. The filing states that “Vermont will lose control over its power industry 
with no assurance that Vermonters will see any savings at all.” In an attached
paper, David Wiggs, former CEO of El Paso Electric Company, testifies that, at
the end of his company’s bankruptcy process, “electricity rates went up to
roughly the same level that they would have under the staff and ALJ
recommended order.” That proposed settlement (which was rejected by state
regulators) included a rate plan “providing for a series of rate increases over
several years that aggregated over twenty percent,” Mr. Wiggs testified.
El Paso Electric’s bankruptcy process did involve uncertainty. But where
are the company’s rates today? According to information gathered within the
brief filing period of this docket, the bankruptcy settlement allowed a one-time
1
For example, in an October 11, 1998 Rutland Herald opinion column, GMP
spokesman Bill Porter claims: “No one has cited a utility bankruptcy that led
to lower rates, because such is not the case.” In our filing, we critique the El
Paso Electric Company evidence submitted previously by GMP, and others.
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increase in base rates of approximately five percent ($24.9 million compared to
1995 revenue of $504 million) with a ten-year rate freeze.2
2
Source: El Paso Electric Company Annual Report, 1995
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So, compared to the 20% rate hike proposed by Mr. Wiggs and others, El
Paso electric customers have endured a significantly lower rate increase and
have seen rates frozen through 2005 under a bankruptcy settlement. 3 As for
the financial viability of El Paso Electric today, the company’s bond ratings
continue to improve and indications are that its position, from an investor point of
view, is much improved compared to its pre-bankruptcy position.4
The AIV/Utility filing therefore misstates the El Paso Electric case, which
misstatement is further aggravated by a GMP letter to its own customers with the
same erroneous information.
It has not been our intention to belabor the bankruptcy issue; we do not
propose such a solution as a desirable event. But neither have we suggested
that ratepayers be made to subsidize utilities for costs not ordinarily allowed
under traditional ratemaking principles.
RESOURCES
Even in sum, our groups cannot match the legal and technical resources
of the utilities. If there is to be a substantive proceeding under this docket, we
El Paso Electric’s rate across all sectors was 7.7 cents/kwh in 1990. In
1997, the rate was 8.44 cents/kwh, according to the U.S. Department of
Energy. The difference (without correcting for inflation) is less than ten
percent. We assume there were many factors, outside the bankruptcy
event, which contributed to the rate changes over the seven year period.
3
“Standard & Poors today raised its senior secured debt and preferred stock
ratings on El Paso Electric Co, and revised its outlook to positive from stable.
Since emerging from bankruptcy in February 1996, management has
repurchased over $200 million of debt and cut operating and maintenance
expenses 33%. By the end of 1999, El Paso Electric’s Financials should be
well within the benchmarks for current ratings.”
Source: Standard &
Poor’s, December 5, 1997
4
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respectfully request that the Board provide intervenor funding for groups such as
ours.
SUMMARY
In conclusion, we appreciate this opportunity for comment and we
commend the Board for its continuing efforts to forge a solution to Vermont’s
high (and escalating) power rates. For our part, we will continue to participate,
as our resources allow, in the proceedings of this docket, the Working Group and
the ongoing rate dockets.
With the Working Group scheduled to release its findings and
recommendations in about 60 days, and the new Legislative session to
commence shortly thereafter, followed closely by the scheduled decision on
Docket 6107, we do not believe a series of prolonged workshops, such as that
recommended in the AIV/Utility filing, is warranted in terms of time and
resources. Quite frankly, time has run out for more hearings, workshops and
conferences.
We do not believe the current rate dockets should be suspended with
temporary or interim rate increases.
In our filing today, we have detailed items for the Board to consider,
whether or not restructuring legislation is enacted. We have described issues
for further development in order to promote understanding of the issues involved
with restructuring. We encourage the Board to prioritize items it feels provide the
greatest opportunity for ratepayer savings at the minimum ratepayer risk.
If the Board feels a continuation of this docket is a useful forum to further
develop the knowledge base on these matters, and to relay such information to
the public and the Legislature, then we will be pleased to participate. With
limited resources, it is important for the Board to make the process of this docket
as straightforward and informal as possible.
Thank you for this opportunity for comment.
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_________________________
Susan Weinstock
AARP -Vermont
_________________________
Gary Watson
Barre Granite Association
_________________________
Leslie Keefe
Manchester & Mountains Regional
Chamber of Commerce
_________________________
Anthony Pollina
Rural Vermont
_________________________
Charles Nichols
Vermont Chamber of Commerce
_________________________
Gary Farrell
Vermont Electricity Consumers Coalition
_________________________
Jim Harrison
Vermont Grocers Association
_________________________
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Jenny Carter, Esq.
Vermont Public Interest Research Group
_________________________
Kathleen Sweeten
Vermont Lodging & Restaurant Association
_________________________
Ann Lindberg
Vermont Retail Association
_________________________
Parker Riehle, Esq.
Vermont Ski Areas Association
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