The Public Utility Commission (Commission) and other utility regulators around the country have applied a common set of regulatory principles and practices for decades. This traditional type of regulation is sometimes referred to as "cost-of-service regulation" because regulators set a utility's rates so that it has a reasonable opportunity to recover the "prudent" and "used-and-useful" costs the utility incurs to serve its customers, plus a reasonable rate of return, or profit. Under this type of regulation, once the utility regulator sets a utility's rates, those rates remain in effect until the utility requests, and the regulator approves, a change. Rate changes can be requested at any time, and a fully litigated investigation of a proposed rate change can take up to 7 months.
Since 2006, the Commission has applied a new type of regulation, often called "alternative regulation" or "incentive regulation." There are many variants of this type of regulation, but the common foundation is that rates are set differently from the traditional cost-of-service approach. Sometimes there is a performance-based aspect to rate-setting so that a utility is allowed to earn a larger profit if it meets certain performance goals or increases its efficiency. Other times a utility is allowed to automatically change certain aspects of its rates, without a full-scale review of all its costs (as would occur under a typical cost-of-service review). Sometimes this type of regulation "guarantees" a utility a certain amount of revenue or profit, or it provides a utility with greater flexibility to offer new services. Alternative regulation is generally approved for a specified number of years, after which time it is revisited by the utility and the regulators.
Green Mountain Power, Inc. (GMP) Alternative Regulation Plan
GMP's current alternative regulation plan was approved by the Commission in Case No. 18-1633-PET, modified in Case No. 20-1401-PET, and is referred to as the Multi-Year Regulation Plan (the "Plan"). The term of the Plan extends from October 1, 2019, through September 30, 2021; the Plan may be further modified or extended with the approval of the Commission.
This Plan establishes a framework for regular rate adjustments based on prescribed methodologies. These include a mix of components that will be fixed for the term of the Plan based on a reviewed forecast at the beginning of the Plan, components that are adjusted based on a formula, and components where costs and revenues will be forecast annually and then adjusted to collect or return actual costs and revenues in each fiscal year, plus other miscellaneous provisions. These components are:
- Fixed costs, referred to as Non-Power Costs, including infrastructure costs, operating and maintenance costs, debt-related financing costs, investments in and earnings from affiliates, property taxes, and other costs and revenues;
- Formulaic costs for equity-related financing costs;
- Forecasted and annually updated costs including retail revenue and power supply costs, State and Federal income taxes, accumulated deferred income taxes ("ADIT"), and gross revenue and fuel gross receipts taxes; and
- Other plan components including the Past Storm and Power Fixed Charge, the Earnings Sharing Adjustment Mechanism, the Emerald Ash Borer Assessment and Adjustor, and the Rate Smoothing Adjustor.