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.
More recently, utility regulators, including the Commission, have 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
The Commission first approved an Alternative Regulation Plan for GMP on December 22, 2006. This Plan establishes a framework for regular rate adjustments based on prescribed methodologies. These adjustments are:
- quarterly rate adjustments to flow through to ratepayers increases or decreases in power costs (which make up the majority of GMP's total costs)
- annual base rate filings to reflect changes in operating costs
- annual earnings reconciliation adjustments based on whether GMP earned more or less than its allowed rate of return on equity in the prior year
The term of this Plan extends from October 1, 2014, through September 30, 2017; the Plan may be modified or extended with the approval of the Commission.