Major utilities seek rate hikes

Vermont Business Magazine, Aug 01, 2006 by Kelley, Kevin

Vermonters upset about the escalating price of energy are probably focused most closely on what they're being made to pay at the gas pump. But practically every household in the state is also finding - or will soon discover - that inflated energy costs are likewise resulting in much higher monthly bills for electricity and, in some cases, for natural gas as well.

Three of Vermont's major utilities have filed for double-digit rate increases in recent months. Green Mountain Power, which supplies electricity to 90,000 Vermonters in various parts of the state, is seeking a nearly 12 percent rate hike that would take effect in January. Vermont Gas, with 38,000 customers in Chittenden and Franklin counties, is asking the Public Service Board to approve an increase of almost 14 percent on top of a similar boost last year. And the Burlington Electric Department's 16,000 residential and 3,600 business customers have already seen their bills rise about 23 percent in recent months.

Central Vermont Public Service, the state's largest utility, has filed for a comparatively low increase of just over 6 percent. The more modest rate hike facing CVPS' 151,000 customers may be seen as ironic, given that the Rutland-based company is in shakier financial condition than any of the state's other large utilities.

Unless current trends are reversed, Vermonters can expect to continue paying more and more to power their homes and businesses. Rates could jump dramatically in the next decade with the expiration of utility contracts with Hydro-Quebec and the Vermont Yankee nuclear power plant in Vernon. These two sources account for about twothirds of the state's electricity consumption.

The Vermont Yankee contract runs through 2012 and Hydro-Quebec through 2014. They have proven to be good bargains for the state's ratepayers, according to David O'Brien, commissioner of the Public Service Department.

"We have a very stable portfolio," O'Brien says. "We know where our power will come from for the next six or eight years, and we know what the prices will be. This puts Vermont in a tremendously different situation than neighboring states."

Because these long-term agreements were negotiated when energy prices were significantly lower than now, Vermonters have also experienced generally milder rate shocks than have residents of other New England states, O'Brien adds. But, he notes, the region on the whole has higher utility costs than other parts of the country.

The chances of negotiating a new, if more expensive, power purchase agreement with Hydro-Quebec appear favorable, O'Brien says. In addition, "a renewed appreciation of nuclear power" among many Americans may facilitate Vermont Yankee's quest for a 20-year extension of its operating license, O'Brien adds. He says the plant's owner, Mississippi-based Entergy Nuclear, has effectively addressed safety concerns and significantly reduced the time Yankee is forced to go off-line.

"There's no question that Entergy is the best operator of nuclear power in the country," the commissioner declares.

O'Brien is meanwhile expressing doubt about the appropriateness of CVPS' request for a 6.2 percent rate increase. The utility wants to charge customers more in order to help secure its financial footing, not because its own costs are going up, O'Brien notes.

CVPS actually has more power available to it than needed - and, unlike Green Mountain Power and Burlington Electric, Central Vermont does not need to seek a new supplier for a significant portion of its electricity output. O'Brien questions whether rate increases should be linked to factors other than the cost of power, but he also acknowledges that "getting some sort of favorable resolution of the rate case will contribute to the company moving in the right direction."

CVPS' creditworthiness was reduced to junk-bond status last year after the Public Service Board ordered the utility to cut its rates by 2.8 percent and refund $6.2 million to its customers. It is essential for the company to regain the ability to borrow money at affordable rates, says CVPS President Bob Young. He notes that the utility has instituted several cost-cutting measures, including a 10 percent reduction in his own salary and 5 percent cuts for other managers.

The company has also enhanced the Vermont character of its board of directors. Burlington native Mary Alice McKenzie, former president of the McKenzie meat packaging company, was recently named to replace board chair Fred Bertrand, who is expected to retire next year. Two board members who reside outside Vermont also resigned as part of the reorganization. Joining the CVPS board are Vermonters William Stenger, president of Jay Peak Resort; Bill Sayre, president of Duncan Hermanson Corp, a real estate investment firm with holdings in Vermont; and Douglas Wacek, head of the Montpelier-based Union Mutual Insurance Group.

As an initial step toward persuading Wall Street to improve CVPS' credit rating, the utility must continue to focus on fundamentals, Young says.