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2008 CEO Forum: Conservation Compact

Utilities test new models to encourage investments in efficiency and conservation.

Fortnightly Magazine - June 2008

conservation and efficiency affect GMP’s business? Do Vermont policies provide adequate incentives?

Dutton: We in Vermont have made a remarkable commitment to efficiency, and we’ve done it in a somewhat different way than elsewhere in the country. Seven or eight years ago our legislature enacted statutes that authorized the creation of a free-standing entity called the Efficiency Utility, which operates under the auspices and supervision of the Public Service Board. That entity takes revenues generated by a surcharge on all electricity bills in Vermont, and then invests those monies in efficiency programs in homes and businesses in the state. We’re responsible for serving the load that remains after the Efficiency Utility does its work.

The other thing that has developed is that we are the only utility in the state with a decoupling arrangement in place. By and large we are indifferent to how many kilowatt hours we sell. We have an alternative regulation plan in place that among other things provides for a pass-through of power-supply costs and an adjustment for revenue volatility. As long as we can control our other costs, we have the opportunity to earn the appropriate return on equity. It has worked brilliantly. It has allowed us to focus on what we need to do, and to look at our power supply portfolio in a completely objective way, so we make the right choices on behalf of our customers.

Fortnightly: Do the decoupling and efficiency policies actually provide an incentive to invest in conservation, or do they just make you neutral to it?

Dutton: In part we just collect the revenues and the Efficiency Utility makes the investments. But one of the features of our acquisition last year by Gaz Métro was to help fund an additional $10 million of efficiency investments in Vermont [beyond the revenues raised from the efficiency surcharge]. We contracted with the Efficiency Utility to provide that service. Under the order approved by the PSB, we earn a return on the investment we make. We earn 10.25 percent, which we think is reasonably attractive.

Fortnightly: Some consumer advocates say decoupling shifts risks and costs to customers. How does your mechanism protect customers and ensure they’re getting the best deal?

Powell: It’s not about us getting off the hook in our responsibility to deliver the best possible portfolio strategy for our customers. There’s no worry in that regard, because the way it was structured, we have more reporting and review by regulators now than we did before decoupling, and we have a more transparent relationship. The cost pass-through can be somewhat quicker, but in the first year we actually brought our customers lower rates through alternative regulation adjustments. The rigor around how we structure it ensures we’re not just fat and sloppy about how we procure contracts and think about things.

Fortnightly: How does your decoupled structure affect the way you look at T&D investments, particularly things like smart metering?

Powell: I don’t see any more or less incentive to make investments. What drives us is whether it’s the right thing for our consumers