Finding "a long and persistent record of misconduct and mismanagement," the Vermont Public Service Board has ordered Citizens Utility Co. immediately to reduce rates by 16.53 percent and pay fines totaling $60,000.

The board also reduced the company's return on equity from 10.5 to 5.25 percent, citing what it said were improper accounting practices, permitting failures and other bad management practices.

The board sentenced the utility, which serves approximately 20,000 customers in northern Vermont, to a five-year period of "strict regulatory probation." During probation, the company will be required to reform its accounting procedures, managerial structure and processes for regulatory compliance.

Specifically, the board found that the company had been seriously derelict in its regulatory obligations to: 1) obtain necessary permits for transmission lines, substations and other facilities; 2) follow least-cost planning, supply and investment procedures; and 3) keep accurate books.

It also said that the company's overall management lacked clear lines of authority for critical Vermont operations and that the utility was imprudent in the planning, design, construction, maintenance and repair of a hydroelectric plant on the Clyde River in Newport.

The rate reduction partly reflects the cost of the imprudent construction and adjustments attributable to faulty accounting for demand-side management costs and transmission plant investment.

The board was particularly concerned with the company's failure to obtain board approval before investing in major facilities. It found that Citizens had failed to request or obtain necessary approvals under state law for the construction of several transmission stations and substations. Then, once the board reported the failings to upper management, the company failed to set up internal procedures to ensure compliance with regulatory requirements, the board said.

Citizens testified that it would begin taking steps to correct its management and operation deficiencies. Nevertheless, the board set out a probationary regime including the appointment of a special master to oversee compliance with required organizational improvements, the submission of detailed reports on proposed capital expenditures and independent audits of company accounts and corporate cost allocation methods. The board also required investment in cost-effective energy efficiency programs involving at least 3.5 percent of the utility's gross revenues.

The board chose not to revoke the utility's certificate of public good, finding that such a measure might harm ratepayers along with the company. Re Citizens Utils. Co., Docket Nos. 5841/5859, June 16, 1997 (Vt.P.S.B.).

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