§ 218d. Alternative regulation of electric and natural gas companies

(a) Notwithstanding section 218 and sections 225-227 of this title, upon petition of an electric or natural gas company, upon request of the Department of Public Service, or on its own initiative, the Public Utility Commission may, after opportunity for hearing, approve alternative forms of regulation for an electric or natural gas company; provided, however, in the case of a municipal plant or department formed under local charter or chapter 79 of this title or an electric cooperative formed under chapter 81 of this title, any alternative forms of regulation approved by the Commission shall also be approved by a majority of the voters of a municipality or cooperative voting upon the question at a duly warned annual or special meeting held for that purpose. Before doing so, the Commission shall find that the proposed form of alternative regulation will:

(1) establish a system of regulation in which such companies have clear incentives to provide least cost energy service to their customers;

(2) provide just and reasonable rates for service to all classes of customers;

(3) deliver safe and reliable service;

(4) offer incentives for innovations and improved performance that advance state energy policy such as increasing reliance on Vermont-based renewable energy and decreasing the extent to which the financial success of distribution utilities between rate cases is linked to increased sales to end use customers and may be threatened by decreases in those sales;

(5) promote improved quality of service, reliability, and service choices;

(6) encourage innovation in the provision of service;

(7) establish a reasonably balanced system of risks and rewards that encourages the company to operate as efficiently as possible using sound management practices; and

(8) provide a reasonable opportunity, under sound and economical management, to earn a fair rate of return, provided such opportunity must be consistent with flexible design of alternative regulation and with the inclusion of effective financial incentives in such alternatives.

(b) If savings result from alternative regulation, the savings shall be shared with ratepayers as determined by the Commission.

(c) In the case of a municipal plant or department formed under local charter or chapter 79 of this title or an electric cooperative formed under chapter 81 of this title, alternative regulation may include authority for local elected officials to set and revise rates.

(d) Alternative regulation may include such changes or additions to, waivers of, or alternatives to, traditional rate-making procedures, standards, and mechanisms, including substantive changes to rate base-rate of return rate setting, as the Commission finds will promote the public good and will support the required findings in subsection (a) of this section. In addition, the Commission shall not allow a company to set aside funds collected from ratepayers for the purpose of supporting a future expansion or upgrade of its transmission or distribution network except after notice and opportunity for hearing and only if all of the following apply:

(1) There is a cost estimate for the expansion or upgrade that the company demonstrates is consistent with the principles of least-cost integrated planning as defined in section 218c of this title.

(2) The amount of such funds does not exceed 20 percent of the estimated cost of the expansion or upgrade.

(3) Interest earned on the funds is credited to the ratepayers.

(4) The funds are not disbursed to the company until after expansion or upgrade is in service.

(5) The funds are not used to defray any portion of the costs of expansion or upgrade in excess of the cost estimate described in subdivision (1) of this subsection.

(e) The Public Utility Commission may establish, by rule or order, requirements governing the filing of a petition to approve an alternative regulation plan.

(f) The Commission shall act on the petition within 12 months of the filing of a petition that complies with the Commission's rules.

(g) An alternative regulation plan shall take effect not sooner than 30 days following its approval by the Commission.

(h) The Commission may establish, by rule or order, and may amend from time to time standards and procedures by which the effectiveness of the alternative form of regulation can be determined.

(i) The Commission, on its own motion or the motion of the Department of Public Service or a company operating under an alternative regulation plan pursuant to this section, may investigate any alternative regulation plan that is in effect. Following notice and an opportunity for hearing, the Commission may terminate or modify the alternative regulation plan upon a finding of good cause. Where the Commission revokes prior approval, the Commission shall determine whether the company's current rates are just and reasonable, and, if not, shall establish new rates that are just and reasonable.

(j) Notwithstanding any provision of this section, a company may file for rates determined under and in accordance with sections 218, 225, 226, and 227 of this title to be effective at the time of the termination of any approved alternative regulation plan.

(k) In the case of a municipal utility, the Commission shall approve an alternative regulation plan only if the Commission finds that the plan will:

(1) Permit the municipal plant or department to fulfill all of its obligations, including its obligations to the holders of bonds issued under local charter or State law.

(2) Not violate existing covenants in outstanding municipal bonds or in contracts securing bonds issued by the Vermont Public Power Supply Authority.

(3) Not impair the municipality's access to capital, including that in the municipal bond market. The Commission will consider the opinion of the utility's bond counsel in making this decision.

(4) Not impair the municipal utility's ability to participate in future bond issues by the Authority as contemplated by chapter 84 of this title. The Commission will consider the opinion of the Vermont Public Power Supply Authority in making this decision.

(l) In the case of an electric cooperative, the Commission shall approve an alternative regulation plan only if the Commission finds the plan will not violate covenants in existing mortgages or impair the cooperative's access to capital.

(m) In the case of an investor-owned company, the Commission shall approve an alternative regulation plan, only if the Commission finds the plan will:

(1) not have an adverse impact on the electric company's eligibility for rate-regulated accounting in accordance with generally accepted accounting standards if applicable; and

(2) reasonably preserve the availability of equity and debt capital resources to the company on favorable terms and conditions. (Added 2003, No. 69, § 2, eff. June 17, 2003; amended 2005, No. 61, § 11; 2015, No. 174 (Adj. Sess.), § 15a.)