The Power to Choose by Michael Dworkin, Chair Vermont Public - PowerPoint

							Regulation of Water Systems in Vermont




      NARUC Energy Regulatory Partnership Program

    The Georgian National Energy Regulatory Commission
                            and
             The Vermont Public Service Board
                           by
                    Geoff Commons
           Vermont Public Service Department
                       July 2, 2008
    Areas of Regulation

       Economic regulation
    –    Assure financial health of water system
    –    Customers are best served by financially healthy utilities
    –    Assure fairness to customers
    –    Good service at affordable rates
    –    Provide “just and reasonable” rates
    –    Balance between customers, utility




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    Areas of Regulation,
    continued

   Water quality regulation
    –   Prevent and remedy contamination –
        bacterial, chemical, etc.

    –   Assure physical integrity of system

    –   Guard public health

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     Who regulates public
     water systems?
   Agency of Natural Resources, Water Supply
    Division – water quality regulation
    – Executive branch, administrative agency
    – Responsible for protection of public health
    – Water quality standards, including chemical and
      bacteriological quality
    – Water system engineering and design standards
    – Source protection
    – Directs response to incidents of contamination,
      other threats to public health
    – Also regulates well drilling, construction

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  Who regulates public
  water systems? continued
 PublicService Board – economic
 regulation
  – Quasi-judicial agency
  – Economic regulation of some (but not all)
    water systems
  – Sets rates and terms of service (tariffs)
  – Reviews borrowing by utilities


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  What systems are
  regulated?
 Water   Supply Division (water quality)
  – Jurisdiction over all public water systems
    regardless of ownership
  – Smallest systems – fewer than 15
    connections or 25 customers – are exempt




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     What systems are
     regulated? continued
   Public Service Board (economic regulation)
    – Jurisdiction over privately-owned water systems
      - statute exempts systems owned by
      municipalities (towns and fire districts)
    – No exemption for small systems – even if only
      one customer!
    – Systems owned by users are exempt by ruling of
      Vermont Supreme Court
    – Economic regulation not needed where customers
      control water system

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  Systems regulated by Public
  Service Board
 26 separate systems
 Largest has 625 connections
 Smallest has 3
 Operators – range from professionals
  with good management skills, to part-
  time with minimal skills
 Attitudes toward regulation vary

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    Why regulate water
    systems as utilities?
 Safe, affordable water supply critical to life,
  economy
 Natural monopoly
 Some – but not all! - customers can “self-
  generate” by drilling a well, disconnecting
  from system
 Customers leaving system increase costs for
  remaining captive customers
 Rate shock can lead to “death spiral”
  especially for small, rural systems

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    Regulatory Requirements
       Water Supply Division (water quality)
    –     Operating permit – often with conditions
    –     Ongoing testing requirements
    –     Periodic sanitary surveys
    –     Treatment capability usually required (chlorination)
    –     If contamination detected, public notification – “boil
          notice”
    –     Construction permits and standards
    –     Adequacy of supply for peak demands – pump test,
          storage capacity
    –     New sources tested before use
    –     Source protection zones – isolation from sources of
          contamination

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    Regulatory Requirements,
    continued

    Public Service Board (economic regulation)
    Franchise – Certificate of Public Good (CPG) - criteria:
    –    technical expertise to operate the water system;
    –    providing (or will provide) adequate service to its customers;
    –    demonstrated commitment to maintain facilities;
    –    Management strikes a reasonable balance between the needs of
         shareholders and the needs of customers;
    –    Financial stability;
    –    ability to obtain adequate capital funding;
    –    good business reputation;
    –    good relationship with customers
    –    history and current status with regard to compliance with
         WSD's monitoring requirements



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     Regulatory Requirements,
     continued

   Public Service Board, continued
    – Approval of initial rates – just and reasonable
    – Terms of service (tariffs) – billing, payment, disconnection,
      metering, etc.
    – Review of borrowing
    – Rate cases – similar to other types of utilities: cost of service,
      return on rate base
    – Opportunity for review of service, public input
    – Public advocate coordinates with WSD – can seek
      conditions to correct violations, deficiencies
    – Revocation of franchise possible for chronic mis-
      management, violations

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      Issues in Water Regulation
   Rate design – “you’re not paying for the water”
     –   Several systems serve mostly seasonal residents
     –   Use of “design flows” to set rates
     –   Current users should not pay for system expansion to serve new customers
   Economies of scale
     –   Difficult to “grow” systems – may be possible to combine management
   Lumpy investments and rate shock
     –   Sinking funds – used by municipalities, others, but not by PSB-regulated systems –
         intergenerational equity concerns
     –   pipe replacement programs
     –   rate phase-in – only possible with company’s agreement
   Owner/operator capabilities vary widely
     –   Reluctance to file rate cases causes degradation of service, eventual rate shock
     –   May lead to “innovative” solutions to problems
     –   Reluctance to file may result from wish to avoid scrutiny, aversion to legal process,
         having to face unhappy neighbors




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  Issues in Water Regulation,
  continued


 Costof regulation for small systems
 Benefits of customer control
 Non-payment issues
  – Disconnection works!
  – Not always feasible – multi-unit buildings,
    lack of shut-offs
 Settlements,   transfers, other issues?

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