🔒Bordonaro: Public fights between PURA, utility companies reflect challenges of industry regulation

What type of relationship should exist between a regulator and the regulated?

It’s an age-old question that local, state and federal governments often struggle with.

It’s no different in Connecticut, where ongoing fights between the Public Utilities Regulatory Authority (PURA) and the state’s two large utility companies, Eversource and United Illuminating (UI), have taken center stage.

Most reasonable people would agree some tension ought to exist between an industry regulator and the companies it oversees.

But the PURA-Eversource/UI squabbles go well beyond that, and could hinder future investment in the state’s electric infrastructure and clean energy efforts.

Executives of both companies have said as much.

The contentious regulatory environment, in some ways, mirrors what’s happening at the federal level with the Federal Trade Commission, which is responsible for consumer protection and enforcing antitrust law. The FTC has taken on a more combative posture under the leadership of Lina Khan, who took office in 2021 promising to stiffen antitrust enforcement.

Before becoming the FTC chair, Khan was perhaps best known for penning a paper at Yale Law School that accused e-commerce giant Amazon of anti-competitive practices.

Since taking office, however, she’s run into several setbacks in high-profile antitrust lawsuits against Facebook parent Meta and Microsoft.

The courts will also play a key role in deciding Connecticut’s utilites-regulatory squabbles, which center on PURA’s stricter scrutiny of electric, gas and water utility rate increase requests. The heightened oversight is occurring as the state moves to a new performance-based ratemaking framework that was mandated by the legislature in 2020, and is a hallmark of PURA Chairman Marissa Gillett’s tenure.

Performance-based ratemaking sets rates based on how well a utility meets certain goals, taking into consideration outcomes and value to customers as opposed to just the cost of service and a reasonable return on investment, which is how the industry largely operated in the past.

PURA has inflamed both Eversource and UI by rejecting — in some cases by wide margins — rate increase requests made by both companies.

For example, in response to Eversource-owned Aquarion Water Co.’s first rate increase request in 10 years, PURA last March not only rejected the water company’s request, but decreased its annual revenue requirement by $2 million from the current level — about a 1% reduction.

PURA approved an annual revenue requirement of $195.5 million for Aquarion, which serves 208,000 customers in 59 cities and towns, primarily in western Connecticut. That revenue requirement is expected to deliver a return on equity of 8.7%, significantly less than the utility enjoyed in prior years.

Aquarion originally applied for a roughly $37 million increase in distribution revenues and a 10.35% return on equity.

Aquarion appealed PURA’s decision in New Britain Superior Court, and a temporary stay was granted.

Separately, UI, an electric company that serves more than 341,000 Connecticut customers, applied for a rate increase totaling $131 million for a three-year period that runs through Aug. 31, 2026. PURA on Aug. 25 approved a $23 million increase and 9.1% return on equity, lower than the requested 10.2% return.

Following the decision, UI filed an appeal in New Britain Superior Court seeking tens of millions of dollars it claims were unfairly and illegally cut by PURA.

Both utilities have accused PURA of unlawful and arbitrary decision-making.

Financial analysts have also raised alarm bells about Connecticut’s regulatory environment, and Eversource has seen its stock price struggle over the past year. That could negatively impact the company’s ability to raise capital for future grid infrastructure and other projects.

Or, it could force the company to borrow at higher rates, making infrastructure investments more expensive for Connecticut ratepayers.

Stricter enforcement

For her part, Gillett, who studied bioengineering and is an attorney, has argued she’s following longstanding regulatory standards, but enforcing them more strictly.

Her office recently provided HBJ with a compelling example of the need for stricter scrutiny.

Between 2018 and 2022, UI collected more than $55 million from customers to fund more than 200 employee positions that the company left vacant, PURA said.

“The number of employees for which the company received money, but did not employ, ranged from 153 to 211 over this period, or between 19% and 27% of the total number of authorized employees,” according to PURA.

UI said it redirected funds for those unfulfilled positions “to other costs necessary to provide customers with safe and reliable service.”

These are complicated matters to sort out.

Gillett hasn’t been shy about how she sees her role.

“The governor … brought me in to be a disruptor,” Gillett told the Hartford Business Journal last May. “... If there is discomfort with the fact that I’ve kind of thrown the doors wide open here and invited in different perspectives, I would embrace that critique because that was intentional.”

Gillett has even ruffled the feathers of her two fellow PURA commissioners, John Betkoski III and Michael Caron, who, at times, have clashed with the chairman.

Gov. Ned Lamont, who appointed Gillett, has been considering adding two additional commissioners to PURA’s three-member decision-making body, which he has legal authority to do.

Complex questions

To be clear, I’m not taking sides on the rate cases, or the merits of performance-based ratemaking. It’s well beyond my pay grade to determine what investments and expenses borne by utilities ought to be reimbursed by ratepayers, under the law.

Regulators of any industry should closely scrutinize rate increase requests to ensure they’re valid.

There’s a lot at stake, including the future reliability of Connecticut’s electric grid and the cost of energy in the state, which is already among the highest in the country.

Will a tougher stance on rate approvals lower energy bills? Perhaps, but it doesn’t mean regulators can bend the law to achieve that end.

Also, blaming high electricity costs solely on utility companies is wrong-minded. The reality is, utilities are only responsible for distributing energy in the state, not generating it. That structure was established by the General Assembly in 1998, when it deregulated the electric industry and forced utilities to sell off their power plants and other generation assets.

There are many reasons Connecticut electric ratepayers see higher bills than the rest of the nation, including efforts by policymakers to transition the state’s electric supply away from natural gas and oil to clean energy sources like solar and wind.

Going green is expensive, and it’s ratepayers who ultimately pay the bill.

For now, all eyes will be on New Britain Superior Court to see how it rules in the ongoing rate cases. The court’s decisions could significantly impact PURA and the agency’s future ratemaking process.