The war of words is heating up over once-in-a-century energy regulations

Utilities and regulators in Connecticut are grappling with what may be the biggest change in the way they set electricity rates in more than a century.

The debate pits United Illuminating and Eversource, the state’s largest utilities, against the state’s Public Utilities Regulatory Authority (PURA), which is overseeing the transition from a traditional cost-of-service model to performance-based regulation (PBR).

The shift to a capacity-based model was driven in part by extended power outages during Tropical Storm Isaias shortly after state regulators approved a state utility rate increase.

The change, which was overwhelmingly approved by the state Legislature in 2020, shifts from a profit model that allows utilities a simple return on investment to a more complex framework of penalties – and possibly rewards – for meeting state goals for service, reliability and efficiency. environmental impact, equity and affordability.

In March, UI called on PURA to reach consensus among stakeholders and delay the decision for at least a year before approving the results-based framework.

The company also accused state regulators of fixing the outcome before the debate; the result, the company warned, could hurt utility profitability and reduce investments in long-term grid reliability.

Doug Horton, vice president of distribution rates and regulatory requirements at Eversource, said in an email that the company “fully agreed” with the UI request and has “the same concerns and issues.”

“We support PBR very much. We have a PBR in Massachusetts and we think it can add a lot of value and add a lot to the conversation,” Horton told the CT Examiner by phone. “But we are concerned about the way it is being administered in Connecticut.”

State Sen. Norman Needleman, D-Essex, co-chair of the House Energy and Technology Committee, told CT Examiner in an email that the standoff was an attempt by utilities to take control of creating new regulations.

“I feel like utilities want to write the rules defining what is good and great performance, and that is why they are fighting PURA at every turn,” Needleman wrote.

In a follow-up phone call, Needleman didn’t mince his words.

“It’s a war on many fronts. The purpose of this action was to attempt to get the chairwoman fired. That’s their whole goal.”

Needleman said regulators are trying to hold utilities accountable after years of lax regulation.

“They feel they have been treated unfairly by the regulator. In my opinion, they have been treated too fairly by regulators in the past. In other words, they were not properly regulated. And I think most Connecticut payers will agree. The reality is that he’s asking them to be more responsible,” Needleman told the CT Examiner.

Connecticut has the fourth-most expensive residential electricity rate in the country – this is partly a product of higher generation costs and the increased cost of government mandates, but since Marissa Gillett took over as PURA chair in 2019, state regulators have taken a closer look at distribution costs.

More than performance

The new performance-based rules would be limited to local delivery fees – about one-third of the average bill based on the July 1 rate increase. That said, the allowed rate of return on investment has also come under scrutiny from state regulators.

The companies criticized PURA for 2023 rate cases in which regulators reduced UI’s requested rate increase and lowered rates for Aquarion, a water utility owned by Eversource.

In early May, Eversource also announced a $500 million reduction in its investment in Connecticut over the next five years due to what the company described as “regulatory uncertainty,” citing the Aquarion and UI cases.

According to UI, the current debate did not allow for “the free flow of ideas, information” and threatened to adopt a framework that would hurt profits and make it more difficult for energy companies to raise funds to invest in state energy infrastructure.

“UI is concerned that in the absence of a robust, facilitated rulemaking process that incorporates input from all interested parties, Connecticut is rapidly moving toward replacing a century of regulatory history without an adequate process to assess the far-reaching impacts on the economy, financial state of utilities and the reliability of basic electric distribution services that payers need,” the company said in its application to PURA.

The UI presented a stark contrast between what it called a “transparent” discussion of basic technical issues and what it called an opaque process for writing new rules.

“It was a very transparent technical session process. We sit and talk and everything is recorded and everyone can see it. But the creation of the proposals lacks transparency,” said Ted Novicki, chief regulatory officer at UI parent Avangrid. “It happens in PURA with PURA and the only person who knows about it is PURA until they release it. In fact, what worries me most is that there is no cooperation.”

UI pointed to a podcast interview in which Gillett also suggested changing the way the state calculates the return on investment in utilities. In the interview, Gillett floated the idea of ​​using the cost of debt as a benchmark – an idea the company complained about was never part of the discussion.

Horton, speaking on behalf of Eversource, agreed that state regulators didn’t really take stakeholder views into account.

“We provided feedback throughout the process that is often not taken into consideration in a meaningful way. So we think the outcome is predetermined,” Horton said. “Our main concern is that PBR is imposing penalties that are too stringent or has some confidence that rates will fall below our costs. “It’s not realistic, it’s not going to be a lawful outcome.”

Clean energy advocates oppose this

But clean energy advocates and the state Office of Consumer Advisors defended the lawmaking process.

The Office of Consumer Counsel rejected the notion that the goal is consensus and that state regulators have “somehow guided this process toward a secret goal.” The attorney criticized the utility companies for taking an “unnecessarily inflammatory” approach.

Oliver Tully, director of utility innovation and accountability at Acadia Center, a clean energy advocacy group, said in an interview with the CT Examiner that evidence from other states does not support the view that reducing the rate of return would make it harder for companies to raise capital to invest in the grid.

“In these situations, the interest paid may be higher and the share price may fall, but access to capital is not an issue,” Tully said. “A lower share price does not automatically increase costs for customers.”

Tully mentioned the example of Hawaii, where the adoption of the PBR framework led to regulatory certainty and an increase in Fitch’s sovereign credit rating.

Cara Goldenberg, director of the carbon-free energy group at the Rocky Mountain Institute, said the regulatory changes will better prepare the grid for challenges arising from the transition to renewable energy and the introduction of electric vehicles.

“PBR is about coming up with creative ways to restructure parts of the structure to encourage the kinds of outcomes and outcomes that are expected, while also removing some of the unfavorable incentives created by the traditional system,” Goldenberg said. “One result would be lower interest rates, but it may also be the case that they don’t rise as high as they otherwise would.”

The debate on the new model is scheduled to end in 2025.