A unanimous vote Wednesday by the Public Utilities Regulatory Authority moves Connecticut closer to a new way of setting utility rates while masking deep divisions among regulators and the regulated that threaten a lingering political headache for Gov. Ned Lamont in the first year of his second term.
Lamont praised the adoption by the three PURA commissioners of a framework for eventually shifting to performance-based regulation and away from guaranteeing a healthy return on equity for Eversource, Avangrid and other regulated utilities based on their cost of service.
“You just don’t get paid an automatic 9% whether you do good work or bad work,” Lamont said, referring to the return on equity typically endorsed by PURA until the rejection last month of a rate increase sought by Aquarion Water Company, an Eversource subsidiary. “You get paid for doing good work.”
“Cost of service regulation really revolves around utilities’ perspective on what it means to provide service to its captive customers,” said Marissa P. Gillett, the chair of PURA. “There’s little to no consideration of what outcomes or value a customer is deriving from that service.”
The Democratic co-chairs and Republican ranking members of the legislature’s Energy and Technology Committee joined the Democratic governor and the chief regulator in a display of unity for performance-based regulation that lawmakers say will enhance PURA’s ability to assess the performance of the utilities.
But the details of how to implement that change will not be finalized until next year, and Lamont has yet to clarify the degree to which he is backing the aggressive approach to reform set by Gillett, whom his administration recruited to Connecticut from out-of-state four years ago.
Gillett, a regulatory lawyer from Maryland named by Lamont to bring a fresh perspective to PURA, increasingly is at odds with Eversource, the state’s largest utility, and the authority’s two other commissioners, former lawmakers John W. Betkoski III and Michael A. Caron.
The terms of Betkoski and Caron have expired, and Lamont has not explained why he has delayed a decision on reappointment, a situation made more awkward by pending legislation that would set two-term limits, which they exceed. Gillett’s first five-year term expires next year as the new regulatory approach is to take hold.
Industry stock analysts have noted the “friction” and speculated whether Gillett is in Connecticut for the long haul. The Aquarion decision rattled some analysts: Not only did PURA reject the requested rate increase, it ordered a cut that could save the typical customer about $67 a year.
Gillett, in the Aquarion decision, disallowed $4.9 million in expenses related to its merger with Eversource, concluding the merger benefitted shareholders and not ratepayers. She also disallowed legal and entertainment expenses.
A Superior Court judge has issued a 30-day stay of the rate cut while Aquarion appeals. PURA on Wednesday filed a memorandum arguing that the stay is unwarranted.
In the appeal, utility lawyers were unusually personal in their criticism of Gillett, an apparent attempt to undermine her standing with the governor when he is deciding who among Gillett, Betkoski or Caron best embodies his idea of a regulator.
Aquarion’s lawyers accused Gillett, who has objected to PURA’s habit of settling with utilities rather than pursuing full-fledged rate cases, of making “an example” of the company to validate her approach.
Attached to their request for a stay were transcripts of the meeting where the rate request was rejected, plus an interview Gillett gave to NBC Connecticut, and critiques by stock analysts who warned of threats to the utility’s ability to borrow.
“I think what you saw coming out of PURA just this last week, where we exercised a lot of those tools in the context of a water rate proceeding,” Gillett told NBC, the italics added by Aquarion. “That was really my attempt to show as the chief regulator in the state, what I could do if I was given the opportunity to go through a rate case with a lot of these utilities.”
Aquarion offered the quote as evidence of regulatory overreach.
“That statement is a shocking admission from the PURA Chairman that she used the opportunity presented by this Decision to make an example of Aquarion, and to advocate for future legislation she is pushing,” Aquarion wrote. “What her remarks confirm most starkly, however, is the disturbing fact that this Decision does not rest on a fair application of existing law, which is the only legitimate goal of a properly functioning administrative agency. It is intended instead to accomplish other ends beyond proper bounds.”
Gillett has said her decision was based on Aquarion’s failure to make the case for an increase or maintaining their current rates.
At a press conference Wednesday, Lamont sat next to Gillett and with the Democratic and Republican leaders of the energy committee, who applauded the PURA chair’s aggressive approach. The governor did not directly answer when asked what he wants to see from PURA before deciding who should remain as commissioners.
He indicated, however, that the departure of Gillett, the key architect of the regulatory approach, would be counterproductive.
“I don’t think it’s a good idea to disrupt right in the middle of historic disruption. I think the idea of having some continuity there makes an awful lot of sense,” Lamont said.
And what of her two colleagues?
“I guess I should probably talk to them, first of all, and see if they want to stay,” Lamont said.
Betkoski, who watched from the audience, said he has made clear his desire to remain after 26 years on the authority and its predecessor, the Department of Public Utility Control. Caron, a member for 10 years, also has said he has informed the administration he would like another term.
Lamont, in a brief interview later, insisted he was not troubled by the fraught relations between Gillett, the newcomer, and the two longer-serving commissioners.
“Maybe some of that tension is not a bad thing,” Lamont said. “She’s a disrupter. They provide, let us say, a little more continuity there. I’m not losing a lot of sleep over that.”
Betkoski declined to comment on his criticism of Gillett’s written decision in the Aquarion case when it was adopted last month. He called it “arbitrary and capricious” in places, a useful line to Aquarion’s appeal.
“What I said on the record speaks for itself,” Betkoski said.
While Caron voted with Gillett for the rate reduction, he called dropping the return on equity below 9% a wrongheaded message: “I’m not sure what that message is, but it comes across as something like a punishment.”
Lamont, a Democrat who was overwhelmingly reelected to a second term in November, chatted amiably with Betkoski after the press conference in the Town Hall at Essex.
The venue was convenient to Sen. Norm Needleman, co-chair of the energy committee, who also is first selectman of Essex, and also to Lamont. The governor had other business nearby, announcing a highway project on I-95 in East Lyme.
The governor and Gillett spoke privately after the news conference, taking a walk outside.
Lamont was circumspect about the region’s two multibillion-dollar distributors of natural gas and electricity, Avangrid and Eversource, whom Gillett says should be subjected to more rigorous review.
He described the companies as stakeholders necessary to the success of the new regulatory approach. He referred to their respective chief executives, Pedro Azagra Blazquez and Joseph R. Nolan, as Pedro and Joe.
“We’re not friends. We’re not enemies. We’re frenemies, perhaps not always going to be on the same side when it comes to rates,” Lamont said of the two companies. “But by the same token, we’ve got to work side by side to get these things accomplished, or it’s not going to work.”