Adopting changes in regulatory practice should be a slow and difficult journey.
The process is akin to being blindfolded and trying to parallel park. You hit the car in front and then you hit the car in back, do it again and again, before you eventually make it into the parking space. Mistakes are inevitable. Adjustments, flexibility, and cooperation are required from all. A lot of collaborative work is involved, because no one can get into that parking space blindfolded in one smooth, fluid motion.
It’s a metaphor that Connecticut’s Public Utilities Regulatory Authority (PURA) may want to consider as it strives to implement a new utility rate-making approach known as Performance-Based Regulation, or PBR. PBR is complicated, risky and untested in Connecticut, but utility companies are willing to collaborate thoughtfully with PURA and other stakeholders in its development. PURA has a different idea: impose PBR aggressively, unilaterally and coercively. So far, that approach is proving to be disastrous for the prospects of PBR, the financial health of Connecticut’s utilities and, ultimately, Connecticut customers.
Maybe that’s why Connecticut’s closest neighbors, Massachusetts and New York, are wisely using “baby steps” to experiment with PBR. Connecticut regulators, on the other hand, are apparently ignoring the fact that PBR imposes heavy burdens on all stakeholders, particularly utilities, and therefore must involve transparency, cooperation, and continual fine-tuning.
But it seems it was this “PBR ASAP” mindset that led the Authority to its two 2023 rate case decisions: in March, to decrease Aquarion Water Company’s request by so much it actually imposed an all-but-unprecedented cut in revenues, and in August, to deny 87 percent of United Illuminating (UI)’s rate increase request. PURA told both companies in these decisions they were not meeting performance standards. Yet those standards were not formally articulated until April 2023 (after Aquarion’s case had concluded and after UI’s filings were in), and they’re not scheduled to be fully adopted until 2025.
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Claiming that PURA’s PBR-influenced final decision had rendered them unable to maintain financial integrity, UI filed an application for a $14 million interim rate increase in November. PURA could have taken the opportunity to examine if they, like our blindfolded driver attempting to parallel park, had inadvertently bumped the car in front of them with their decision and that it might be worth reevaluating. But blindly PURA pressed on, denying UI’s request out of hand.
Never mind the rapidly rising costs of borrowing money; never mind the desirability of openly airing issues in full view of the public. PURA circumvented any public discussion or debate of the issues UI had raised and closed the book on further consideration of the issues, which are certainly serious enough to warrant the authority’s attention.
The failure of thoughtful, careful process was counterproductive, and it is ultimately harmful to customer interests. PURA’s intentional dodging of key issues affecting UI’s financial integrity — which slipped again in 2023, as distribution net income fell 31% year-over-year — is already causing direct, long-lasting consequences for customers by increasing UI’s costs of capital and impairing its ability to conduct operations. Customers will be on the hook for higher costs in the long-term as well as the need to catch up the electric system for today’s deferred investment.
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PURA does not like to focus the public’s attention on these issues, but pushing these necessary costs out into the future, when they will only be higher, is an unavoidable consequence of its own actions.
State policymakers would likely respond to these criticisms in the same way they have since last summer: the utilities had a 350-day rate case to prove they needed the funds they requested, and they did not do so. That’s exactly what the State Attorney General said, in fact, when the Superior Court judge ruled a few weeks ago that PURA’s decision in Aquarion’s rate case could stand. His statement applauded PURA’s “well-reasoned, pro-consumer decision,” and said, “the company failed to meet its burden both before PURA and the court.”
But PURA’s PBR-influenced decisions for Aquarion and for UI failed to identify any new “standard” it was applying or that would be applicable in future proceedings. No utility can meet a standard that PURA cannot even articulate.
I am deeply concerned by the message PURA is sending about its engagement – not only with the companies it regulates, but also the ratepayers it serves. And I’m not the only one – credit rating agencies, which point investors to financially sound utilities to provide them with the capital they need for infrastructure improvements, are similarly spooked by the unstable, unpredictable regulatory environment PURA is creating. Several of them, in fact, have downgraded the outlooks for UI in the wake of the unpredictable regulatory environment.
PURA’s current approach to PBR is an offense to a fair, complete process. It’s past time for PURA to commit to openness, transparency, and debate as they accept, with some humility, they may be overreaching. PURA must engage in careful due process, or Connecticut customers will pay the price.
Robert E. Curry, Jr. of Greenwich served as a Commissioner on the New York Public Utilities Commission for more than 6 years and served as a member of the U.S. Secretary of Energy’s Electricity Committee during the Obama Administration.