PURA Moves to Reduce Cost Swings for Consumer Electric Bills

After a steep summer rate increase led to outrage from Eversource customers, regulators approved new rules on Wednesday that are meant to limit major fluctuations in electric bills.

The Public Utilities Regulatory Authority unanimously approved a new system for setting the “distribution” rates that electric distribution companies Eversource and United Illuminating use to recover their costs from ratepayers – using real costs from the prior year rather than estimates to set rates for the new year, and lowering the interest rate the companies can charge if they recovered less than their costs in the previous year, known as “carrying costs.”

After approving rate adjustments that took effect July 1, PURA quickly suspended the adjustments as the higher rates and higher summer usage combined into a steep increase in bills for customers. PURA Chair Marissa Gillett said she wanted to include more ratepayer input in decisions, and that customers pushed PURA to prioritize a decision it was likely to make anyway.

“I don’t want to discount the role that customers and legislators played in sparking the investigation. I would encourage customers to stay engaged in PURA’s processes [to give their input],” Gillett said. “With that being said, I think PURA would have gone in this direction anyway.”

The state’s energy regulator also changed the dates for seasonal rate adjustments from the high-usage months of January and July to lower-usage months of May and September. Gillett said that the change was intended to limit the shock of raising rates during peak usage.

“I don’t want to discount the role that customers and legislators played in sparking the investigation. I would encourage customers to stay engaged in PURA’s processes [to give their input],” Gillett said. “With that being said, I think PURA would have gone in this direction anyway.”

Despite reservations about the impacts of using actual costs to set rates rather than estimates – concerns Gillette said have been resolved – Eversource filings expressed support changes to avoid “rate whiplash” and for reducing the carrying charge rate.

“We’ll review the decision once we receive it and look forward to working cooperatively with PURA to institute changes to the rate adjustment process that further enhance transparency and understanding by our customers,” Eversource spokesman Mitch Gross said in an emailed statement.

State Sen. Norm Needleman, D-Essex, chair of the Energy and Technology Committee, praised Gillett for the decision, saying her work shows that bringing in people from outside of Connecticut can provide a fresh perspective.

“Even PURA today mentioned they’re not sure if it’s going to work, but listen, we have to try something – our rates are too high and we’ve been doing the same thing too long,” Formica said.

“I think that this is a big step forward for the ratepayers in Connecticut,” Needleman said. “We have a newly constituted board, and they’re clearly taking a more pro-consumer approach, and I think that’s important.”

State Sen. Paul Formica, R-East Lyme, ranking member Energy and Technology, said it appears that the state’s energy regulator is taking ratepayers more into consideration in their decision-making and that Gillett is moving the authority in the right direction.

Formica said that it appears that PURA was beginning to shift toward the performance-based standards directed by the legislature in September.

“Even PURA today mentioned they’re not sure if it’s going to work, but listen, we have to try something – our rates are too high and we’ve been doing the same thing too long,” Formica said.

Lower interest rates

Gillett told reporters in a conference call after the PURA meeting that she hoped adjusting the carrying costs to a lower interest rate would create savings for customers, but said she couldn’t commit to lower costs, which depend on factors out of the regulator’s control – areas of public policy and prices in the wholesale energy markets.

“For example, if the General Assembly enacts additional public policies that would be recouped through these line items, the costs will increase, there’s just no if, ands, or buts about it,” Gillett said.

Under the previous framework for reconciling rates, the utilities fronted money for costs like the Millstone power purchase agreement – with interest set at the weighted average cost of capital, currently 8.98 percent – then recouped those costs from customers, Gillett explained. 

The new rules tie that interest to the prime interest rate, which fluctuates, but is currently 3.25 percent and has not risen above 8 percent since 2006.

“There’s not a lot of risk here for the utilities, because they’re guaranteed by law to recoup those costs,” according to Gillett, who said the new formula would better reflect the actual risk facing utilities. 

Needleman said that the markups passed on to consumers are dependent on interest rates, so pegging that to the prime rate will have a significant impact.

“There’s no chance that interest rates are gonna go back up anytime soon, so it’s only fair that the cost of capital be an important factor in return on capital,” Needleman said.

Estimating costs

Gillette referenced the Millstone power purchase agreement as an example, where utilities are required to purchase half of the nuclear plant’s output – a known quantity – but pass on that cost based on estimates of electricity use by residential and commercial customers.

Those estimates were especially inaccurate in 2020 because COVID restrictions meant that more power was being used by residential customers and less by commercial customers, she explained.

“So what you saw in 2020 was a confluence of those forecasts meeting up and going really wrong because the wholesale energy market prices tanked and the commercial usage tanked,” Gillett said. 

In a response to a draft decision, Eversource said that it was a “mathematical certainty” that the new system will result in an initial “whiplash” where rates drop one year then rise sharply the next, and remain persistently higher.

The volatility of cost forecasts combined with increased residential use raise the concern that residential customers will pay more than their share, according to regulators.

In a response to a draft decision, Eversource said that it was a “mathematical certainty” that the new system will result in an initial “whiplash” where rates drop one year then rise sharply the next, and remain persistently higher.

Basing recovery rates on the company’s actual costs from the previous year will cause them to under-recover costs, which will then be passed on to customers with interest the next year, the company claimed.

“Under the existing framework, the Company’s projections could be off in either direction depending on the year, which would mean that sometimes customers receive the benefit of the inaccurate projection through receipt of the carrying costs. Under the Authority’s proposed framework, customers will always pay carrying costs to the Company because the Company will always carry the full amount of the costs for a year in advance of collection,” Eversource wrote.

Gillett said that she believes those concerns were ironed out in the final decision. One change from the draft decision will allow the distribution companies to make filings for measurable changes that would be significantly different from the previous year.

If something like the power purchase agreement with Millstone Nuclear Power Plant came into effect that would significantly change energy costs from one year to the next, the authority would consider that in order to prevent wild swings in costs from one year to the next, Gillett said.

Bill redesign

Along with changing the process for setting rate adjustments, PURA’s decision also calls for a renewed effort into changing the design of the electric bills, which have confused and exasperated customers by breaking costs down into “supply” and “delivery” sections, where the delivery portion can be much larger than the supply portion.

“Certainly, I think delineating things between supply and delivery, while well-intentioned, has obviously contributed to a lot of confusion,” Gillett said. 

“A lot of the things that we do as policy initiatives get thrown onto the right side of the electric bill, which is the distribution side,” Needleman said. “The policy initiatives that we have are very important – we want to be a leader in climate change, we want to be a leader in energy efficiency, we want to be a leader in a lot of things — In many cases I support that, but we need to know what the cost of that is because not every ratepayer can afford a lot of these initiatives.”

PURA’s Office of Education and Outreach will work with stakeholders to redesign customer electric bills and commit more staff to work on educational resources to explain utilities and bills to the public, like a recently posted, narrated slide presentation that explains the different components of the electric bill.

Needleman said that he and other lawmakers on the energy committee have also been looking at ways to make electric bills more transparent to consumers, especially on the distribution side where there are so many different costs built into the charges. Having a clearer bill will also give customers a better picture of how the policy decisions of the state and legislature are affecting their bills, Needleman said.

“A lot of the things that we do as policy initiatives get thrown onto the right side of the electric bill, which is the distribution side,” Needleman said. “The policy initiatives that we have are very important – we want to be a leader in climate change, we want to be a leader in energy efficiency, we want to be a leader in a lot of things — In many cases I support that, but we need to know what the cost of that is because not every ratepayer can afford a lot of these initiatives.”

In addition to making sure electricity is affordable to customers, especially low-income customers, Needleman said that rate transparency is also important for encouraging businesses to stay in Connecticut. As an example, he pointed to Raytheon’s decision to build a new manufacturing plant in North Carolina instead of Connecticut.

“It impacts business decisions when they’re in energy-intensive businesses,” Needleman said. “We need to make sure we’re accommodating all interests, and having a clear bill helps us do that.”

Gillett said she thought a more transparent bill would be interactive and take the customer to a landing page that could explain what the different line items mean. They could also include more categories like what the customer has control over and what is a result of public policies or market prices, which would mean more to the customer, she said.

“I think promoting some more categories up front would provide more transparency, rather than listing these line items, which I think are somewhat nonsense to an average consumer,” Gillett said. “I don’t know that a non-bypassable, federally-mandated congestion charge means anything to me.”

Latest from Brendan Crowley