Gov. Ned Lamont and Attorney General William Tong announced a settlement agreement six weeks ago that they said would give needed relief to customers of United Illuminating by returning money the company has been over-collecting since the federal corporate tax rate was reduced from 35 to 21 percent in 2017.
On Monday, the merits of that settlement were sharply questioned by state regulators, who warned that the deal could lock customers into a higher rate for the next two years than might be necessary without the settlement, and could frustrate performance-based reforms the state legislature ordered last year.
In the settlement, United Illuminating agreed to provide its customers with $46.55 million in bill credits until December 2022. The company also agreed to freeze its distribution rate until May 2023.
But that settlement would supersede an existing order by PURA, the state regulatory agency, that the company return $41.55 million of the $46.55 million to its 338,650 customers in the New Haven and Bridgeport areas. It would also mean that the company could continue to charge customers distribution rates based on a 35 percent tax rate until 2023.
Eversource has already adjusted charges to reflect the tax cut, according to PURA, and has returned the money it owes to customers. United Illuminating and the regulated water and gas utilities continue to charge customers rates based on the 35 percent tax rate. All have been ordered to return customer money, and many are set to have these charges adjusted this year.
The United Illuminating settlement does not specify how the company will treat any additional overcharges until May 2023, which regulators estimate at $10 to $15 million, and PURA officials questioned whether customers would need to wait another several years for that money to be returned.
“Given the Authority’s recent experience with parties’ positions on ambiguous settlement terms, such ambiguity is not tolerable,” PURA said in its Monday order.
Taren O’Connor, director of legislation, regulations and communications for PURA, told CT Examiner that over the last two years as chair of the state regulator, Marissa Gillett has been told on a number of occasions by the utilities, consumer advocates and others that she can’t pursue an action she thinks could be beneficial to ratepayers because she is bound by the terms of settlements brokered years before she arrived in Connecticut.
When the agreement was announced in March, Lamont said it promised more affordable, predictable rates to families and businesses who have struggled with high energy costs during the pandemic.
“When I signed legislation to reform utility accountability, I called on the utilities to put ratepayers above profitt,” Lamont said in a March statement. “Today’s settlement, achieved through ratepayer focused negotiations by our state agencies, represents a positive step by UI in that direction.”
But regulators warned that the settlement would prevent the agency from possibly lowering distribution rates over the next two years, and would frustrate reforms ordered by the expansive utility reform bill passed by lawmakers in the wake of Tropical Storm Isaias.
Regulators say that the settlement “short-circuits” an investigation into an interim rate decrease and offers $5 million of shareholder money in return.
Officials also say that the settlement prevents PURA from implementing any regulation or metric intended to move United Illuminating towards a system of performance-based ratemaking – which the utility reform bill requires PURA to implement – until at least May 2023.
After accounting for the $41.55 million the company owes customers, and the $58 million still owed to the company for costs in 2020, regulators say that the settlement will not result in any reduction in customer rates.
State regulators extended a hearing on United Illuminating rate increases tied to the settlement agreement until later this summer, meaning that United Illuminating customers will not be charged a seasonal rate increase in May.
United Illuminating spokesman Ed Crowder welcomed the extended review in an email to CT Examiner.
“We welcome PURA’s decision extending the review period for the settlement offer, which we believe would provide substantial rate relief and stability for UI customers,” wrote Crowder.
In response to PURA’s draft decision regarding the settlement two weeks ago, Attorney General William Tong said the authority “got this wrong” and urged state regulators to reconsider. He said in a statement that PURA’s plan would have provided marginal immediate savings to ratepayers, but would cause millions of dollars in new charges later.
“This just doesn’t make good sense to me, especially when United Illuminating was willing to contribute their own money to avoid this problem,” Tong said. “Connecticut consumers pay far too much just to keep their lights on, and we all needed the rate stability that this deal would have provided”