In a Split Vote, PURA Approves Reduced Penalty for Eversource Response to Isaias

In a settlement with Eversource that was narrowly approved by the Public Utility Regulatory Authority on Wednesday, the company will give its Connecticut electric customers about $35 each in bill credits in exchange for a reduced penalty for its response to Tropical Storm Isaias. 

But the state’s chief utility regulator, PURA Chair Marissa Gillette, warned the deal could result in higher costs for customers and make it more difficult for PURA to achieve the goals lawmakers have set for utility regulation in the long run. 

The settlement, brokered by Gov. Ned Lamont and Attorney General William Tong, finally resolves the Public Utility Regulatory Authority’s year-long investigation into Eversource’s response to Isaias, which PURA deemed inadequate. 

Lamont, Tong and Eversource have celebrated the settlement as a way to close the long-running investigation into the company’s response to the damaging August 2020 storm while providing immediate relief to customers.

The PURA board voted 2-1 to approve the settlement agreement with Eversource, which ends the return on equity cuts PURA imposed as part of an interim rate decrease requested by the General Assembly, and additional cuts to its ROE as a penalty for the company’s response to Isaias that would have cost the company about $26-31 million a year over the next 3-4 years.

In lieu of those cuts, Eversource has agreed to offer customers $65 million in bill credits – a total of $34.25 for the “typical” residential customer using 700 kWh a month, which will be paid in two monthly installments. Eversource also pledged another $10 million to low-income assistance programs.

The settlement also includes a waiver of the company’s right to appeal another $28.4 penalty PURA imposed for Eversource’s response to Isaias – which has been appearing on customer bills as “TS Isaias Performance Penalty” since August.

PURA’s decision said that prior to the settlement, Eversource was in line to lose $165 million in revenue with the ROE reductions and penalties combined – so the settlement saves the company about $60 million it would have paid in bill credits, in exchange for more immediate bill credits of larger amounts.

PURA Vice-Chair John Betkoski said he thought the settlement agreement was in the best interests of Eversource customers, and that he hoped the authority could now move forward from the Isaias investigation.

“Hopefully this chapter will be behind us, and we can move forward in a positive framework working with the company,” he said.

In a statement, Eversource said it was pleased PURA approved the settlement, which the company said “provides immediate, tangible relief” for its customers, as well as long-term benefits for the state.

“We learned valuable lessons as a result of Tropical Storm Isaias and have made numerous improvements that have changed how we respond to communities and communicate during storms,” Eversource spokeswoman Tricia Modifica said in a statement. “We look forward to moving on and winning over the ‘hearts and minds’ in Connecticut by demonstrating out commitment to both customers and Connecticut leadership, at a time when we must work together to deliver a new clean energy future.”

PURA Chair Marissa Gillette was the lone vote against approving the settlement agreement. She has opposed settlement agreements in the past, citing concerns they could unnecessarily tie the authority’s hands, and she shared her concerns in a dissenting opinion on Wednesday.

In her dissent, Gillette said the “rate freeze” included in the settlement – where Eversource agrees not to raise its distribution rates through Jan. 1, 2024 – would likely just add confusion for customers who aren’t familiar with all of the nuances of electric ratemaking. 

She pointed to the outrage and confusion over bill spikes in summer 2020 as evidence. And regardless of the distribution freeze, supply rates will increase significantly in January because of the spike in natural gas prices, Gillette wrote.

“At best, the public will be confused as to why the Authority has ‘allowed’ these rate increases when the Settlement has negotiated a rate freeze,” Gillette wrote. “And at worst, this confluence of events may undermine the public’s confidence in the public bodies entrusted with ensuring affordable rates.”

Gillette said it’s not even clear that the distribution “rate freeze” is in the best interests of customers, because historically low interest rates over the last several years have meant that customers are actually overpaying for their service – as Eversource could have raised capital to provide the same service at lower rates. 

With the “rate freeze” in effect, PURA won’t be able to lower distribution rates to reflect that until 2024. By then, the trend in interest rates will likely have reversed, Gillette wrote. The freeze also keeps PURA from addressing other aspects of Eversource rates that Gillette finds concerning until 2024.

“Due to repeated, consecutive settlements, by the time we engage in a full review of Eversource’s records through the next rate case, it will have been well more than a decade since the last time this exercise was completed,” Gillette wrote.

Gillette also criticized the settlement for forgoing the ROE penalty for lump-sum bill credits up front. She said the ROE penalty is one of the most effective tools a regulator has to drive “long-term, systemic change” in a private corporation like Eversource.

She acknowledged there are benefits to closure and to removing the risk that Eversource would have the penalty overturned on appeal, but said that appeal would be worth fighting to give PURA a clear answer from the courts on the extent of its ability to penalize utilities following a storm.

“I worry that this will not be the last time we are in this situation – more devastating storms will come to pass – and a tool such as a ROE reduction would more acutely encourage Eversource executives to properly prepare for and respond to such storms,” Gillette wrote. 

The majority opinion from Betkoski and Michael Caron said that Tong was “well positioned” to assess the risk of losing a lawsuit over the ROE penalty, and said he has a “lengthy and impressive record” of defending PURA’s decisions from appeals.

Gillette said that she believes enhanced local control, ratepayer relief and accountability were all “front of mind” in the settlement discussions, but she said the settlement falls short of those goals.

Having a mechanism where Connecticut customers can hold Eversource directly accountable is “sorely needed,” Gillette said, but the settlement agreement isn’t specific enough about the inclusion of a new Connecticut president position for Eversource. 

The new executive will still be accountable to a board of directors controlled by Eversource executives, and during weather emergencies, the Connecticut Incident Commander will continue to report to the Regional President of Eversource, rather than the new Connecticut President, Gillette said. 

“The very real costs (e.g. board and executive compensation) of such settlement terms, which are to be borne by Connecticut ratepayers, are foreseeable, yet the benefits remain nebulous at this stage,” Gillette wrote.

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