When state leaders announced in 2021 that they had reached a settlement with Eversource over penalties levied on its failed response to Tropical Storm Isaias, Gov. Ned Lamont and Attorney General William Tong hailed it as a win for customers.
The settlement helped sidestep a long legal battle, after PURA, the state regulator, slashed the company’s return on equity, and Eversource appealed the ruling, arguing that the state regulator had overstepped its authority.
But PURA Chair Marissa Gillett has questioned whether such settlements, which can tie the hands of regulators for years, are always in the best interest of customers. And she is pushing lawmakers to set limits on how state officials settle these disputes, and in effect sidestep PURA oversight.
The new guidelines are part of a wide-ranging bill aimed at trimming back what lawmakers say are unnecessary, if minimal, costs charged to customers, and would guide when the Attorney General, Consumer Counsel or DEEP can settle cases before PURA.
The bill would require state regulators to evaluate whether a given settlement is in the best interests of customers before approving it – Gillett said there is no current standard for reviewing settlements – the bill would also limit the length of a settlement to no longer than three years.
In the case of Isaias, Eversource agreed to bill credits of about $34 for the average residential electric customer in exchange for restoring the company’s return on investment, which would have cost Eversource $26-31 million a year for 3 to 4 years. Eversource also agreed not to ask for an increase to its distribution rates until at least January 2024.
But the deal concerned Gillett. A freeze on distribution rates sounded great to customers dealing with some of the highest electric bills in the country, but Gillett said that picture is misleading.
Low rates for borrowing money in 2021 would have favored Eversource customers when state regulators adjusted how much the company could charge based on a “reasonable” return on investment, Gillett said.
Gillett said it also would have been valuable to have a court rule on whether PURA had the power to impose the penalties it did, so the authority could rely on its legal powers the next time a utility’s response to a major storm warranted penalties.
The terms of the settlement also meant that more than a decade will pass between Eversource’s last rate case in 2014 and its next, when state regulators have an opportunity to examine utilities’ costs.
“Then you’re faced with a situation where they have record profits, and people are furious,” Gillett said. “They’re looking at us saying, ‘Well what did you do with all that Take Back Our Grid stuff? What did you do with their executive compensation?’ And I just have to sit there and say, ‘I can’t do anything until their next rate case, by law.’”
State officials including Consumer Counsel Claire Coleman and Attorney General William Tong, along with the state’s regulated utilities including Eversource and United Illuminating’s parent company Avangrid have questioned the proposed limits, arguing that they undercut their ability to work out creative deals to resolve regulatory issues that would benefit customers.
Gillett said many of those arguments are “red herrings,” and that she just wants to set guardrails so that PURA can ensure settlements are truly in customers’ best interests, and so that they don’t interfere with PURA’s ability to regulate utilities.
Attorney General William Tong said in written testimony to the committee that it’s “well settled” policy to encourage settlements to avoid protracted litigation and the costs that come with it.
“The restrictions on such settlements proposed here are unduly limiting and may have the effect of stifling creative solutions that benefit ratepayers,” Tong wrote.
Eversource argued in written testimony that the proposal would impose “arbitrary” limits on the Attorney General, DEEP and the Consumer Counsel to resolve litigated issues “to the benefit of customers.” PURA already has the power to reject settlements, the company said.
Eversource counsel Vincent Pace told lawmakers on Tuesday that PURA already can review settlements, citing a 2017 Eversource case.
“An important point that should not be lost today, is that [PURA] can take evidence on settlements, they can ask questions, they can require discovery, they can have hearings, and they can reject settlements, or they can order them to be amended,” Pace said. “That power exists today.”
Gillett said settlements are often presented to PURA as a “black box” and with conditions that the authority approve them in full or the settlement is void. The utilities will present a panel of witnesses to answer questions about the settlement, but Gillett said it’s important to hear from everyone involved on why the settlement is a good deal for customers.
Pace also questioned a provision of the bill that would not allow settlement terms to extend longer than three years. He said it would effectively allow PURA to nullify a settlement that parties worked hard to reach after three years.
Gillett said it wouldn’t allow PURA to nullify settlements after the fact, but would prevent terms from extending longer than three years in the first place. She said she’s been prevented from taking action in the past because of the terms of settlements reached before she joined PURA.
When Eversource settled the 2017 case, it included a new surcharge that allowed the company to charge customers for the cost of capital improvements without a full rate case. That settlement didn’t include an end date for that surcharge, and Eversource has argued it should be indefinite, Gillett said.
“You’re being told by the company and parties appearing before you that the authority’s hands are tied because there was a settlement executed years ago that purports to bind how we’re reviewing things now,” Gillett said. “I think the goal here is that you can settle a rate case, fine, if it’s in the best interest of ratepayers, and you’re going to meet the guidelines – but that settlement can’t go beyond three years.”
State Sen. Norm Needleman, D-Essex, co-chair of the Energy & Technology Committee, said he has no intention to stand in the way of all settlements. He said he’s concerned with how many times a utility can settle issues without being subject to a full rate case.
“It’s just, how many times you do that without a thorough review of the operations of a regulated, franchise entity, that again, to say it one more time, acts as a monopoly in the territory that they operate,” Needleman said. “You guys [the utilities] have the ability to bring a ton of horsepower to every situation, and will argue, frankly, even when you’re wrong, that you’re right.”