The Consequences of an Anti-Business Regulatory Framework in Connecticut


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To the Editor:

In my experience, political leaders and utility regulators in the Northeast often view utility ratemaking through a specific lens: “the company” and its shareholders versus “the customer” – the constituents who are viewed as captive to the monopoly and its self-interested business practices.

But from my six years serving on the New York Public Utilities Commission, I can assure you that in a healthy regulatory framework, the result should not be a choice between “the company or the customer,” but rather “the company and the customer.” By paying dividends and bond coupons, the company attracts the capital it needs to make investments in its infrastructure. Better infrastructure provides customers better power quality and greater resiliency against severe storms and flooding, which are increasingly likely as the climate changes. Strong power quality attracts more businesses and residents, which spreads the costs of service across a larger customer base, thus lowering prices.

Unfortunately, the inverse is also true. When the regulatory framework is unhealthy – when regulators see company benefits as opposed to customer benefits – the company, the customer, and the state all lose out.

Perhaps nowhere in the country is this more evident than Connecticut. On July 21, the Public Utilities Regulatory Authority (PURA) issued a draft decision on the United Illuminating Company’s application to raise its rates by 5 percent in a three-year rate plan.  PURA rejected all but $2 million of the rate increase request, effectively issuing a significant financial hit to UI, which hasn’t seen a rate increase since 2019 – long before inflation. PURA also rejected UI’s request for a three-year rate plan, effectively requiring the company to come back in for a year-long rate review process again in 2024 that will distract from their ability to implement PURA’s requirements and recommendations. PURA also slashed UI’s allowed return on equity (ROE) by nearly 90 basis points, from up to 9.1 percent to up to just 8.28 percent. And because of additional penalties and disallowances riddled throughout the 300-page decision, UI would effectively be receiving an ROE below 6 percent. Any investor could tell you this is a major disincentive to investment in Connecticut utilities: shareholders would practically be better off investing in U.S. treasuries, and much more so in utilities in other states.

Even more than solid returns, investors want certainty and stability in the regulatory environment. Connecticut offers neither. Low returns, combined with a one-year rate plan, in addition to the heretofore untested performance-based ratemaking, all contribute to a deeply uncertain regulatory environment. All of this is reflected in various investor services, including Moody’s, Guggenheim Securities, and Bank of America, warning investors to stay away from Connecticut utility companies.

In addition to disincentivizing investors from an equity standpoint, this can cause the company to struggle to attract bond investors – debt issued to pay for investments in the electric grid. Investor services and credit agencies worry that the utility, compared with states not suffering from regulatory uncertainty, will not be able to pay its debts, and they lower the utility’s credit rating, further discouraging investment and increasing costs for customers.

This approach can have one of two impacts: utility companies must either charge customers more for investments, or forego them altogether. The most pressing reliability projects cost customers more, and the less pressing projects, such as making utility infrastructure more sustainable, are put on the backburner.

The cascading impact of all this is clear. The customer pays more for lower quality power; the company faces a vicious cycle of customer and shareholder dissatisfaction; and Connecticut faces increasingly insurmountable sustainability goals, despite their increasing urgency.

These uncertainties result from PURA using a blunt instrument to attempt to force the alignment of the interests of the utility and its customers. There are other, less damaging, tactics – ones we used in New York State, including a thorough management audit by a third party and regular meetings with the senior officers of the utility to ensure everyone stays on the same page. I worry that without a 180-degree turn in this direction in Connecticut – and soon – we will face more challenges in the future than solutions in the present.

Curry served as a commissioner of the New York State Public Service Commission from 2006 to 2012.