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NEW BRITAIN – State regulators ordered a rate cut for Aquarion Water on Wednesday, a move PURA Chair Marissa Gillett said is part of a stepped up effort to force all of the state’s utilities to prove the need for costs passed on to customers.
In what Gillett said was her first time “driving the bus” with a rate case since taking over as chair in 2019, regulators rejected a request by Aquarion to raise revenues by $37 million – almost 28 percent – over the next three years. If approved, the request would have increased customer bills on average more than $60 a year. Instead, PURA cut the company’s approved revenues by about $2 million, saving the average customer $67 a year.
PURA voted 2-1 to approve the rate cut despite deep reservations expressed by two of the commission members regarding the decision.
Gillett told CT Examiner she recognizes Aquarion needs to invest in its system to provide safe and reliable water service, but said the company didn’t do enough to prove to regulators that its spending was necessary. She said the company instead tried to twist the burden of proof onto PURA. to prove that its spending wasn’t necessary.
“What this decision says is that you cannot simply come to us and say, ‘I spent $800 million over the last decade, you owe me recovery for that,’” Gillett said. “Whatever investments you are going to make moving forward, you need to come to us with adequate evidence to support that those investments were prudent and reasonable.”
But Vice Chair John Betkoski, the lone vote against the decision, said its tone was “contemptuous and perhaps even condescending,” and said it wasn’t a stretch for Aquarion to say the decision arbitrarily barred it from charging customers for certain costs.
Aquarion has done an outstanding job in Connecticut, and the decision looks like a punishment, Betkoski said. He said he’s happy Aquarion customers will pay a lower rate, but said he’s worried that it will also chill investment in Connecticut utilities by telling investors to spend their money elsewhere.
“At a time when Connecticut is very successful in encouraging business growth and job creation in the state, this decision represents a punitive and anti-business practice message,” Betkoski said.
Commissioner Michael Caron said he voted for the decision because he couldn’t allow it to fail and for Aquarion’s request for a near-$40 million rate increase to take effect, but said he has serious concerns that it will limit investments in Connecticut utilities.
Caron said the authority has worked over the years to provide stable returns to utility companies, setting their return on equity between 9.16 percent and 9.63 percent. PURA’s decision sets Aquarion’s return on equity at 8.7 percent – a cut Caron said is “appalling.”
“This decision really seems to be sending a message,” Caron said. “I’m not sure what that message is, but it comes across as something like a punishment.”
Utilities can’t pick up and move to another state, but they can move their investment to another state, Caron said. He said he expects investment in all Connecticut utilities will decline in the near future.
Caron said he expects the company will be back within two years asking for another rate increase, and said he hopes that when they do they will “sharpen their pencils and their justifications” for their capital investments.
Betkoski said he had no doubt Aquarion will appeal the decision to the Connecticut Superior Court.
Aquarion, an Eversource subsidiary, serves more than 200,000 customers in 56 Connecticut municipalities, including all of Fairfield County. The company argued it needed the rate increase after investing $740 million in water infrastructure since its last rate case in 2013, and to manage rising costs, new regulations and emerging issues like PFAS contamination.
In a statement Wednesday afternoon, Aquarion said it’s disappointed in PURA’s decision and will evaluate its next steps over the coming days.
“From aging infrastructure and lead service lines, to per- and polyfluoroalkyl substances (PFAS) in water threatening human health, the water industry faces serious challenges that can only be met through prudent, sustained investment in our State’s water infrastructure,” the company said through a spokesman. “Regrettably, PURA’s decision is silent on how to address these challenges with reduced resources.”
Aquarion raises specter of Jackson, Mississippi
In response to an earlier draft decision in February recommending a smaller cut to Aquarion rates, the company said PURA was sending a signal that water companies should cut back investment in their systems.
Aquarion said inflation accounts for 19 percent of the difference in capital expenses that increased from $62.3 million at the time of its last rate case in 2013 and $148.9 million in 2022. Water main replacements account for another 35 percent of that increase, also driven up by the cost of complying with regulations and upgrades to water treatment plants, Aquarion said.
In a written response to the proposed cut, Aquarion pointed to Jackson, Mississippi – where decades of underinvestment in the municipal water system led to catastrophic failures that left residents without clean water for months – as an example of what can happen when utilities jeopardize their ability to provide safe water in a short-sighted attempt to lower rates.
“There is no way around the fact that the delivery of reliable, clean water requires continual investment to ensure water quality through the use of new investments to treat emerging contaminants such as PFAS; to ensure the adequacy of water quantity so that water is available where the customers reside and to support economic activities; and to ensure reliability by making investments such as replacing water mains, pumping and treatment facilities that ensure the reliability of Aquarion’s public water systems,” the company argued.
Gillett said the comparison to Jackson and to Flint, Michigan, in filings was a “dangerous and alarming” statement for Aquarion to make. She said if the company is going to continue to make the argument that it is headed for catastrophe because of the rate cut, she believes lawmakers should reconsider the company’s franchise – which requires it to provide safe and reliable water service in exchange for the state allowing it to operate as a monopoly utility.
“They haven’t connected the dots between what this decision says and how they would end up in that extreme a situation,” Gillett said. “I really viewed it as an irresponsible scare tactic.”
In its statement Wednesday, Aquarion said it’s committed to providing safe, high-quality water to its customers, and to delivering the modern infrastructure needed to do so.
Gillett eyes Eversource, United Illuminating rates
Gillett said Aquarion was the first time she has been able to fully put her stamp on a case as chief regulator. She was the lone vote in dissent in 2021, when Connecticut Water asked PURA to raise its rates another 2 percent – months after approving a 5 percent hike – after an accounting mistake the company said it made in its earlier application.
“For me, this rate case is about applying the facts of the situation, but also about showing how I intend to approach distribution rate proceedings moving forward,” Gillett told CT Examiner. “I think it signals a level of aggressiveness and intent to fully exercise all the tools we have, and that the legislature has given us through the Take Back Our Grid Act [of 2020].”
Gillett said she intends to give the same scrutiny to United Illuminating’s request to raise rates about 5 percent a year over the next three years, and to Eversource if she is still chair of PURA when the state’s largest regulated utility eventually comes in for a rate case.
Gillett’s term expires next March, and she would need to be re-appointed by Gov. Ned Lamont to see a rate case from Eversource, which can’t seek a rate increase until 2024 because of a settlement over its response to Tropical Storm Isaias in 2020 – and has said it likely won’t apply for a rate case until late 2025.
“I think that is a real line in the sand that we’re attempting to draw here, saying, every other company, the government, everybody has to substantiate the money they’re seeking to spend and recover,” Gillett said. “[The utilities] should be held to that same standard.”
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This story has been updated with comments from Aquarion Water