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New year, new chapter in long fight over CT’s utility regulator

Marissa Gillett is the chair of the Public Utilities Regulatory Authority.
Yehyun Kim
/
CT Mirror
Marissa Gillett is the chair of the Public Utilities Regulatory Authority. 

Connecticut’s regulated monopolies have never seen anyone quite like Marissa P. Gillett. Neither have her colleagues at the Public Utilities Regulatory Authority, where she is the undisputed boss. Nor have the legislators who relied on her counsel as they toughened the framework for how electric, gas and water rates are to be set.

As chair, Gillett has taken charge of every docket, applied stricter scrutiny over everything from employee schedules to utility lobbying expenses, and rattled Wall Street with a self-described “adversarial” approach that a colleague likened to a punishment in Gillett’s first rate case.

In that instance, not only did PURA deny a $35 million increase sought by the Aquarion Water Company, it also ordered a $2 million reduction that left the Eversource subsidiary apoplectic. The cut, coming after a decade of rising costs, all but announced there’s a new sheriff in town.

Legislators overseeing energy policy heap fulsome praise, calling her a welcome disrupter. PURA’s other commissioners, John W. Betkoski III and Michael A. Caron, have clashed with Gillett while praising her intellect and work ethic. PURA employees complain of, among other things, too much change, too fast. About three dozen have left since her arrival at the 68-person agency in 2019.

As for Eversource and Avangrid, the multi-state corporations whose subsidiaries deliver electricity, natural gas and water in Connecticut, they speak carefully of Gillett, at least when they are not suing her agency. But Gov. Ned Lamont, whose administration recruited her from Maryland to bring an outsider’s perspective to an authority long dominated by Connecticut politicians, is certain of their opinion.

“I talk to everybody all the time, including the CEOs, and they have not been understated on that subject,” Lamont said.

They want her gone.

Lamont said there was no explicit demand that he deny reappointment when Gillett’s first term expires in March. None was necessary. Lamont said the utilities make their point by regularly complaining of a hostile regulatory environment.

The more pressing question: What does Lamont want?

In Gillett, he hired a change agent, an experienced regulatory lawyer who has insisted on a greater distance from the regulated utilities. Now Lamont has to weigh his tolerance for change against the crescendoing complaints that Connecticut has become a bad place for utilities to invest.

Does he think Gillett is on the right course in trying to control the high cost of electricity? Or is Lamont, who acknowledges consulting with Wall Street about PURA’s impact on utility investment, concerned that she is discouraging the regulated monopolies from seeking capital to modernize?

There is little doubt he intends to retain Gillett. He speaks well of her, and a governor bowing to utilities’ desires to remove an unfriendly regulator would be awkward, if not politically unpalatable.

But he still can remake PURA around Gillett. Betkoski and Caron are serving on terms that expired last year and can be replaced whenever Lamont desires. And state law allows him to expand the authority from three to five members — the option he says he is most likely to pursue.

Lamont said he already has spoken to potential nominees who would bring a national perspective. Somewhat inscrutably, he spoke of wanting both a degree of “continuity” and fresh perspectives.

But to what end? If the governor wishes to recalibrate PURA’s approach under Gillett, he has not publicly given a clear sense of direction or degree. On Wall Street, there was speculation last summer of Gillett’s departure, possibly due to Lamont’s reluctance to replace either Caron or Betkoski.

“Look, I think Marissa is really good. I think she has more analytical professional skills in that job than most other states” have, said Lamont, who nonetheless acknowledged suggesting a less prosecutorial stance to her and a more collegial attitude to all three.

But Lamont’s bottom line is this: “I think we need her at this really complex time.”

Complex, indeed.

The expansion of PURA would be one more variable at an extraordinary time for utility regulation in Connecticut, beginning with the ill-concealed hostility between Gillett and the state’s two largest public utilities, tension among the three commissioners, poor morale among some long-time employees and concerns that the electric grid will not be readyfor a transition to an auto market dominated by electric vehicles.

The state also is at a critical phase in the gradual shift mandated by the General Assembly and Lamont to performance-based regulation, modifying the century-old approach of allowing utilities to recover their cost of service and earn a reasonable return on capital investments.

By late August, PURA hopes to have finalized the standards, rewards and penalties under performance-based regulation. For the two electric utilities, the system will base compensation, at least in part, on how well Eversource and Avangrid do in keeping the lights on, not just on how much they spend.

On Jan. 11, a judge is scheduled to hear arguments on Aquarion’s challenge to the rate reduction, one of at least two cases before the Superior Court and one before the state Supreme Court that could affirm or limit PURA’s aggressive oversight of performance and expenses under Gillett.

The challenge by Aquarion, the region’s largest private water company when Eversource purchased it for $1.675 billion in 2017, reads like a declaration of war on Gillett, attacking not only the decision engineered by the chair but the manner in which it was reached. A judge has stayed the rate reduction, a rare action that gives Aquarion hope of prevailing.

Aquarion says the rate reduction was “irreparably flawed and cannot stand” and is replete with “example after example of unlawful decision making, ignored legal requirements and standards, baseless rationales and/or reliance on extra-record evidence. The cumulative effect of these errors is a decision that is unprecedented both in terms of its punitive nature and damaging impacts.”

It was one of several factors that led Regulatory Research Associates, a Standard & Poor’s unit that tracks regulated markets, to downgrade Connecticut’s regulatory environment in August to the second-lowest of its nine grades. To investors, that says Connecticut’s regulatory environment is one of the worst in the U.S.

‘The Worst for Who?’

At the center of it all is Gillett, an engineer and lawyer intent on transforming PURA and its relationship with the state’s monopolies, inflicting chronic agita on the regulated and those officials and staff who regulate them. Conflict and change have been constant, all of it deliberate.

“Typically, there isn’t so much focus on one regulator. It’s very abnormal,” said Shahriar Pourreza, an analyst who tracks Eversource and other utility stocks for Guggenheim Partners. “But this one regulator has publicly shown a lot of disdain towards the utility that she governs, that she regulates, and that has generated a lot of investor angst.”

Pourreza said Gillett has all but dared Eversource, which has 4.4 million electric, natural gas and water customers in Connecticut, Massachusetts and New Hampshire, to invest where it can get a better return. He has shared his concern directly with Lamont, whom he described as inquisitive and “asking the right questions.”

The stock price of Eversource fell 27% in 2023; Avangrid was off by 25%. Both saw offshore wind investments go sour in 2023, but Pourreza said Connecticut’s regulatory environment was a heavier drag on Eversource, the supplier of electricity to all but 20 of the state’s 169 cities and towns. Pourreza blamed the dreaded D-word — disruption.

“Do investors like disruption in utilities? No, we don’t. It’s not the tech industry, where we like disruptions. We like consistency and stability, because it’s utilities, right?” Pourreza said. “Just think about all the 401(k) investors, retirement investors. As you get older in life, you’re investing in utilities for that dividend.”

Gillett is unapologetic. Early on the job, Gillett concluded that PURA was an agency in need of reform and the state’s utilities required closer monitoring, a conclusion reaffirmed in 2020 after a slow restoration of power after a massive blackout caused by Tropical Storm Isaias.

“I think people either love me or hate me, but either way I think people should feel like they know what they’re getting. That’s my goal,” Gillett said. “I don’t want it to be a question of insincerity or second guessing what I’m trying to get at. I’m trying to be transparent.”

Marissa P. Gillett, the state’s chief utility regulator, watches Gov. Ned Lamont field questions about a new approach to regulation in April.
Mark Pazniokas
/
CT Mirror
Marissa P. Gillett, the state’s chief utility regulator, watches Gov. Ned Lamont field questions about a new approach to regulation in April. 

She quickly issued a dizzying flurry of directives, emphasizing a chain of command and formalizing procedures for communicating with commissioners and legislators, among other things. By her own account, Gillett has an engineer’s fondness for precision, process, clarity and control.

Gillett said she has tried to be clear in her dealings with employees, who have bristled at her efforts to standardize schedules and various practices that had been flexible or ill-defined before her arrival, as well as with the regulated monopolies. To varying degrees, both groups have rebelled.

A common element of some changes was a desire to establish a greater distance between regulators, their staffs and the regulated.

“There’s a degree of familiarity that bubbles up when you work that closely together. And I think there’s just so many millions, if not billions of dollars involved, and real world implications for families being able to afford their bills,” Gillett said. “I don’t think the lack of clarity about what is and isn’t appropriate was helpful to anyone.”

DeLisa Group, a human resources consultant hired by Gillett last year to take the temperature of the workforce, characterized employee satisfaction and productivity levels as “middling” after interviewing 60 employees, mostly in group sessions.

Its recommendations included slowing the pace of change, addressing a “growing perception that the Commission is in conflict” and hiring an executive coach for Gillett “to help her navigate leadership-related issues during this period of transformation at PURA.”

Gillett has not hired a coach, but said she has taken other recommendations to heart, especially the pace of change. Gillett said she arrived with a sense of urgency, aware that the average tenure of a utility regulator is less than four years — even if Connecticut decidedly is an outlier on that count.

Caron, 63, has been a commissioner for more than 11 years; Betkoski, 71, was appointed 26 years ago. They are past presidents of the National Association of Regulatory Utility Commissioners, Caron completing his term last year.

“I appreciate they’ve been there for a while,” Lamont said. “I also appreciate that they bring some experience to the table.”

Caron and Betkoski acknowledged tensions with Gillett but insist they can work together, a message the governor clearly wants to hear. “I’ve had five chairmen. Everybody has their different style,” Betkoski said. Notwithstanding dissents on some cases, he said, “We get along.”

As far as Gillett’s aggressive take on rates, Caron said ultimately the commissioners are tasked with carrying out policy set by the General Assembly in statute.

“And they have made it clear, ‘We want more rigorous attention paid to what the ratepayers are getting.’ And the governor made it very clear he likes his disrupter,” Caron said. “But he wants somebody who’s had some experience to help guide the ship.”

Caron and Betkoski are former state legislators with deep personal and political roots in Connecticut, where political and legal circles tend to be close. One indicator of the value of those connections: Last year, Sen. Norm Needleman, D-Essex, and Rep. Jonathan Steinberg, D-Westport, co-chairs of the Energy and Technology Committee, backed off from seeking term limits that would have forced Caron and Betkoski’s departure.

Caron is a Republican who served 18 years in the House, from 1991 to 1999. He is married to Maureen Magnan, a former senior House Democratic staffer who is the Lamont administration’s deputy commissioner of consumer protection.

Betkoski is a Democrat who served for a decade in the House, befriending Thomas D. Ritter, the House speaker when Gov. John G. Rowland made Betkoski a utility regulator in 1997. Ritter is the father of the current speaker, Rep. Matt Ritter, D-Hartford.

The elder Ritter does no direct lobbying at the state Capitol, but he oversees government affairs at Brown Rudnick, a regional law firm that counts Avangrid and its United Illuminating subsidiary as legal and lobbying clients. In fact, Brown Rudnick currently is representing UI in an appeal of a PURA rate decision.

Both utilities have employees with deep experience in Connecticut’s legislative and executive branches.

Jonathan Harris, an Eversource executive and former aide to Gov. Ned Lamont, chatted with Lamont after a press conference asserting the electric grid would be ready for a transition to electric vehicles.
Mark Pazniokas
/
CT Mirror
Jonathan Harris, an Eversource executive and former aide to Gov. Ned Lamont, chatted with Lamont after a press conference asserting the electric grid would be ready for a transition to electric vehicles. 

Steinberg’s predecessor as House co-chair of the Energy and Technology Committee, David Arconti of Danbury, joined Avangrid in September as its vice president of government relations. Jonathan Harris, a former state senator and senior aide to Lamont, is director of regulatory affairs at Eversource. Max Reiss, the company’s vice president of strategic communications, used to do a similar job for Lamont.

Gillett is 36, the married mother of 6-year-old twins, a political independent and a rarity at PURA on two counts: She not only is a regulatory lawyer but a political outsider. Gillett worked for the Maryland Public Service Commission from 2011 until 2018.

One of the changes under Gillett was to end an era of specialization: Betkoski, who voted against the Aquarion rate cut, long had presided over water company dockets; Caron, who was featured a year ago as an industry supporter on the cover of a trade association magazine, American Gas, took the lead on natural gas dockets. Now, only the chair presides.

Unlike her two colleagues, Gillett does not meet or explain herself to industry analysts, some of whom have described her actions as “zealotry” and Caron and Betkoski as “rational actors.” It is an unexpected stance for Gillett, who otherwise is an evangelist in explaining all things PURA.

She is accessible to the press, conducts public outreach sessions in person and online and testifies at the General Assembly. Gillett addressed analysts after PURA faulted Eversource and Avangrid for failing for their performance in Tropical Storm Isaias, but she found it unproductive.

“And that was the first and last time that I’ve spoken to analysts,” Gillett said.

Eversource President Joe Nolan, who talks regularly with the governor, said he would love to similarly engage with Gillett. One such effort by his peer at Avangrid, Pedro Azagra Blázquez, went poorly.

A so-called courtesy call in August 2022, a month before Avangrid’s United Illuminating subsidiary filed for a rate increase, prompted a previously unpublicized accusation that Azagra had attempted an improper ex parte communication with Gillett and the authority’s general counsel, Scott Muska.

A Freedom of Information request by CT Mirror produced a letter from Muska reproaching Azagra for “plainly implying that the Authority should weigh Avangrid’s corporate investment strategy in the State when ruling on matters related to Avangrid’s subsidiary public service companies.”

UI President Frank Reynolds, who was on the video call, said the meeting was nothing more than an opportunity to acquaint Gillett with the leadership of Avangrid and UI and establish “a productive relationship.” Azagra had been named CEO of Avangrid in March.

Reynolds said he and Azagra are well aware of what can be discussed outside a formal regulatory hearing and that neither said anything improper.

“Because the letter so overtly took comments made by Avangrid executives out of context, it had a chilling effect on our company’s ability to have productive conversations with PURA regarding Connecticut’s climate and energy policy goals,” Reynolds said.

The chill was mutual. Muska told Avangrid it should have no further communications with commissioners or staff — with the exception of the director of regulations, legislation and communications — outside the presence of a PURA lawyer.

The UI rate case went no better for the company or its investors.

UI wanted a $131 million revenue increase from ratepayers over three years and a 10.2% return on equity. In August, it got a $22.9 million increase and a 9.1% return on equity, minus a penalty of 47 basis points for performance issues that dropped the ROE to 8.63%.

It could have been worse. A draft decision showed Gillett wanted only $2 million in new revenue and a return on equity of 8.8%, minus a penalty of 52 basis points that dropped the ROE to 8.28%. Betkoski and Caron said she compromised at their request, leading to a 3-0 approval.

Gillett said the burden was on UI to prove its case for more, and the company failed.

Kimberly Harriman, the vice president for state government relations and public affairs at Avangrid, said the decision was devastating.

You have to ask yourself, ‘Well, what does that tell our customers? What does it tell our employees? What does it tell the investors who we want to attract capital and come to the state on a cost effective basis?’ It tells us that Connecticut is not a positive regulatory environment. In fact, they’re closed for business,” Harriman said.

Harriman complained that PURA applied newer, tougher standards to the rate request, similar to a gripe voiced by Eversource in the Aquarion case. Caron said the UI presentation was lacking, even if he was sympathetic to the utilities’ complaints about a shifting evidentiary burden.

“We never told them what the burden was,” said Caron, who nonetheless voted with Gillett for the 2-1 decision on Aquarion and the unanimous one on UI. “I’ve been trying to say, ‘We need to sit down, so you all know the rules of the road and understand.’ ”

Gillett responded that the Aquarion and UI decisions were based on longstanding standards; The only difference is now they are being strictly applied. She likened the utilities’ outrage to a motorist who speeds four days without getting caught, then howls when a cop pulls them over on the fifth day.

“That’s not a legal defense,” Gillett said.

Like Aquarion, UI filed an appeal of the decision to Superior Court in New Britain, which conveniently sits across a public square from the office that houses PURA and the Office of Consumer Counsel. Since the arrival of Gillett, PURA has had lots of business at the courthouse.

In addition to the appeal, United Illuminating filed an unusual interim rate request on Nov. 30, asking for a $14 million boost. Without the revenue, the company said, it was deferring upgrades to substations and its vehicle fleet, jeopardizing the quality of service to its 341,000 customers.

PURA denied the request Friday.

Gillett is comfortable with the friction and unmoved by complaints that she is largely responsible for one of the nation’s four worst regulatory environments: Connecticut is ranked even with New Mexico and the District of Columbia and a step above Arizona.

“I would start by asking them to define what that means. The worst for who?” Gillett said. She quickly answered her own question: The rating reflects the interest of investors, not consumers who pay high electric bills.

Regulators, ratepayers and investors

David Pomerantz, the executive director of the Energy and Policy Institute, a watchdog group that monitors how utilities “deploy influence” and “capture regulators,” calls Gillett’s studied distance from the regulated community and her skeptical view of rate demands “a total breath of fresh air.”

John Erlinghauser of AARP has a similar view.

“Marissa was brought in to be a disrupter and upset the status quo,” Erlinghauser said. “It was always the same old thing. You know, the utilities would come in for a rate increase, and it would be some outrageous rate increase, and then somehow it always ended up splitting the difference, except there was never a serious examination of everything.”

In the Aquarion case, Gillett disallowed $4.9 million in expenses related to its merger with Eversource, concluding the merger benefitted shareholders and not ratepayers. She also disallowed legal and entertainment expenses.

Consumers should not be alarmed by how investors view their state’s regulatory environment, Pomerantz said.

“If they say they have an unhealthy regulatory environment, it means the regulators have the temerity to occasionally, or more frequently, not give them what they want,” Pomerantz said. “There’s a lot of issues with investor-run utilities that are complex and nuanced, but some of it really isn’t. Some of it is a zero-sum game, where the utilities’ investors can profit more or ratepayers can have that money back in their pockets.”

In a series of interviews with CT Mirror, utilities and stock analysts said that opinion is simplistic. Douglas P. Horton, the Eversource vice president who oversees distribution rates and regulatory affairs, said there is an inherent tension, if not an outright contradiction, in PURA’s approach under Gillett.

“We have a regulator who seems as an entity to be saying, ‘Stop investing, because it’s driving up rates for customers. Stop spending money, because we want to reduce bills.’ But at the same time, holding us to a high standard of reliability and safety of the system,” Horton said. “So those two things are at odds with one another. And it’s the regulator’s job to help balance those at times competing interests.”

Eversource and Avangrid push back at the notion that PURA’s actions are making a noticeable dent in monthly bills. Since a partial deregulation bill passed in 1998, the utilities are in the regulated business of distributing electricity, not generating it. The price of electricity supply is set on a competitive market.

Gov. Ned Lamont’s chief of staff, Jonathan Dach, right, talking to Sen. Norm Needleman two hours before the governor said he would appoint Marissa P. Gillett to a new term as chair of PURA.
Mark Pazniokas
/
CT Mirror
Gov. Ned Lamont’s chief of staff, Jonathan Dach, right, talking to Sen. Norm Needleman two hours before the governor said he would appoint Marissa P. Gillett to a new term as chair of PURA. 

Eversource has a slide show, one they used in a meeting with Lamont’s two senior aides, Jonathan Dach and Matthew Brokman, that notes only 26% of a consumer’s electric bill is distribution. The rest is beyond Eversource’s control: 55% is supply, 6% is public policy and 13% is transmission.

One slide underscores its main argument: “Attempting to solve the impact of the total customer bill through the Distribution functions is an exercise in futility, causing more harm than good.”

Lamont says he gets that.

“For better or for worse, we deregulated these guys 20 years ago,” Lamont said. “So they have no control over the supply. And all we’re doing is regulating distribution. And you got to regulate it in a way that they have an incentive to continue to make the investments we need in resilience and smart meters and probably segmenting the grid and protecting it from cyber [attacks].”

Lamont said he was heartened to see a unanimous decision in the UI case.

“Nobody has an exclusive on what’s the right thing to do. I think they’re working together much more, perhaps, than they were a year or two ago,” Lamont said. “I’ve said, ‘You’re the judge, not the prosecutor. I want you to take a look at these rate requests and judge them from the point of view of what is necessary to keep the investments we need to keep our grid operating. And don’t pay a dime more. And that’s your job, period.’”

That is not entirely Gillett’s view.

“My viewpoint is that it’s broader than that,” Gillett said. Utility regulators do not merely preside over rate cases — they can probe and demand more evidence.

Gillett is not without political cover. Concerned that Gillett might be deposed as chair of PURA by her fellow commissioners, Needleman and Steinberg drafted statutory language stating the governor has sole authority to choose the chair of PURA.

Like everyone else, Needleman and Steinberg are curious to see who Lamont places on an expanded PURA.

“I’ve described this as an existential struggle for the utilities,” Steinberg said. “I think that they see this is not only the end of a long gravy train in Connecticut, where they pretty much got what they were looking for, to potentially the first domino in what could be any number of states adopting a performance-based paradigm, which could have negative implications for the way they do business.”

In a separate interview, Needleman expressed a similar thought.

“I think that that’s what they’re rebelling against,” he said. “I would argue that the gravy train might be coming to an end, and they don’t like it.”

Pourreza, the analyst who has studied utilities for two decades, said the shift to a performance-based system can work well for utilities by incentivizing smart investments that produce a reliable grid. But it must be balanced, not “asymmetric” — a system that offers rewards, not just penalties.

Launched in 2010, The Connecticut Mirror specializes in in-depth news and reporting on public policy, government and politics. CT Mirror is nonprofit, non-partisan, and digital only.