Connecticut ratepayers have some of the highest utility bills in the country. But how much of that is controlled by state regulators and power companies? And what is the state doing to keep them under control?
WSHU’s Ebong Udoma spoke with CT Mirror’s Mark Pazniokas to discuss his article, “New year, new chapter in long fight over CT’s utility regulator,” as part of the collaborative podcast Long Story Short.
WSHU: Hello, Mark, can you tell us about Marissa Gillett and how different from the norm her chairmanship of PURA has been? You call her a disrupter.
MP: Well, the mere fact that we're talking about the chair of the Public Utilities Regulatory Authority, I think, says something. These folks generally operate behind the scenes. This is kind of a quiet backwater of the state government. But that has not been the case with Marissa Gillett, she is a disrupter by design. And what that means is, she has come in and made some fairly dramatic changes at the state regulatory authority. And she also has been advising the General Assembly about changing the statutory framework about how electric natural gas and water rates are set in Connecticut.
There's been a lot going on in this world, in Connecticut, and nationally, and she's been a major player. She really has made the review of the utilities and their expenses, a very different endeavor. She has been very strict and gone into great detail on these very complicated businesses, not just in their operation, but in their interaction with other jurisdictions. Because of the way electricity works and the way it's regulated, it involves, you know, state, federal and even regional aspects. Because Connecticut does not directly regulate the generation of power, all that Eversource and Avingrid charge us for, really, is the delivery of electricity to our homes. The electricity itself, the price is set in a competitive market.
But in any event, the backdrop is there's a lot of interest in anything having to do with electricity. Because Connecticut has some of the most expensive electric rates in the United States, we have a grid that is old and a little creaky. And there are more demands being placed upon that grid every day, including the fact that there is state and federal policy that is encouraging a long-term transition to, say, electric vehicles. So there's a whole lot going on and what used to be this little quiet world.
WSHU: And routinely, they'd have rate increases granted pretty much on a routine basis. But this last year, we had some setbacks for some of the utilities. For instance, PURA denied Aquarion, the water company, a $35 million increase that they were seeking. That sent shockwaves, right?
MP: It did. Not only did they reject the requested increase, they cut the existing rates. So they cut the revenues to Aquarion by $2 million. So not only did they not get the $35 million, but they walked away from the table with less money than they were getting before. And that did send a shockwave through the industry. But United Illuminating, now owned by Avingrid, came in looking for more north of $130 million, and they ended up with a $22 million increase. And there's actually more that goes on here because it gets very complicated.
They talked about the return on equity and the percentages there. And they didn't get what they wanted there, and Marissa Gillett's position is because these are regulated monopolies, it is the role of PURA, the Public Utilities Regulatory Authority to act instead of the free market. And what that means is the utilities have to meet their burden or justify their rates. And she has been much tougher than we've seen in Connecticut in a long, long time. And so that has set up a lot of conflict. There has been some quiet lobbying by the utilities on the governor's office to either get her to back off or perhaps not reappoint her.
WSHU: Her term ends in March, right?
MP: It does.
WSHU: And it's not automatic that the government will reappoint her.
MP: No, Connecticut is unusual in the sense that people serve on PURA for long periods. The average term of a utility regulator around the United States is somewhere between three and a half and four years. So Connecticut is really the outlier, that there are three commissioners right now, two of the three are former legislators. Jack Betkoski has been there for 26 years, Michael Caron has been there for 11 years, and Marissa Gillett is the only one on the authority who is not a former legislator. She comes to Connecticut from Maryland, where she was a lawyer with their utility oversight group. And so there's been a conflict ever since she has arrived between her and her two commissioners, between her and the regulated monopolies. And so again, it has been very unusual.
WSHU: What's the governor's position on all this? Because he recruited her, he wanted to bring someone in from the outside. He brought her in, what is his position now considering that he's probably getting a lot of lobbying from the utilities?
MP: So he has been watching this for the better part of a year. And he has great options here because Betkoski and Caren are serving unexpired terms; you stay in office until and unless the governor names his successor. So he has been watching, trying to decide what to do with them. That, of course, keeps them on a short leash because they have not been looking to rock the boat in recent months, because they are vulnerable. But the governor also has the option under state law to expand the authority from three to five members. And that's really what he's looking at doing.
So the big question is, who are these two new people that he will nominate or likely nominate? Is he going to be looking to strengthen the hand and strengthen the approach of Marissa Gillett? Is he going to be looking to moderate, perhaps, her approach? Because he has been uncomfortable with some of her rhetoric, she has described herself as being quite comfortable with being in an adversarial position regarding Eversource and United Illuminating. And the governor has said, 'Look, your job is to make sure the ratepayers get the most bang for their buck. But you are not a prosecutor, you are more like a judge.' Gillett pushes back a little bit on that, because in her view, they are not just a judge that sits back and presides over a rate case. She thinks they should get to ask questions, they should get to ask and act a little bit. In fact, like a prosecutor, they get to probe, they get to do cross-examinations.
And the governor has let this go on now for months and months and months. So people are really looking to see him kind of nudge this in one direction or another. Wall Street has been very rattled by Connecticut’s approach and by Marissa Gillett's approach, the stock price of Eversource and Avingrid grid are down, you know, 25% or more over the last year. One of the criticisms from Wall Street is, she is so tight with the oversight of their finances, that she is making it more difficult for them to get the capital they need to modernize the grid. So those are the tensions that are going on here.
And things your listeners should know is, people gonna say, 'Well, gee, she's being so tough, why is my electric bill so high?' And again, the major reason is, Connecticut only has control over a relatively small portion of the electric bill, the part that is regulated, again, has to do with the distribution of the electricity. And the actual price of the generation of the electricity is set on a competitive market. And you know, most people don't know and quite frankly, they don't care. Their electric bill is their electric bill. And that's what they want to see come down.
WSHU: Especially considering that in the past few years, we've had some problems with power outages, serious power outages that have taken quite a while to fix. And because of that, there's a performance metric that the utilities have to comply with now, because of legislation that was passed.
Could you just tell us a little bit about the dynamic between trying to recover their costs, get the cost covered and having to deal with these performance metrics that have been put in place?
MP: These things operate on parallel tracks. So you have rate cases, and the idea of performance-based regulation or rate-making is still being developed. And they hope to finish that this year to have these standards that, if you exceed, you will be rewarded. If you fall short, you will be penalized. So that has to do with the rates. Now to what you're talking about, performance in preparation for storms.
Tropical Storm Isaias was a turning point in Connecticut. Eversource, in particular, was criticized for underestimating what was coming. The blackout was massive. There were fines imposed on both United Illuminating and Eversource. But more importantly, it quickly prompted the General Assembly to pass legislation that toughened what Marissa Gillett and her colleagues could do. And it also formalized the transition to performance-based regulation. So there's a lot going on here all at the same time. But it does amount in the view of the industry, it amounts to the same thing, which is Connecticut is becoming a tougher place for them to operate. Consumer advocates say great, it's overdue, they should be closely examined, and they should be made to meet higher standards than what they had been made to meet in the past.
WSHU: I like what Marissa said — the thing about it is that Connecticut is, from the investor's point of view, might be the worst, but actually, it might be a leader in what the future might be for the way utilities are regulated.
MP: Absolutely. When analysts say Connecticut has one of the worst regulatory environments in the United States, Marissa Gillett is very quick to say, the worst for who? Maybe she should have said for whom? But her point is, yes, for investors, this may not be the greatest place. But for consumers, they are doing their best to make sure that utilities are reliable, and that the prices are limited to the extent they can be in Connecticut. And again, as I said before, there is a limit to what regulators can do here. That's the one area in which Marissa Gillett, and the CEOs of Eversource and Avangrid agree, that there's only a relatively small portion of your electric bill that is in the control of those two utilities as well as the utility regulators.
WSHU: So the bottom line is that we're not going to see any sharp reduction in our rates in the future.
MP: I'm afraid not.
