Hartford Business Journal

14 HARTFORDBUSINESS.COM | MAY 29, 2023 Public Utilities Regulatory Authority Chair Marissa Gillett discusses her more active regulatory philosophy with the Hartford Business Journal. HBJ PHOTO | STEVE LASCHEVER Regulatory Disruptor Investors raise red flags over CT's regulatory environment, as utilities overseer Gillett touts benefits of new ratemaking scheme By Andrew Larson alarson@hartfordbusiness.com V ery adversarial. Contemp- tuous. Hostile. Those are some of the concerns laid bare by investors about the regulatory environment in Connecticut, in light of the Public Utilities Regulatory Authority's (PURA) recent cut to Aquarion Water Co.'s rates, and the upcoming launch of performance-based ratemaking (PBR), a controversial new approach the state will use to evaluate rate increases proposed by electric utilities Eversource and United Illuminating. PURA Chair Marissa Gillett would have it no other way. The state's chief regulator, who will finish her first term next March, embraces investors' characterization of her as a heavy- handed regulator. "The governor … brought me in to be a disruptor," Gillett said during a recent interview with the Hartford Business Journal. "... If there is discomfort with the fact that I've kind of thrown the doors wide open here and invited in different perspectives, I would embrace that critique because that was intentional." Gillett, who studied bioengineering and is an attorney, makes no bones about her penchant for change. Previously, PURA employed cost-of- service regulation, which looked at utilities' perspective on costs and set rates accordingly. Gillett developed a new framework for evaluating utility rates that factors in outcomes and value to customers. Performance-based ratemaking will enable PURA to take into consider- ation utilities' performance, including affordability and reliability, before they can obtain an increase on delivery rates they charge consumers for operating, maintaining and upgrading electric transmission and distribution systems, and complying with state and federal mandates that fund finan- cial assistance, energy efficiency and renewable energy programs. Rather than evaluating utilities' expenditures from the lens of whether their costs are "prudent and reason- able," PURA will evaluate whether they achieve public policy outcomes under PBR, Gillett said. Financial incentives and penalties to encourage utilities to achieve the objectives PURA lays out are baked into the process. "If our goal is to have more reli- able service, we can measure that by saying, 'How many minutes of power are you out per year? And how frequently are you out of power?'" Gillett said. "And then we can say to the utilities, 'We want you to reduce that by a certain number, or a certain percentage,' and then we can incen- tivize them." If PURA is different now than it was prior to her appointment by Gov. Ned Lamont in 2019, that means Gillett has achieved her goal, she added. "If folks were looking for a more passive regulator, someone who reacted only to what was put in front of them, clearly they'd be disap- pointed because that's not me," Gillett said. Lower outlook While PBR has put the state's electric utilities Eversource and Avan- grid-owned United Illuminating in the uneasy spot of wondering how their next rate cases will be handled, it's a recent PURA decision that has also spooked investors. In response to Eversource-owned Aquarion Water Co.'s first rate increase request in 10 years, PURA in March not only rejected the water company's request, but decreased its annual revenue requirement by $2 million from the current level — about a 1% reduction. Bridgeport-based Aquarion was purchased by Eversource in 2017 for $1.6 billion. PURA approved an annual revenue requirement of $195.5 million for Aquarion, which serves 208,000 customers in 59 cities and towns, primarily in western Connecticut. That revenue requirement is expected to deliver a return on equity of 8.7%, significantly less than the utility enjoyed in prior years. In August 2022, Aquarion originally applied for a roughly $37 million increase in distribution revenues and a 10.35% return on equity. Aquarion appealed PURA's deci- sion in New Britain Superior Court, and a temporary stay was granted. A hearing on Aquarion's motion for a permanent stay was held before Superior Court Judge Matthew Joseph Budzik on May 15. As of press time, he had not yet issued a decision. The uncertainty over Aquarion's revenue in coming years led cred- it-rating service Moody's to lower the water company's financial outlook to "negative" amid a regulatory environ- ment it called "unpredictable." A spokesman for Aquarion, Peter Fazekas, said the change from a stable to negative outlook "poses significant risks for Connecticut customers as they will pay more for the necessary infrastructure for the reliable delivery of high-quality drinking water." That's because the lower outlook could make it more expensive for the company to borrow money that helps fund infrastructure projects.. In its decision, PURA said Aquar- ion's five-year capital program "provides no basis on which the Authority could conclude that the projected level of expenditures is reasonable or prudent." Two of the three PURA commis- sioners voted in favor of the revenue reduction. Vice Chair John W. Betkowski III dissented, saying he thought an 8.7% authorized return on equity provided a negative signal for utility investment in Connecticut. Although Aquarion represents just 3% of Eversource's business, investors fear that PURA's rate cut foreshadows how performance-based ratemaking will be applied. "This decision was worse than CT'S UTILITIES REGULATORY ENVIRONMENT GETS LOW MARKS According to investment bank UBS' regulatory rankings, Connecticut is one of eight states that ranks in the lowest tier for utilities regulatory environment. The other states within that lowest tier include: • Maine • Montana • South Dakota • Vermont • Arizona • Mississippi • New Mexico Source: UBS

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