Hartford Business Journal

8 HARTFORDBUSINESS.COM | JANUARY 8, 2024 Cost recovery UI has filed a lawsuit against PURA appealing the Aug. 25 decision, claiming it prevents the company from recovering costs for both "used and useful" projects, as well as future capital projects, in addition to operating expenses. UI said the decision contradicts state law, U.S. Supreme Court precedent and the authority's own precedent. But PURA is adamant that future investment costs shouldn't count in rate cases until after the investments have been made. Starting Sept. 1, PURA stopped allowing utilities to recover future capital projects in rate cases. For example, in its recent rate case, UI sought to recover the cost of implementing a proposal to install 900 electric vehicle charging stations, which UI said would help the state meet its clean-energy goals. PURA rejected the project, noting in its decision that "the capital expenses sought for recovery have not yet occurred." PURA's more than 300-page deci- sion also puts an end to UI's practice of charging for unfilled positions. Between 2018 and 2022, UI collected more than $55 million from customers to fund more than 200 employee positions that the company left vacant, PURA said. "The number of employees for which the company received money, but did not employ, ranged from 153 to 211 over this period, or between 19% and 27% of the total number of authorized employees," according to PURA. In its decision, PURA reduced UI's requested employee headcount from 519 to 485, noting the company did not actually have 519 employees. UI's actual number of employees as of Feb. 28 was 485, according to PURA. Asked for comment about the discrepancy, a UI spokesman said that while the company strives to propose rates that match actual costs, final outcomes do not always match the rates set by PURA — and vice versa. "While the rates PURA sets for specific line items may fall above or below the revenue established, any over-collection may be offset by under-collections in other areas, such as capital costs," said Craig Gilvarg, a UI spokesman. "In the case of employee positions that were established in rates but unfulfilled, that revenue was directed to other costs necessary to provide customers with safe and reliable service, while UI returned additional value to customers through the earnings sharing mechanism." A PURA spokesperson said the scenario shows how important it is for a regulator to thoroughly review and vet proposed rate increases. "A rate case essentially sets rates at a moment in time — a snapshot based on the substantiated portion of a company's application," Cooper said. "Once rates are set, they remain in effect through the next rate case, and with very few exceptions, the regulator is not legally permitted to claw back expenditures authorized in rates." Analysts weigh in UI isn't alone in raising concerns about the state's tougher stance on utility rate approvals. A recent report from Moody's Investors Service called Connecti- cut's regulatory environment "less consistent and predicable" over the last two years, and "punitive," refer- ring to a new law that went into effect on Oct. 1, which gives PURA the authority to adopt a more aggressive regulatory approach. According to Moody's, the law "reduces the ability of timeliness and certainty of cost recovery related to system improvements." Also, the credit rating service said the changes will result in lower cash flow-to-debt ratios for utilities. "The credit consequences could be exacerbated if the ability to reach rate case settlements is impaired by the new requirements, since it could translate into more prolonged, fully litigated (and probably more conten- tious) rate cases," Moody's predicted. PURA's hard-nosed rate analysis is part of a new approach, called performance-based ratemaking, which sets rates based on how well a utility meets certain goals, taking into consideration outcomes and value to customers. It has been a hall- mark of PURA Chairman Marissa Gillett's tenure. Earlier this year, Lamont reappointed Gillett as PURA's chair for another two-year term that began July 1. Under the new regulations, utili- ties have the burden to prove that their proposed rates are "just and reasonable by a preponderance of evidence." PURA is required to deny any portion of a request that does not meet this threshold. Reynolds said UI is planning a number of future investments, including transitioning its infrastruc- ture from one-way to bidirectional flow, which would improve the effi- ciency of the power supply and allow customers who generate their own electricity using solar panels to feed their surplus back into the grid. "That's just one part of how we're attempting to modernize our grid so that we can harness more renewable energy," Reynolds said. But projects like that are in jeopardy without the ability to attract sufficient investment, he explained. In the past, when UI applied for rate increases to help fund future investments, PURA would generally approve them, Reynolds said. "And typically, we would have some certainty, if you will, around those forward-looking investments, such as investments in substations," he said. "What they've told us this time is, 'Go make the investment, then come back to us.'" Reynolds said the new era at PURA threatens the reliability of UI's electric distribution system. Over time, if upgrades are delayed, the system will deteriorate and workers will be forced to focus more on "reac- tive work vs. proactive work," he said. There could be more frequent outages and longer response times, he said. Currently, customers average less than one outage every two years — a statistic Reynolds said he is proud to repeat. "The reason that we have such great reliability is because UI has made some very systematic invest- ments over the past two decades, very detailed, systematic invest- ments, to have some of the best reliability in the region, if not the nation, and PURA has allowed those investments to be made," Reynolds said. "And that's the case that we put forward, saying, 'We want to continue to make those types of investments.'" UI's revenue comprises about 15% of Avangrid's total. Avangrid, also headquartered in Orange, serves about 3.1 million customers throughout New England, Pennsyl- vania and New York. It's owned by the Spanish company Iberdrola. EMPOWERING CT'S WORKFORCE ••• •••• • • • • ctstate.edu United Illuminating's return on equity 4Q 2022 1Q 2023 2Q 2023 3Q 2023 8% 7% 6% 5% 4% 3% 2% 1% 0 Source: United Illuminating

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