State’s proposed deal with Eversource changes Isaias penalty
State leaders say they’ve brokered a roughly $103 million settlement with utility Eversource over its response to Tropical Storm Isaias.
If approved, the deal would extend immediate relief to state ratepayers, but it scales back costly longer-term penalties Eversource was contesting in state court.
When Isaias knocked out power to more than 600,000 Connecticut Eversource customers in 2020, elected officials promised Eversource would pay for how it handled the storm. A bipartisan group of lawmakers quickly passed the “Take Back the Grid Act,” which introduced performance incentives for power utilities and granted customers credits for future outages.
But behind the fast-paced legislative jockeying, a slower process was playing out, one centering on what policy wonks call “return on equity.” That’s basically how much profit Eversource can claim from state ratepayers.
After Isaias, the Public Utilities Regulatory Authority or PURA, which handles much of the arcane bureaucracy of power bills, proposed a very specific penalty against Eversource.
It wanted to cut Eversource’s allowable profits from Connecticut ratepayers by 0.9%. And impose an additional profit reduction of 0.45%.
All told, that reduction would have translated into at least $135 million in penalties against Eversource over four years, according to PURA.
Eversource challenged PURA’s decision in state court, arguing it hampered the ability of the utility to attract investment and could ultimately harm consumers by driving up costs.
Now a tentative agreement brokered by Eversource and a coalition of state officials, including Democratic Gov. Ned Lamont and Attorney General William Tong, is dropping that long-term profit reduction, opting instead for a one-time lump-sum payment.
“I am happy that ratepayers are going to get some relief in the near future,” said Rep. David Arconti (D-Danbury), co-chair of the state’s energy and technology committee, on Wednesday. “I wish the penalties on the company were higher.”
“I’m interested in long-term reform,” Arconti said. “I saw the reduction of [return on equity] as a way not just to punish past behavior, but as a way to incentivize future behavior.”
“This is a settlement, and like most settlements, the respondent (Eversource) has agreed to make a large cash settlement payment in order to avoid a proposed penalty,” said Tong’s spokesperson, Elizabeth Benton, in an email. “Ratepayers and the state avoid the risk of further litigation and appeals that could delay and potentially endanger this relief for ratepayers.”
Under the proposed deal, Eversource would grant a one-time payout of $65 million back to customers. The money would show up as a roughly $17 credit on December and January bills. The utility would also direct $10 million to help customers struggling with power bills.
“No members of PURA staff were involved in the settlement negotiations, and thus, we cannot comment on why the parties think that this is an appropriate path forward,” said Taren O’Connor, a spokesperson for PURA in an email Monday.
PURA, which will ultimately decide to keep or reject the proposed settlement, is scheduled to hear from Eversource and the state-led coalition about the deal next week.
On paper, the settlement saves Eversource about $60 million over PURA’s initial proposed penalty, while allowing the utility to claim a higher profit margin in the complex calculations state regulators use to set power bills.
But that computation “doesn’t consider other things that the settlement brings,” said Eversource spokesperson Tricia Taskey Modifica, in an email.
Under the terms of the settlement, Eversource would not apply for a rate increase until at least January 2023, and any increase wouldn’t be able to take effect until at least one year later.
“The math you have … doesn’t incorporate the benefit of this avoided rate increase for customers,” Modifica said. “All parties agree that delaying the rate case is good for customers because some rate increase would otherwise occur.”
Arconti said the rate freeze is good, but that “it just freezes one component of the distribution charges of the delivery side of the bill. There are still other components that remain unfrozen.”
“The average person, I think, when they read that is just going to assume, ‘Oh, fantastic. My distribution side of the bill is going to be frozen for two years.’ One part will be, yes. But others will not be,” Arconti said. “I think that’s important.”
Modifica also said that were Eversource to succeed in challenging PURA’s proposed penalties, customers could be on the hook to pay back Eversource’s losses with interest.
“A settlement is also going to reflect the assessments of the settling parties on litigation risk and potential damage to customers of a reversal at court,” Modifica wrote. “Also, the settlement achieves elements not available by simply allowing the punitive decision to stand and be subject to appeal.”
As a condition of the deal, the utility would also drop its court challenge of a roughly $28 million PURA fine and create a Connecticut-based corporate president “to improve local accountability and control,” according to a joint statement from Lamont and Tong.
“We would note that Eversource is already paying the $28.4 million civil penalty in the form of bill credits that started last month,” said PURA’s O’Connor. “Recall that the $28.4 million civil penalty is comprised of the maximum civil penalty authorized by law at the time of Tropical Storm Isaias, and is being returned to ratepayers over the course of 12 months.”
In its court filing, Eversource argued PURA’s proposed allowable profit reductions could harm the company’s ability “to attract investment for its operations” and could, ultimately, hurt ratepayers forced to shoulder the burden of higher financing costs for grid improvements.
“I think it carries some weight,” said acting Consumer Counsel Richard Sobolewski, who signed onto the proposed deal. “There are a lot of investments planned in the next decade.”
“All the grid modernization items, offshore wind, storage … all the push for electrification. A lot of these are going to cost major, major dollars,” Sobolewski said. “Having Connecticut in the right place from a regulatory environment is important.”
“This will be a — potentially — a good start to reset everything and correct some of the mistakes that have been made at Eversource,” Sobolewski said.
PURA officials and the settling parties, which also include the state Department of Energy and Environmental Protection, will convene for a virtual hearing on the proposed deal on Tuesday, Oct. 12, at 10 a.m.