The Connecticut Supreme Court on Friday heard oral arguments in the Aquarion Water Company's appeal of a regulator's decision two years ago to deny the utility's requested rate increase and then require it to cut rates by nearly $2 million per year.
The case challenges the Public Utilities Regulatory Authority's efforts to impose a new method for scrutinizing which costs the regulated monopolies can recoup from their customers — a method that attorneys for Aquarion argue was applied arbitrarily and without respect to existing laws and precedents.
For example, John Cerreta, an attorney representing Aquarion, said that regulators failed to provide sufficient rationale for why they allowed the utility to recoup costs related to $650 million in capital expenditures over nearly a decade, while blocking returns on another $42 million for projects after Aug. 31, 2022.
"That sort of unfettered discretion, if it is allowed to stand, is extremely alarming to utilities," Cerreta told the court.
But Evan O'Roark, an assistant solicitor general who represented the authority, said in filings to the court that PURA had previously warned the utility to slow its spending on infrastructure projects in order to keep costs down for customers.
Instead, he said, Aquarion spent hundreds of millions of dollars on plant additions and other upgrades that it provided little justification for when the company went before regulators in late 2022. Still, O'Roark said, PURA approved all but a few "last-minute projects" that the utility sought reimbursement for.
"PURA is entrusted with broad discretion to set just and reasonable rates," O'Roark said. "That's what it did here, by allowing Aquarion to recover the vast majority of both the plant additions and operating costs that it asked for."
The result of PURA's 2-1 decision in the rate case was to lower Aquarion's request for an additional $37 million in annual revenues to a reduction of nearly $2 million, or about 1% of the company's total annual revenues. (A lower court judge upheld most of PURA's decision last year but remanded part of the case back to regulators, after which the utility's rates were adjusted to provide for a $96,748 increase in revenues).
A few of the justices on Friday appeared to question whether regulators made enough of an effort to differentiate between infrastructure projects Aquarion should be allowed to recover costs from and which ones were unreasonable.
"Was there a point at which PURA said — which would seem to be only fair — 'Look, we don't have enough evidence about prudence and about these various projects ... what we need is someone from the company to come in and testify or [provide] some other form of proof'?" asked Justice Steven D. Ecker.
"Their claim is you changed the rules on them, and that's not fair," he added.
O'Roark replied that regulators made "many, specific requests for more information," even though that did not include calling in witnesses from Aquarion to justify each of one of their projects.
The decision to cut Aquarion's rates added to the friction between the utilities and their regulators at PURA, including the authority's chairwoman, Marissa Gillett. A year later, Aquarion's owners, Eversource Energy, put the utility up for sale.
In January, Connecticut's Regional Water Authority announced plans to purchase the company as part of a deal worth $2.4 billion. The deal would also transform Aquarion from an investor-owned utility into a quasi-public agency whose rates are not governed by PURA.
Some lawmakers have raised concerns that the deal could result in higher water bills for Aquarion's roughly 250,000 customers in Connecticut, Massachusetts and New Hampshire.
The sale is subject to approval by PURA and regulators in the other two states before it can be completed. It was not a matter in the case before the Supreme Court on Friday.
The case was one of the first heard by Supreme Court Justice William H. Bright Jr., who was among a group of judicial nominees confirmed by lawmakers on Wednesday.
This story was originally published by the Connecticut Mirror.
