An administrative appeal of a utility rate case with broad political and legal implications in Connecticut was heard Thursday by a judge who embraced the notion that regulators could have discretion under existing law to be tougher on regulated monopolies, while repeatedly questioning their methods.
Aquarion Water Company’s appeal of a rate cut ordered last year by the Public Utilities Regulatory Authority is the first legal test of the authority’s clear shift under its first-term chair, Marissa Gillett, toward stricter standards for which expenses can be recovered from utility customers.
“There is an underlying argument here that PURA has changed its attitude toward rate cases,” said Superior Court Judge Matthew J. Budzik, presiding in a courtroom across a public square from PURA’s office in New Britain. “Let me be straightforward … there is nothing wrong with that.”
At issue is whether those new standards fall within the strictures of state law and legal precedent that guarantee regulated utilities a reasonable return on the costs of delivering natural gas, electricity or, in the case of Aquarion, water to 685,000 residents and business owners in 56 communities.
While saying that expenses accepted by PURA in previous years theoretically could be disallowed now, Budzik expressed doubts about whether PURA had adequately justified its dismissal of capital and operational expenses and turned Aquarion’s requested $35 million rate increase into a $2 million reduction.
Budzik is being asked by Aquarion, a subsidiary of the state’s largest electric utility, Eversource Energy, to do what the company says no Connecticut judge ever has done: Declare the rate decision as “confiscatory,” essentially an unconstitutional taking of the company’s property.
The appeal comes as Gov. Ned Lamont is weighing an overhaul of PURA, whose three commissioners are serving terms that either have expired or will expire by March. State law allows Lamont to expand the authority to five members, the option the governor says he is most likely to employ.
The state also is at a critical phase in the gradual shift mandated by the General Assembly and Lamont to performance-based regulation, modifying the century-old approach of allowing utilities to recover their cost of service and earn a reasonable return on capital investments.
Jonathan Dach, the governor’s chief of staff, said Thursday the governor hopes to identify a slate of five nominees prior to the opening of the 2024 General Assembly session on Feb. 7. The nominees, whether new or reappointments, would be subject to confirmation by the legislature.
“He’s interviewed a number of candidates and is still looking to expand the number [of potential nominees], including folks with financial backgrounds,” Dach said.
The Aquarion decision, approved on a 2-1 vote, exposed the tensions between Gillett and the other two commissioners, both former legislators with long tenures on PURA: Michael A. Caron for 11 years, and John W. Betkoski III for 26 years. Betkoski voted against the decision. Caron voted with Gillett but criticized her approach.
In a recent interview on Volts, a podcast about clean-energy topics, Gillett suggested it was time for Caron and Betkoski to move on.
“There’s a real risk of becoming too cozy or not having fresh ideas the longer you stay in any position,” Gillett said in the interview posted online Wednesday. “And I think it’s important, whether it’s voluntary or imposed, that we have fresh faces at the helm of an incredibly important agency more than once every turn of the century. That was probably too far, but I’ve said it.”
The Aquarion appeal is being closely watched. The United Illuminating Co. is appealing a rate decision following Aquarion’s that granted a $22.9 million increase, when the electric utility had requested a $131 million revenue increase over three years.
Other rate cases are pending.
A UI lawyer watched the Aquarion arguments Thursday, as did two Boston-based executives from Eversource: Douglas P. Horton, the vice president of distribution rates and regulatory requirements, and Kerry Britland, vice president of regulatory affairs. Gillett was not in court, but her chief of staff, Theresa Govert, attended.
Thomas J. Murphy, a lawyer representing Aquarion, told Budzik that the rate cut defied common sense, requiring a belief that the actual cost of providing water was less than it was in 2013, the last time the company’s rates were set, or that none of the additional costs were reasonably incurred.
He called the rate decision the result of “a series of manipulations.”
Murphy said that PURA grouped Aquarion’s capital expenditures into three groups, defined by time. PURA accepted two, but arbitrarily rejected a third — $42 million spent on projects completed while the rate request was pending, between Sept 1, 2022 and Dec. 15, 2022.
“The reason it’s a problem, your honor, is it’s arbitrary,” Murphy said.
The judge sharply questioned Seth Hollander, an assistant attorney general defending PURA against Aquarion’s appeal, about seeming inconsistency in how the authority disallowed certain costs and accepted others.
The judge said PURA simply asserted Aquarion did not meet its burden without explaining how.
“Where can I find that determination?” Budzik asked.
Hollander pointed to page 17 of the decision, which stated the “evidence to support the inclusion of capital additions completed subsequent to August 31, 2022, is deficient.”
“Is that it?” Budzik asked, peering over his reading glasses. “That’s what I can look to determine the standard that PURA applied?”
In his brief, Hollander said Connecticut precedent meant that administrative agencies like PURA were entitled to “great deference.”
A court may not reverse or modify the PURA decision unless Aquarion demonstrates that its “substantial rights have been prejudiced,” and Hollander said that burden has not been met.
Murphy told the judge the Aquarion appeal was an opportunity for the court to provide direction to PURA. If not, Murphy said, the judge could expect a lengthy queue of appellants outside his door.
This story was originally published by The Connecticut Mirror on Jan. 11, 2024.