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August 21, 2023 Opinion

CT regulator playing a dangerous game with utilities

Photo | Contributed United Illuminating crews conduct storm cleanup in 2018.

As recently reported by the Hartford Business Journal, the Connecticut Public Utilities Regulatory Authority (PURA) — the regulatory body governing electric, gas and water utilities in the state — has put out a draft order that proposes denying 99% of United Illuminating’s planned investments in the electric grid. 
Regrettably, this seems to simply be the next chapter in efforts by PURA to punish United Illuminating after struggles in the response to Tropical Storm Isaias. 

PURA’s pending ruling will not allow certain investments until service improves to certain levels, which the agency calls performance-based rate-making. 

Of course, this is backwards. 
The fundamental mistake of Connecticut’s version of performance-based rate-making, is that the state’s ratepayers will be most negatively impacted, not the utility. 

A weak power grid is bad for business because it means companies cannot be assured they will have access to reliable and affordable power. 

Another serious concern with PURA’s actions is from Wall Street, where companies procure the needed capital to invest in the grid. 

United Illuminating’s bond rating has been downgraded. Sadly, this downgrade will mean the utility needs to pay higher rates to borrow money — for example, to repair the grid in response to natural disasters, or to make important upgrades. 

Wall Street’s view of PURA has also been downgraded, which is potentially an even bigger concern. 
Bond rating agencies rank utility commissions on a number of metrics, including: predictability; constructive engagement with the utilities they oversee; and ensuring customers have access to reliable utility service from a securityholder’s perspective. 
Sadly, PURA holds the distinction of being the worst ranked regulatory body in New England. PURA also sits in the bottom quartile of U.S. and Canadian utility regulatory agencies for a few reasons evident in this draft. 
First, PURA is threatening to eliminate United Illuminating’s ability to invest in the power grid. Under this proposal, the utility's interests will no longer be aligned with its customers because United Illuminating will not be able to earn more money by improving service. 

In fact, United Illuminating can only earn less for failing to meet PURA’s requirements. 

Second, because PURA is doubling down on a plan to mandate higher capital costs for United Illuminating, it is forcing higher power bills onto customers. This is the exact opposite of what a regulatory agency should be doing, and it is hard to comprehend how PURA doesn’t realize this fact. 

The path forward

What should PURA do to better hold United Illuminating accountable to customers and the state? 

It’s pretty straightforward: PURA’s performance-based rate-making should establish a reasonable baseline of service that includes penalties and rewards for eliminating outages. This way, everyone’s incentives are aligned to do a better job. 

But, if the only reward for doing a good job is that UI is punished less, then investment and confidence in the utility will be greatly diminished. All of this creates a vicious negative feedback loop that undermines the viability of the utility, and leaves ratepayers exposed to reliability issues. 
At the end of the day, businesses in Connecticut need a reliable power grid to grow and attract new investment. This is going to be increasingly important, as climate change wreaks havoc on our weather, exposing communities to increasingly severe storms, heat waves, arctic blasts and other environmental pressures. 

Businesses that thrive are going to need to react to this reality, and they need a fully functioning utility and power grid. 

But under PURA’s current proposed plan, the grid will not be modernized to meet a rapidly electrifying world. An electrical system that quickly falls behind peers in neighboring states will have businesses asking themselves: “Why don’t I invest in more reliable places like Massachusetts or New York?”

If PURA continues down this path, it is setting a dangerous precedent that could severely impact Connecticut’s business community and energy future. 

Brad Viator is a consultant and state utility policy expert living in Washington, D.C. He is the owner of B Strategic.

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