PURA Makes Sweeping Changes to Electric Rate Adjustment Process Following Investigation into July Bill Increases
(New Britain, CT – December 2, 2020) – Connecticut’s Public Utilities Regulatory Authority (PURA) issued a ruling today after concluding its parallel investigations into the unexpectedly high electric bills received in July and August by customers of the Connecticut Light and Power Company d/b/a Eversource Energy (Eversource) and The United Illuminating Company (UI). PURA concluded that the current approach to administrative rate adjustments is not in the public interest, is inconsistent with the intent of the authorizing statutes and renders PURA’s role in the review and approval process objectively inconsequential. As such, today’s decision dictates a comprehensive overhaul to the rate adjustment process moving forward, along with a mandatory redesign of customer’s electric bills to bring some much needed transparency to the policies, programs and investments paid for through customer rates.
Today’s decision centers around rate adjustment components of customer bills – often referred to as reconciling mechanisms – that are currently reflected in a customer’s “delivery” portion of the bill. Because these costs are recovered on a per kilowatt-hour basis, the cumulative impact of the July rate adjustments was particularly pronounced for some customers who may have experienced higher usage compared to the month before, or when compared to the same month in the previous year. For all customers, the dramatic percentage increase in individual line items caused widespread frustration.
Through the course of its investigation, PURA found that the economic impacts of the COVID-19 pandemic exposed the deficiencies of the existing administrative rate adjustment framework. The pandemic caused a significant shift in energy consumption patterns between and within customer classes, which resulted in fluctuations in regional wholesale energy market prices. Because so many of the rate components at issue in this decision are dependent on forecasts of customer usage and regional wholesale prices, PURA found that the currentrate adjustment framework is simply unable to adequately account for these changes in ways that serve the public interest.
Ultimately, the costs collected through these rate components represent the costs incurred by the utilities in fulfilling public policy mandates, as well as transmission-related fees and other costs overseen by the Federal Energy Regulatory Commission. However, PURA’s investigation determined that the current framework is problematic because it relies heavily on forecasts, which are inherently incorrect, and depending on the degree to which the forecasts are wrong – like in 2020 – can result in wild swings in a customer’s bill from one month to the next as the utilities essentially work to course correct the associated rates. The current process also compensates the utilities at, what PURA determined through this proceeding, to be an unjustifiably high rate (the weighted average cost of capital) for carrying charges associated with these expenditures.
PURA believes the framework announced today will create more stability for customer bills. Further, the new approach will allow for an extended and more meaningful opportunity for PURA to undertake a thorough review before permitting an adjustment clause to take effect – an opportunity that is precluded under the current framework.
“In this decision, PURA has begun demystifying and unwinding decades of ratemaking policies that have evolved into a less customer-friendly, less transparent framework,” stated PURA Chairman Marissa P. Gillett. “Moving forward, we are focused on making sure the risk borne almost exclusively right now by our ratepayers is shifted and shared equitably with utilities and their shareholders. PURA looks forward to working with stakeholders and our colleagues in the General Assemblyon appropriately realigning risks across the regulated utility landscape.”
As a result of today’s ruling, PURA will consider semi-annual adjustments to the reconciling components of a customer’s bill, changing the effective dates to May 1 and September 1. In a further departure from the current framework, the new process will rely on actual revenues and approved expenses from the previous calendar year as a proxy for expected costs when determining the going-forward rates, which will prevent the yo-yo effect that is witnessed when forecasts are dramatically off-base. PURA is also mandating a reduction in the carrying charges recouped by the utilities, directing Eversource and UI to instead use the prime interest rate.
Additionally, PURA has found that there is broad support to improve bill design and presentment to Eversource and UI customers. In response, PURA is directing its Office of Education, Outreach & Education (EOE) to lead a stakeholder effort to redesign customer’s electric bills. PURA is also re-committing staffing resources to enhance educational resources available to the public regarding utility bills, programs and practices, starting with this narrated explanation of electric bill components from Eversource Energy and The United Illuminating Company (UI).
Importantly, PURA is also reminding stakeholders that it recently opened Docket Number 17-12-03RE11, which will consider the implementation of an interim rate decrease, low-income rates, and economic development rates for all electric customers.
About the Public Utilities Regulatory Authority:
The Public Utilities Regulatory Authority (PURA) is statutorily-charged with regulating the rates and services of Connecticut's investor owned electricity, natural gas, water and telecommunication companies and is the franchising authority for the state’s cable television companies. In the industries that are still wholly regulated, PURA balances the public’s right to safe, adequate and reliable utility service at reasonable rates with the provider’s right to a reasonable return on its investment. PURA also keeps watch over competitive utility services to promote equity among the competitors while customers reap the price and quality benefits of competition and are protected from unfair business practices. Visit PURA's website at https://portal.ct.gov/pura.