Dive Brief:

• Connecticut has launched a more than one-year process establishing a regulatory system that will set rates based on how a utility does its job.
• Performance-Based Regulation, PBR, was called for in 2020 state legislation following Tropical Storm Isaias in August of that year. Power was knocked out for days to more than 1 million customers of Eversource Energy and Avangrid subsidiary United Illuminating. Business and residential customers and elected officials accused the utilities of failing to communicate and prepare before the storm and restoring power too slowly.
• Marissa Gillett, chairman of the Public Utilities Regulatory Authority, said a PBR system will likely be in place in a year, following a review with utilities, consumer advocates, elected officials, customers and other stakeholders.

Dive Insight:

PBR regulates electric utilities to align profit motive with policy goals such as decarbonization and resilience. “Broadly speaking, PBR provides an alternative to the traditional ‘cost of service’ regulation by compensating utilities for how they perform rather than for selling more electricity or making new infrastructure investments,” according to the RMI, a non-profit group that supports decarbonization.

PBR has been authorized by law in six other states: Hawaii, Colorado, Illinois, Nevada, North Carolina and Washington, RMI said. States cite more than a dozen policy goals for PBR, with reliability, emissions reductions and cost control among the most common, RMI said.

Sen. Norm Needleman, D, co-chairman of the Connecticut legislature’s Energy and Technology Committee, said the legislation is a major shift in how policymakers evaluate utilities. “I believe we’re on the cutting edge,” he said.

Utilities that operate across states and own several enterprises have “figured out how to make a lot of money,” Needleman said. “If you’re a regulated entity, but you’re functioning in multiple states no one regulatory body is watching what you do.”

A “Staff Straw Proposal” published by PURA Jan. 25 includes elements that provide “meaningful financial opportunities and penalties for the electric distribution companies and common-sense ‘guardrails’ to ensure that any EDC earnings are commensurate with the value provided to customers and investor expectations.”

One proposal is a revised multi-year rate plan and an “externally-indexed revenue cap” that allow for interim adjustments tied to a revenue cap index formula. Such multi-year rate plan changes could “drive achievement of efficient business operations and affordable service outcomes," according to the straw proposal.

The proposals also call for a look into “advanced uses of revenue decoupling” that true up revenue to an annual target and protect customers’ interests. And the straw proposal suggested various metrics be developed to highlight priority outcomes such as affordable service, social equity and reliable and resilient electric service.

The need to decarbonize energy is a challenge for utilities as they face increasing demands on the grid, PURA staff said. Minimizing outages in frequency and duration may be difficult “in the face of more extreme temperatures and more frequent or intense storms associated with climate change,” the draft report said.

PURA staff cited the “long duration” of electrical outages during and after Isaias, “with significant impacts on people’s daily lives and the state’s economy.”

A state deal in October 2021 required Eversource to return $65 million to customers as bill credits. Eversource agreed to not appeal a $28.4 million penalty and also set aside $10 million to help customers unable to pay their utility bills.

In written comments submitted to PURA last May, Eversource said metrics for PBR must be objectively and transparently measured, have an established baseline against which performance can be measured and that a utility’s performance is within its control.

Connecticut has in the past reduced electric distribution rates in response to customer discontent “and there is no doubt whatsoever that cost control at the distribution level is critical to serve the interests of customers in that regard,” Eversource said.

However, about two-thirds of an electric bill is beyond the control of a utility or regulators, Eversource said. The large share is due to energy supply rates that are market driven, public policy initiatives and transmission rates subject to federal decisions and regional system costs, Eversource said.

United Illuminating said in comments to PURA the “optimal PBR model” would operate with the current regulatory framework, as an “addition to,” rather than instead of traditional cost of service ratemaking. Many elements of a PBR framework already operate in Connecticut, including decoupling mechanisms, multi-year rate plans, conservation and revenue adjustment mechanisms and performance standards.

“These various mechanisms should be considered foundational elements to any PBR framework that may be adopted as a result of this investigation,” UI said.