Eversource Escalates CT Fight, Saying It Will Cut Investments

Eversource escalated its long battle with Connecticut’s top utilities regulator Thursday by telling stock analysts on an earnings call it will cut spending on capital projects related to the reliability of its electric grid in the state by $500 million over the next five years. The statements by the company’s chief executive, Joseph R. Nolan, and chief financial officer, John M. Moreira, come less than two weeks after Eversource announced that “unreasonable, arbitrary decisions” by regulators were prompting an end to a $50 million incentive program to purchasers of electric vehicles.

Eversource complains that the Public Utilities Regulatory Authority has been slow to approve the recovery of $635 million in storm costs incurred from 2018 through 2021, as well as $400 million in uncollected bills from ratepayers. It also is asking the Supreme Court to review a rate cut imposed on its water subsidiary, Aquarion. “Without a secure and predictable cost recovery path, we cannot continue to put additional capital resources on the table,” Nolan said Thursday. “So our investment objectives in Connecticut have been centered around safety and reliability. As you’d expect, we will not reduce our safety spending. Therefore the reduction will likely come from reliability areas.”

Nolan’s remarks were interpreted at the state Capitol as another nudge for Gov. Ned Lamont to fire Marissa P. Gillett, the aggressive chair of the Public Utilities Regulatory Authority. Instead, it provoked a sharp pushback from the governor’s office over Gillett and the notion Eversource can stint on spending for reliability. “Eversource has a legal obligation to maintain grid reliability, and we are confident they will uphold that commitment,” Lamont’s office said in a written statement. “The administration is still awaiting information that we requested weeks ago from the company that details the proposed changes to their capital spending plan in Connecticut.”

Connecticut’s regulatory structure is in the midst of a transition ordered by the General Assembly and endorsed by the governor to performance-based regulation that allows PURA to weigh performance along with the investments a utility has made and can recover from ratepayers. “The governor has been clear in his support of Connecticut’s shift toward performance-based regulation and his support for Marissa Gillett as chair of Connecticut’s Public Utilities Regulatory Authority,” Lamont’s office said in the statement. But that support has fallen short of appointing her to a second term on PURA. Like her two long-serving colleagues, John W. Betkoski III and Michael A. Caron, Gillett is a “holdover,” serving after the expiration of their terms while the governor decides whether to nominate them for new terms

Rep. Jonathan Steinberg, D-Westport, an important supporter of performance-based regulation and Gillett as co-chair of the Energy and Technology Committee, said the lack of certainty about the makeup of the authority has resulted in Eversource standing pat on new investment. “He should make a decision on all three existing commissioners, but most importantly, the chair,” Steinberg said. “Under the current circumstances, my perception is the utilities are still betting they can get rid of her. And until that becomes a non-issue, we will have uncertainty, and we will have lack of progress on many critical infrastructure projects, because they are effectively ceasing to do their job.” His co-chair, Sen. Norm Needleman, D-Essex, said there is no question that Eversource, the largest electric utility in the state, and United Illuminating want Gillett gone. “It appears those two utilities continue to up the ante in trying to get her fired,” he said.

Adding to the uncertainty has been the governor’s indecision over whether to expand PURA from three to five commissioners, as current law allows. At the start of the New Year, Lamont was poised to shake up the authority, where Gillett often was at odds with the other two, by an expansion. By the end of January, he had reconsidered and was going to spend the next three to six months monitoring the authority.House Minority Leader Vincent J. Candelora, R-North Branford, said the current law calls for five members and was not written to give Lamont an option.

“If he thinks it should remain three, then we should debate that and make that change in the legislature,” Candelora said. “I personally don’t know whether five or three is better or worse. But what I do know is not making a decision provides a level of uncertainty that isn’t good for the process. So I would just suggest that a decision one way or another be made.” Candelora said leaving the three commissioners on expired terms creates, at the very least, bad optics. “I’m concerned that you have three individuals whose employment is held over their head by the administration. So who is actually making the decisions and pulling the strings?” Candelora said.

Analysts asked Nolan about the status of the regulators. “The governor has the ability to appoint five commissioners. He has vacillated over that, and I’m not really sure at this point whether he wants to take it up to five,” Nolan said, noting the tenuous state of the three incumbents. “I’m not really quite sure what the current plan is around that. Obviously, we have grave concerns about the environment.”

Nolan said PURA’s aggressiveness on reviewing costs are at odds with the Lamont administration’s goals of modernizing the grid. Eversource owns companies that deliver electricity, natural gas and water to vast swaths of Connecticut, Massachusetts and New Hampshire. Nolan said Connecticut is the regulatory outlier. “We enjoy a very productive working relationship in our other two jurisdictions,” Nolan said. “We are so aligned that no light shines between … the state’s initiatives and our initiatives. And when you collaborate, I think you’d have tremendous outcomes.”

Whatever Eversource’s aims are towards Gillett, one of the analysts who questioned Nolan on the call said the threat to divert investments from Connecticut should be taken seriously. It’s happened in other states after adverse regulatory decisions, most recently in Illinois, said Shahriar Pourreza, an analyst who tracks Eversource and other utility stocks for Guggenheim Partners. tilities are capital-intensive and inherently cash-flow-negative businesses as they front costs then seek recovery over a period of years. Pourreza said he has seen utilities that operate in multiple states shift capital to jurisdictions where the return is predictable.

“It’s not a bluff,” he said of Nolan. “And it’s not over.”