Connecticut has taken a significant step toward holding electric utilities accountable for their performance by implementing a performance-based regulation system following a decision by the Public Utilities Regulatory Authority (PURA) Wednesday morning. The move makes Connecticut one of the first states in the country to establish such a system, in line with the “Take Back Our Grid Act” that was passed in October 2020.
At their meeting Wednesday morning, PURA commission members praised the efforts of the authority’s staff who worked with stakeholders to come up with the system that was unanimously approved.
“This will really transform the way utilities are regulated going forward,” commission member Michael Caron said after the vote.
With the aim of improving accountability and outcomes for customers, the performance-based incentive system will be linked to utilities’ earnings and profits. The decision by PURA includes a framework for implementing the system, setting four regulatory goals, five foundational considerations, and nine priority outcomes to guide future electric utility regulation. Further reforms in performance-based regulation also are to be announced over the next year.
Speaking at a news conference in Essex Town Hall following PURA’s meeting, state Sen. Norm Needleman, who co-chairs the legislature’s Energy & Technology Committee, said it was hard for him to express just how groundbreaking the authority’s decision is, adding that it is not an attempt to hurt the utilities, which he said are there to serve the state’s residents.
“We need to constantly remind people of that,” Needleman said. He said this system will show residents that the utilities will keep their best interests in mind while giving utilities a specific framework within which to operate.
The “Take Back Our Grid Act” was signed into law by Gov. Ned Lamont in response to the impact of Tropical Storm Isaias, which caused prolonged power outages for thousands of homes and businesses in the state. The act seeks to ensure that utilities are held responsible for their performance in providing reliable electricity to customers.
PURA Chairwoman Marissa Gillett described the decision as a “leap forward for customer-centric utility regulation.” She emphasized the potential of performance-based regulation to align regulatory tools, strengthen accountability for utilities, and achieve priority outcomes for customers. Gillett also noted that the reforms are particularly relevant in the current energy and utility industry marketplace since many customers are facing monthly bills that jumped 50% following a spike in the price of natural gas, which is used to produce electricity.
Gillett explained that there are certain goals the utilities will be expected to achieve, including fulfillment of public policies, empowering customers, and providing reasonable, equitable and affordable rates.
Asked if he wanted PURA to be seen as a disruptor, upending what has been the utilities’ longstanding standard operating procedures, Lamont responded affirmatively.
“I think I do,” Lamont said. “I think performance-based regulation is disruptive. It totally changes the dynamic about how our utilities are compensated.” He talked about how the utilities need to collaborate and communicate with the state on its various staffing needs, using examples such as storm response. “Those are the type of decisions you can only make in collaboration with the utilities. But the fundamental disruptor is the idea of performance-based regulation. I think everybody here is unanimous this is a disruption that is long overdue.”
PURA Vice Chairman Jack Betkoski said Connecticut has always been in the forefront of regulation policy, but added that this system comes at a good time – when technology is evolving too fast for regulation to keep up.
Performance-based regulation has been authorized by law in six other states, including Hawaii, Colorado, Illinois, Nevada, North Carolina, and Washington, according to RMI, a nonprofit group that supports decarbonization. Connecticut’s implementation of this system signals a commitment to improving utility performance and customer outcomes, and sets an example for other states to follow in shaping the future of electric utility regulation.
Lamont said he wants to make sure residents will never see their lights go off, that power gets back up and running as soon as possible after a severe storm, and that customer service remains satisfactory.
“This is something that is long overdue,” Lamont said.
He said it’s vital that the state works with its utilities in a cooperative way.
“We’ve got to work side by side to get these things accomplished or this is not going to work,” Lamont said.
In response to utilities who argue that maintaining high standards can be difficult with low rates, Gillette said the two objectives can be balanced, adding that what PURA and the state are looking for is an assurance that customers are getting value from what they are paying.
“I don’t see any inherent conflict in that,” she said.
The new standards won’t go into effect until 2024.