Utilities have recouped $544M+ from storm damage
Eversource, UI say recovery funds from ratepayers over past decade vital
In the past decade, Eversource and United Illuminating will have recouped more than $544 million from Connecticut ratepayers for catastrophic damage inflicted by storms Irene, Sandy and others.
The utility companies have yet to request restitution for the restoration work for August’s Tropical Storm Isaias, which the utilities estimate cost upwards of $230 million, although Eversource’s leadership has indicated that the company plans to do so.
State law allows utilities to recoup a reasonable amount of costs ‘prudently’ incurred from severe weather by increasing electric rates with approval from the Public Utilities Regulatory Authority.
While customers and public officials have criticized both companies for rate increases associated with severe weather, Eversource and United Illuminating argue that the recovery allowance through rates is vital for the function of the utilities.
“Storms can’t be avoided and so storm response is a cost of electric service and customers do have to pay for the service they receive,” Eversource’s spokeswoman Tricia Taskey Modifica said. “[A] decision that says these costs are not recoverable from customers would be highly detrimental to cus
tomers in the longer term because this would signal to the investment community that public utility investment in Connecticut is at risk.”
Lawmakers and local elected officials, however, have criticized the way the utilities have handled storms over the years, with PURA launching investigations into Irene and an October snow storm in 2011 and Sandy in 2012. Those investigations found the companies handled Irene inadequately but improved their response to Sandy.
Tropical Storm Isaias, meanwhile, left up to 800,000 in the state without power last August, many of whom remained in the dark a week later.
In a draft decision on the investigation into the utilities’ response to Isaias, released earlier this month, PURA concluded Eversource’s preparations and response to it were inadequate, citing many of the same reasons they did 10 years ago investigating the company’s response to Hurricane Irene.
The draft decision raised lesser concerns with United Illuminating’s response, calling it “underwhelming in specific instances,” but “markedly better than that of Eversource.”
The scope of the investigation includes evaluating the prudence of the company’s actions and incurred costs during the preparation for and response to Isaias. PURA’s findings can directly impact any future cost recovery.
Past recovery
Taskey Modifica said tree trimming and removal, system automation, and upgrading utility poles are investments that can help avoid outages, but ones that come with a cost.
“All of the capital resources that we need to have available to construct, maintain and reinforce the system every day would become more expensive for customers,” Taskey Modifica said. “As a result, denying recovery of these substantial costs is not a tenable solution, for several reasons.”
Eversource reported a profit of $1.2 billion across its subsidiaries for 2020, an increase of 34 percent over 2019.
UI holds similar reasons for passing storm costs onto customers.
“Major storms are unpredictable and can vary significantly in scope and damage,” UI spokesman Ed Crowder said. “Therefore, unlike many of UI’s regular operations, it’s not possible to budget for them in advance — nor would it make sense to ask customers to fully pre-pay for the costs for restoring service after storm events that might not ever occur.”
In 2020 Avangrid reported net income of $581 million.
The utilities have sought storm recovery several times in the last decade.
Evesource’s subsidiary, CL&P, sought to recover expenses for two major storm periods — years 2011 and 2012 when Irene and Sandy hit, and again for the damaging wind and rain in November 2017 and the nor’easters and tornadoes in 2018.
CL&P accounted for $414 million of recoverable costs from five major storms — including Irene and Sandy — that hit the state in 2011 and 2012. Of that, they recouped $365 million from customers through a rate increase spread over six years.
At the end of April, those costs will be fully recovered, meaning $27.346 million annually will be eliminated from rates.
The utility recovered $141 million from the 2017 and 2018 storms.
United Illuminated, a subsidiary of Avangrid, received $38.1 million for seven qualifying storms — the bulk of cost attributed to Irene and Sandy — out of the $53.3 million the company initially sought for 27 total storms in 2009 through 2013.
UI hasn’t yet sought recovery for any storms in 2017 or 2018 because they haven’t filed a rate proceeding since 2016.
PURA didn’t investigate the response to these later storms and generally said the utilities performed well.
The last investigation and response
Outages caused by Isaias were comparable to those inflicted by Tropical Storm Irene and the October snow storm of 2011.
With regard to storm Irene, they determined that CL&P’s performance was “deficient and inadequate” based on their review of the utility’s preparation, execution of the municipal liaison program, restoration estimates and overall communication to customers and municipalities.
As a penalty for the deficient response in the 2011 storms, the attorney general at the time, George Jepsen, recommended reducing the amount of recovery by $85 million, but PURA determined they would handle any findings of mismanagement during regular rate proceedings because the case was an “uncontested” proceeding.
Uncontested meant PURA didn’t include any findings of facts or determination on the prudency of the utilities’ response, according to the 2011 decision. Consequently, the authority allowed the cumulative cost recovery for both storms despite finding their response to Irene inadequate.
The 2011 case “unmistakenly did not involve issues of imprudence or rate recovery disallowances,” according to the case’s final decision.
Instead of disallowing cost recovery directly, PURA imposed a penalty on CL&P’s return on equity, reducing their revenue by $4.4 million for one year, according to the 2014 rate case decision.
In PURA’s draft decision on Isaias, they found deficiencies similar to those cited 10 years ago during the investigation into the CL&P’s Storm Irene response, including problems with the municipal liaison program, communication with customers and obtaining adequate resources in time.
Opening the Isaias investigation as a contested case, however, creates a direct line of sight to impacting recovery for the storm.
“In a contested proceeding, it puts all of the parties on notice that legally binding conclusions can come from the proceeding,” PURA Chairman Marissa Gillett said.
Storm reserve fund
After Storm Irene and Sandy, both companies established storm reserves — money collected through rates — to help offset the cost of unpredictable weather events in the future. CL&P is allowed to set aside $6 million every year for catastrophic storms — those incurring $5 million or more.
Additionally, the company can collect $3 million a year to cover prestaging costs that the utility can draw down in the event that they pre-staged for a storm that didn’t end up materializing.
If a storm does materialize, the costs can be drawn down from the catastrophic storm reserve or any unused funds at the end of a year are rolled over into the catastrophic storm reserve.
“The theory is that by having money on hand it removes the disincentive to not prepare for storms appropriately,” Gillett said. “The idea is if you have a rainy day fund you are more inclined to stage appropriately.”
Currently, CL&P’s reserve has a
$384 million deficit, meaning incurred storm costs exceed the amount collected from customers to put towards the fund.
For UI, storms costing $1 million or more can be charged to the reserve fund, for which they’re allowed to set aside $2 million a year from rate collection.
Their reserve fund is also in the negative, as the company sits with
$15.8 million in recoverable costs for which they haven’t yet applied.
UI is expected to file an update on the reserve fund at the end of this month. The company could seek recovery of those costs in its next rate proceeding but it’s possible they’ll have accumulated reserve funds and over earnings to help offset the unrecovered costs.
“So it’s not possible to say how much of that may wind up in future rates,” Crowder said.