In this episode, Chairman Marisa Gillett of Connecticut’s Public Utilities Regulatory Authority (PURA) talks about her aim to reform the cozy regulatory environment enjoyed by the state’s big utilities, PURA’s new Equitable Modern Grid Initiative, and how ratepayers benefit from a shakeup of the status quo.
Text transcript:
David Roberts
In Connecticut, as in many other states, regulated monopoly utilities have traditionally enjoyed a comfortable, even cozy, regulatory environment. They have longstanding social, political, and financial relationships with regulators and legislators; they frequently employ former legislative and regulatory staff. (For instance, the former chair of the House energy committee is now the VP of government relations at Avangrid, one of Connecticut’s two big investor-owned utilities.)
Utilities get the rate hikes and high, guaranteed rates of return they ask for; in exchange, regulators and legislators and their staffs can look forward to financial support and cushy lobbying jobs. As I said, it's cozy, and it works pretty well for everyone involved — everyone, that is, except the citizens of Connecticut, who receive mediocre service and pay the highest electricity rates of any state in the nation.
Recently, public-minded legislators and consumer advocates have gotten fed up with the situation. Rising pressure led Democratic Governor Ned Lamont to appoint Marissa Gillett as head of the state’s Public Utilities Regulatory Authority (PURA) in 2019. Unlike most utility regulators, Gillett is not a lawyer, a former legislator, or a former utility employee. Her experience is on the regulatory side; she worked for seven years on Maryland’s public utility commission.
She was hired as a reformer and wasted no time. She has tightened and actually enforced rules meant to shield PURA employees from utility influence and — most unforgivable from the utilities’ perspective — she has denied or scaled back utility requests for extravagant rate increases.
Eversource and Avangrid, seeing their gravy train under threat, are predictably furious. Lamont’s office and the legislature are both under intense pressure from utility lobbyists and the investment class to rein Gillett in. Utilities claim she's creating an adverse investment climate in the state, which is their way of grousing that their bloated returns might get trimmed a bit. Utilities are launching astroturf campaigns in support of rate increases, in part by threatening to cut off philanthropic donations to various churches and nonprofits. It’s pretty ugly.
Amidst this storm, Gillett is focusing on Connecticut ratepayers. PURA has launched an Equitable Modern Grid Initiative and, within it, dockets on everything from distributed energy to energy storage to advanced metering, alongside a kind of regulatory sandbox in which innovative concepts and technologies can be proven out at small scale before expanding.
I'm extremely excited to talk with her about … all of this. So let's get to it! Chairman Marissa Gillett, welcome to Volts. Thank you so much for coming.
Marissa Gillett
Thank you so much for the invitation.
David Roberts
There are three big things I want to talk to you about, and I'm going to try to rein in my normal rambliness so we can hit them all. First, I want to talk about this innovative energy solutions program you've launched. Second, I want to talk a little bit about performance-based rate making. And then third, I want to talk more generally about the relationship between regulators and utilities and how you think about that. So let's start first with the program. And I have a little bit of a wind up to this. So last year, as I'm sure you are aware, the Lawrence Berkeley National Lab put out a report basically saying that the US cannot hit its goals for the electricity sector just by continuing to dump subsidies on clean energy.
There needs to be some regulatory innovation. Our rules and procedures by which we govern the electricity sector are old, outmoded, created for a different sort of grid, not necessarily well suited to the rapid change that we now need to be engaged in. But it also laid out a bunch of reasons why it is difficult for state utility regulators to innovate. So maybe let's just start there. Why is innovation so difficult in the regulatory space for state regulators?
Marissa Gillett
I think the answer, predictably, is a little different depending on your jurisdiction. But in my experience, there's some common threads between what I saw in Maryland and what I see in Connecticut. And I think a lot of it gets back to how the regulator themselves view their own role. And I know you want to get into that later in the show in terms of my regulatory philosophy, but I think we could pull it up here and say, I think that's front and center. And of course, there are innovations that you can do to the underlying authorizing statutes for everyone's utility commission.
But the type of regulator that you need that is going to not just allow innovation, but encourage it really requires a regulator to think about their own role differently than I think utility commissioners might have thought of their roles historically.
David Roberts
Okay, and how would you briefly characterize how they think of their roles?
Marissa Gillett
When I started in this industry in Maryland, I worked under Doug Nazarian first, who is a chair there, is now an appellate judge. And I'd say I was really brought up with the idea that we were economic regulators first and that we were reacting to what was put in front of us. And I saw Doug Nazarian start to challenge that a little bit. And there were some really good commissioners in Maryland that I worked under during my time at that commission, and I started to embrace this idea. I think it's most notably spelled out in a Scott Hempling book about "Preside or lead."
And I think there's a real distinction between a regulator viewing themselves as someone who's simply calling balls and strikes versus a regulator who's like, "Wait a second, I need to be not just the umpire but the first base coach." It's just like a very different way of thinking about your role in the whole construct. And clearly, that's inspired some agita elsewhere, but I think that's one of the drivers.
David Roberts
Yeah, well, I mean, I think one thing that's worth saying for background is, in case listeners are not sort of familiar with the general setup here is: Regulated utilities, they come tell regulators "We want to raise rates, and we want x amount of return." And regulators say "yes," and at that point they just make money by spending money. They get guaranteed returns by law just for spending money. That is a cushy situation that no other business in any capitalist society enjoys. And so almost by definition, anything that's going to disrupt that cushy situation is going to be opposed by utilities, right, because they've got it pretty good the way things are.
Marissa Gillett
That's certainly how I see it. That was really kind of the crux of what the Equitable Modern Grid was about, which I really view as a predecessor to our performance-based regulation efforts now, but the Equitable Modern Grid, it wasn't just about creating innovative programs like the regulatory sandbox that you want to talk about, but it was also about innovating the procedures and kind of the archaic nuances of how you interact with a regulatory commission. And it was designed to really get away from the model where we're just reacting to proposals that the utilities are putting in front of us and instead opening up that much broader — like in the Equitable Modern Grid, in each of the eleven tracks we did, we actually put out a document that my staff wrote in each case that was like, here's what we want.
Utilities, you can respond to this request for program design, but we're looking for half-baked ideas from anyone out there. That's how we ended up with the program designs that we've now completed ten of the eleven original tracks, including the Innovative Energy Solutions program.
David Roberts
Yeah, well, let's talk about that a little bit. So, partially in response, I think, to this difficulty innovating, I mean, part of the difficulty innovating for PUCs, for state regulators, is just that it takes so long because reliability is sort of the number-one thing, there's just a caution built into the whole system. So, you've launched this, what's called the Innovative Energy Solutions (IES) program, which you refer to as a regulatory sandbox. What does that mean exactly?
Marissa Gillett
Actually, some of my staff who are responsible for designing this, they cringe when I refer to it as a sandbox because it's so much more than that. But it's this idea that there is a place in the regulatory construct that we can borrow lessons learned from Silicon Valley, the fail-fast mentality, which I think is really applicable here because we're dealing with ratepayer dollars and we don't want to have an open-ended blank check here. So, the program is really designed to bring pilots to scale or to find out if they can scale quickly. And I think we're talking about 12 to 18 months here, which in the regulatory world is lightning fast.
So that's kind of the genesis, is that we're trying to figure out if something is going to work, and if it's not, it exits the program. If it is going to work, then we have a path forward for scaling it up.
David Roberts
Right. Just try it out in kind of a confined — this is where the sandbox analogy comes from. You're trying it out in kind of a confined area first to give it a whirl.
Marissa Gillett
Absolutely.
David Roberts
And this thing is going to have four cycles. So there's going to be four sort of rounds of these concepts and programs and technologies sort of applying, trying for this. There's going to be four rounds. The theme for round one, for cycle one, is grid edge flexibility, which is just my — that is my love language. Extremely excited to find it here. Cycle one is the only one you have gotten through and so you have some winners. I don't know — are we referring to them as winners? Like, I guess this is a little bit like a contest.
Marissa Gillett
Yeah, we started with a pitch fest, so why not?
David Roberts
Yeah. So you've actually picked a few to move forward from cycle one. Can you maybe tell us about a few of them? What should people think about when you're talking about innovative programs and technologies? What kinds of things?
Marissa Gillett
I love to build on lessons learned from other jurisdictions. So we're not saying that if something's been tried elsewhere that it's not necessarily right for our program, because everybody knows different grid, different regional operator. So, there can be different types of innovation we're talking about here. But we ultimately selected a suite of seven projects. Two of them are focused on electric vehicles. So there's a company innovator known as Grid Edge Networks who's going to demonstrate the integration of EV school bus fleets with the grid to enable vehicle-to-grid capabilities. There are a couple of innovators, I think three or four, that are going to focus more on DERMS and demonstrating grid edge capabilities.
David Roberts
That's Distributed Energy Resource Management. For those who don't know, all the acronyms.
Marissa Gillett
I apologize. That's the first thing that I always try to remember. Yeah. And then there's one who's looking at building optimization. So they're looking at demonstrating low-cost, easy-to-install optimal control systems, solutions that enable, I think it's like two dozen commercial customers to use behind-the-meter DERs (Distributed Energy Resources) to optimize efficiency and load flexibility. So we've got kind of a range of developers, seven in total, and right now they should be knee-deep in completing the contracting phase with the electric utilities. And then they're expected to launch their pilots and meet some of the milestones and their plans within 12 to 18 months.
David Roberts
I think maybe to some listeners, this just sounds like startups on a private market. In what sense is this regulatory? Like, what does it mean for the PUC to be involved in this exactly?
Marissa Gillett
Yeah. One of the things that was striking to me, going to Connecticut from Maryland, is in the smaller jurisdiction — I should say, I'm not sure if it's the smaller jurisdiction or being further from Washington, DC, or what have you — but there is just like a lack of diverse viewpoints or even information that is put into our proceedings. And I think one of the problems that this solves for is introducing some of those concepts to not just our utilities, but our stakeholders. Everyone's got a consumer council, everyone has a state environmental office. And so we're trying to bring awareness, not just to the utilities, our stakeholders, customers, really across the board.
And it also is serving a very vital role in my mind of bringing the electric utilities to the table. And there are three pathways that these projects can come about. And I think the more that the utilities embrace the third pathway, which is a collaborative project between the utility and the startup, the more we're actually going to see some innovation that scales, because utilities get in their own way a lot, right? They know what vendors they like, they know what vendors they've used elsewhere. They're creatures of habit, and so kind of forcing their hand into making new connections with innovators who are fitting into a theme that we've identified, I think kind of has that collateral benefit as well.
David Roberts
Yeah. This is a theme I return to here on Volts over and over again is that these electricity system — the players and the procedures have just been around a long time and there's a lot of sort of momentum and habit built up. Just breaking people out of their habits, I think, is super difficult in this space, even though, as we're saying, this is the space where the most rapid innovation is needed. So it's a real mismatch. And also, I think it's worth saying part of your job as the public regulator is to judge whether the utilities rates that they're charging are just and reasonable.
Right. And so if you demonstrate in a limited way that they could theoretically lower rates if they did XYZ, say with DERMS or EV management or whatever, then you've established that it's unreasonable for them not to do it. Right?
Marissa Gillett
Yeah. Are you sure you're not a lawyer? This is the line of thinking that we're constantly talking through at PURA. You know, historically, and I won't restrict this to just the Connecticut utilities because I think it's definitely more broad than that. But they're used to coming and telling the regulator that this is what they've done. And you're left with this ambiguous standard of trying to judge whether the actions that a utility took were prudent as compared to what another similarly situated utility manager would have done in those circumstances.
David Roberts
That is vague.
Marissa Gillett
Yeah. There's decades of case law around that, but performance-based regulation and Equitable Modern Grid, what that's all really about, is trying to get into — I don't need to be in the driver's seat necessarily, but I need to be in the car, telling the utilities what it is we're looking for.
David Roberts
Right, right, right. What is a reasonable sort of new definition for what's reasonable. So, the second cycle of this innovative energy solutions program, the theme is empowering electrification, which is my other love language. This is my favorite regulatory docket. I'm sure everybody's got a favorite. So, you haven't, as I understand it, chosen the winners yet in that round of things. But I'm curious, what sorts of electrification empowering innovations are you seeing? Sort of like, what types of things are you choosing from here?
Marissa Gillett
So, the application window is open now, and it opened on January 1, and it closes on February 1. So, I think it's too early to say what folks are submitting in this cycle. But the state of Connecticut has very clear policy goals in place where we're driving towards electrification of transportation, of heating and cooling. So, I imagine that there's going to be even more applicants this time around than there was in cycle one. I think in cycle one, we received over four dozen applications. So, I'm looking forward to an even more robust pool in cycle two.
David Roberts
So, you get seven companies or ideas moving forward from cycle one, something comparable from cycle two, there's going to be four cycles. You end up with close to 30 innovative programs here. Are all of them going to become statewide policy, or how are you going to decide which ones become statewide policy? And secondarily, when would you anticipate that one of these or some of these actually make that transition and become statewide?
Marissa Gillett
Yeah. So, the best way to think about this program, I think, is more like a funnel than a sandbox. Like you're starting within the parameters, but we're funneling them down. Each cycle has four phases. So, phase one is where we accept applications. They're coming in just the first screen. Did they just meet basic eligibility criteria? And that's what we're in right now for cycle two. After phase one, they go into phase two, where they're required to provide a little bit more information about cost-effectiveness, economic benefit, equity parameters. And in both phase one and phase two, the projects are screened by what we call an innovation advisory council.
And this was our way of kind of forcing the issue of exposing our stakeholders to innovation. So, that council has our green bank, it has our innovations, Connecticut innovations, Yale, our consumer council, our energy office. And they're, as a council, kind of looking at the projects submitted in phase one and two and then deciding whether they want to recommend some suite of projects to PURA for approval in phase three. Now, not to get too complicated here, because I know I'm using cycles and phases, tracks, but phase three is what we just completed for cycle one, and that's the suite of seven projects that we approved there.
And phase three lasts 12 to 18 months, where we collect data on their performance.
David Roberts
So, those seven are out there doing their thing now and you're tracking their performance?
Marissa Gillett
Correct. They're in phase three, and at the end of that 12 to 18 months, we enter phase four. And that's the point where the decision's made. And there's kind of three ways they can go. They're either going to be ripe to scale up, or they could maybe not be ripe, but they're displaying promise. In that case, we might send them back to step one and cycle back through, or they're just not displaying the potential that we were hopeful about, and at that point, they exit the program. So, that's the funnel. You're kind of getting further and further restricted the more you progress.
David Roberts
So, you're winnowing down, and then at the end of phase four, one or a few are chosen, and then they become like official dockets before PURA? Or is phase four when they're chosen, is that tantamount to approval?
Marissa Gillett
Yeah, that's tantamount to approval. So, they'll get through — like that phase four will be akin to a proceeding or a docket. And at the conclusion of that phase, the ones that we want to see fully implemented will get the green light.
David Roberts
And when is that?
Marissa Gillett
It is 12 to 18 months after the pilot starts. So, 12 to 18 months from now for those seven projects.
David Roberts
And that's enough to, you think, 12 to 18 months is enough data? Like you're confident you'll know enough from these sort of confined sandbox experiments to make the call?
To push them into one of those three funnels? I think here is where the inherent conflict comes with regulators and the urgency that I felt when taking this role; before we came up with this program I have said very publicly, to my staff's chagrin, that I hate pilots. Like, they are the opposite of my love language. And the reason is I saw, as staff in Maryland, I saw so many pilots die on the vine for no other reason than the commissioner who was championing them moved on.
Marissa Gillett
Right.
David Roberts
And that's a terrible way of doing business. So, my answer to the question of the 12 to 18 months, I think that's why we created the pathway where they could cycle back through the program. Like if we get to the end of that 12 to 18 months and they're not ready for primetime, but we think that they are showing promise we can put them back through and they can get another 12 to 18 months. But I don't want to throw good rate payer dollars after bad. And I think you just have to make that call.
Yeah. At least at the end of this process, there is a definitive call. Like there is a call made.
Marissa Gillett
Exactly.
David Roberts
So, okay. That's the Innovative Energy Solutions program, a regulatory sandbox. Are you aware of anything like that in any other state? Like, this problem of regulatory innovation I know you can't be the only regulator in the country that is gripped by this problem. Are you seeing similar efforts anywhere else? I assume other state regulators are watching this.
Marissa Gillett
I hope so, because one of my favorite things to do as a regulator is to look at what other states are doing and to borrow lessons learned. And in fact, the idea for this program was borrowed heavily from the New York REV Connect program.
David Roberts
Ah Yes.
Marissa Gillett
It's a little bit of a different take. You know, like any good innovation, you want to iterate on what's out there. So, it has reflections of that program, and I hope others are looking.
David Roberts
Yeah, I wonder if another state PUC could look at your program and the four phases and say, "Hey, if that made it through the four phases of Connecticut's program, it's probably like it's been vetted and we can take Connecticut's word for it." Or do you think that's a bridge too far? They're going to have to vet it themselves.
Marissa Gillett
I would love for that to happen, but I feel like regulators are notorious for being like, "Well, wait a second, my state's a little bit different for this reason," so we'll see.
David Roberts
Okay, so let's move on then to performance-based regulation, which is a nerdy sounding topic that is nonetheless extremely important that I feel like everybody should know about. But this also, I have a little bit of a run up to. So I've been reading around about your tenure and the programs you've launched and a lot of the pushback against it, and it is — just as a comment on the media coverage — it is sort of bizarre how much the media adopts the perspective of the investment class when approaching this. This whole idea that, "Oh, no, you're scaring investors are going to make slightly lower returns. This is an emergency. Like, state lawmakers have to do something about this."
And I just keep thinking, I keep waiting for the paragraph where someone comes and says, "Well, who cares?" The regulatory body is supposed to defend the interests of ratepayers. The fact that investors are upset is like neither here nor there. It doesn't seem like it should be defining the story. But anyway, that's just a little editorializing on my part. So let's talk about why does Connecticut have the highest electricity rates in the lower 48 states? I know that the utilities say — because this is a deregulated state, so these utilities are just distribution utilities. They're not generating the energy, they're just buying the energy on energy markets. So what they say is "We don't control the cost of energy. Most of the cost that ratepayers are paying has to do with the cost of energy. We don't control that. Picking on us about costs is not fair. You're just being a big meanie." So why are the rates so high? What are the sort of portions that make up those high costs?
Marissa Gillett
Yeah, this is clearly one of the number-one questions that I get. I do this thing called a PURA 101 roadshow where I go into the communities and explain how to interact with PURA and then tackle frequently asked questions and far and away —
David Roberts
I bet that's the number-one.
Marissa Gillett
It is. You wouldn't even need a second guess there. But it's one of the things that we tackled early on in terms of redesigning our electric bills. In fact, Eversource, our larger utility, is just now launching its redesigned bill to try to provide more insight into this question. Because historically, ratepayers would get a bill and it was split between supply and delivery, and in the delivery component was everything. It was the distribution costs, the public policy costs, the transmission costs.
David Roberts
And also, can I just insert here, also the costs that ratepayers are paying for utilities to hire lobbyists to go lobby against ratepayer interests —
Marissa Gillett
Exactly.
David Roberts
in front of legislators, which is, you know we did a pod about this a few months ago. So I had to mention.
Marissa Gillett
Yeah, well, in Connecticut, that practice is now outlawed because of legislation that passed last session.
David Roberts
Right.
Marissa Gillett
Yeah, that's another cause of angst, but yeah. So why our costs are so high? In my opinion, it's easy to sit back and say there's a portion of it that is out of the control of the utilities, the supply costs. We're at the end of pipelines. We don't have the easy access to the natural gas that the PJM region in the mid Atlantic has. So, like, if you're looking at the supply portion of the bill, we're apples to apples with other New England states, with the exception of Vermont, which is still fully vertically integrated. But we're apples to apples with other New England states.
David Roberts
Right, because you're all buying from the same big wholesale market.
Marissa Gillett
Exactly. We're also apples to apples with other New England states on the transmission front because we're all paying the very same high prices for the non-competitive transmission buildouts in New England. But those two buckets are obviously not apples to apples with other areas of the country because other areas of the country have different supply, different transmission. Where it starts to kind of break down in terms of being apples to apples is in the public policy costs and the distribution costs. And the distribution costs is obviously where I have the most statutory authority. And I think one thing that really got under my skin recently was a suggestion printed in a local news article that the utilities think I should back off and that my job is futile because I'm attacking a small portion of the bill.
David Roberts
It is your job.
Marissa Gillett
It is my job. And also we're all looking to the utilities to play a larger role. We want electrification.
David Roberts
Right.
Marissa Gillett
And that's going to give them an outsized role compared to what they have currently. And I think the suggestion that it's futile to do your job because it's a smaller portion of the bill is really quite tone-deaf. But I'm rambling. So I don't know if I even answered your first question.
David Roberts
No, that's good. So this brings us to performance-based regulation. So, for listeners' benefit, utilities basically get paid — called volumetric rates. Basically, they pay based on how much electricity you use. And as we said earlier, they charge certain rates and get certain guaranteed state-guaranteed returns. And traditionally, once the rate case has been approved, that's it. This is something I struggle to convey to people, because I think people are very used to thinking in sort of capitalist terms of, like, businesses compete, and if they don't perform well, customers go elsewhere and they lose money. Right. This is very basic capitalist stuff.
With utilities, the only competition is, "Can I get my regulator to approve this?" That's their skill. That's the only skill that's being selected for here. Once the regulator approves it, there's no further pressure of any kind for them to do a good job. And consequently, just as literally any economist would predict, they don't try that hard to do a good job, because why would they? Trying harder is just more effort and more expenditure for literally nothing. They get nothing for it. They get nothing for doing a better job, so they don't try particularly hard. All of which brings us to performance-based regulation.
So, maybe just sort of give us a capsule summary of what regulators mean when they talk about performance-based regulation of utilities.
Marissa Gillett
Yeah, well, and I think one of the interesting things here is that regulators mean different things when they talk about PBR. And I'm very careful to describe it as performance-based regulation as opposed to performance-based rate making, because I'm intentionally using regulation to convey to you that I intend to regulate the utilities differently from a holistic point of view. As opposed to at the start of our proceeding, which has been split into phases, we got a lot of input from our utilities saying, "Well, we already do PBR in other jurisdictions that we operate in," and come to find out they might have elements of PBR. They might have revenue decoupling, which has been around since the 70s for energy efficiency. They might have some performance incentives, typically only upside, not symmetrical.
And what I mean when I say performance-based regulation is a completely different lens through which we're viewing these utilities. I think that we, as regulators, collectively, need to get off of our hands and say, look, the public policies of this state are x, y, and z, and the state has said that they're using the utility infrastructure to achieve some of these. Maybe your goal is affordability for all. Maybe your goal is GHG reductions. Whatever it is, there are goals that we should be designing around. We should be telling the utility, if you have a choice between spending $2 million on a new pole and wire, or $2 million on battery storage and energy efficiency, we should be telling them which of those solutions they should be deploying, not in individual instances, but rather by our philosophical approach and encouraging them to operate their business around the outcomes that we're trying to achieve.
David Roberts
It's so simple. It's almost so simple. It's difficult to explain to people. Like I said, I think people first have to understand that that's not already the case.
Marissa Gillett
Yeah, and it's been amazing in Connecticut because our governor is a business guy. And so we had a really bad tropical storm in 2020 that ended up like in two weeks of outages. We fined Eversource close to $30 million afterward. And I remember distinctly meeting with him in the middle of the outages and he was like, "Well, why, what's going on? Aren't their profits determined by how they're performing?" And I was like, "Oh man."
David Roberts
If only.
Marissa Gillett
If only. So he's been a huge champion of performance-based regulation since 2020 when I first was explaining it to him. So you're right. It's almost so simple that it's hard to convey to the average person.
David Roberts
So when we talk about judging utilities based on their performance and in some way tying their profits to performance, what does that mean exactly? So, like, what's a performance metric and how would you measure it and how would that translate into sort of affecting their profits?
Marissa Gillett
So right now, we're in the second phase of our PBR proceeding, which has three tracks. And if you're picking up a theme by now about my organization of dockets.
David Roberts
Lots of tracks and phases.
Marissa Gillett
They all have defined starts and stops. So right now we have split the work into three buckets. The first bucket is looking at aspects that you need for PBR, like a multi-year rate plan, decoupling mechanisms, things like that. The second bucket is looking at the question you just asked, which is what are the metrics, scorecards, and performance incentive mechanisms that we're going to use? And the third bucket is integrated distribution system planning, trying to pull everything together with the Equitable Modern Grid. So in that second track, that's what we're knee-deep in with our stakeholders right now, is what portfolio of PIMS (Performance Incentive Mechanisms) would you, stakeholder, recommend to us because in phase one we reached a conclusion about what the policy objectives are.
So now we're kind of backing into it and saying we all agreed or came close to agreeing what those objectives should be. And now tell us what PIMS you think help get there. So, no, I'm not directly answering your question. We're right smack in the middle of determining that portfolio right now.
David Roberts
Well, just to help maybe listeners make it a little more concrete, like what are some examples from other places that have done performance-based regulations? What are the types of things? I assume reliability obviously is an obvious one, right?
Marissa Gillett
It can be, although that's an interesting question, getting into the core obligations of the utility, because one of my big bugaboos is that I don't think we should be incentivizing utilities to achieve — to do their job. Well, if it is a core obligation of the utility, safety, reliability, et cetera. Anyway. But a concrete example would be like interconnections. So —
David Roberts
Yes!
Marissa Gillett
maybe it's a state goal that you want to deploy 200 megawatt of solar a year. What gets us there? Well, certainly what gets us there is speedier interconnection timelines. So maybe you set a target and evaluate the utility based on if they're achieving a certain baseline of interconnections each year.
David Roberts
Interesting. Yeah, that's an extremely relevant one. And you have in mind, you mentioned the asymmetry before. There's lots of this — like lots of this in other areas I've noticed are just basically telling utilities "You can keep doing things the way you normally do, but if you go above and beyond, we'll shower you with extra subsidies." Right. But never, like "If you fall short of these, if you fall short of these performance goals, you're going to financially suffer for doing that." That is something that I think is rare in this world. So is that what you have in mind for these, like real teeth?
Marissa Gillett
Yes, is the short answer. And I think this gets to your earlier question about how do I define PBR? Because I think of PBR as a spectrum. You have cost of service, traditional regulation on one end, and you have what I'm envisioning on the far end, which is where Hawaii is. And somewhere in the middle you have states who have elements of PBR. But I'm talking about moving to the other end of the spectrum, where the revenue requirement that a utility is seeking, where their ROE, which is their profits for — best way to describe it here, where you are actually looking at that return on equity and saying, "Okay, I understand that you're going to have a baseline for what your cost of debt is, but there's a differential between your weighted average cost of capital and your return on equity."
And that differential can be made up by a lot of things. And instead of looking at what other states are giving their utilities for ROE, why aren't we looking at that differential and figuring out maybe they get 50 basis points if they're excelling at interconnection one year, maybe they lose 50 basis points if they don't. So I think that's what we're talking about here, and that's definitely what the fight is in our dockets right now, is whether the PBR incentive mechanisms are layered on top of an authorized ROE or whether they're a component of the ROE.
David Roberts
Technical but interesting. And I reiterate here that if you are a business that has just been rewarded for showing up, literally anything else is going to be, from your perspective, a step down from that. Right? Although I will say in their defense, lots of the things they're not doing, they're not doing because they make money by spending money. And so there are lots of things, as I reiterate over and over and over again on this pod, there are lots of things that we would like them to be doing, like energy efficiency, DERMS, et cetera, that all things being equal, reduce the amount of money they need to spend and therefore reduce the profits they get, right.
Marissa Gillett
Exactly.
David Roberts
So of course they don't do those things. I mean, it's rational for them not to do those things. So they do need to be incentivized somehow to do those things.
Marissa Gillett
Completely agree. And these are some of the exchanges that the utilities have really bristled at when I've said things — actually very similar to how you just posed it. I gave that as testimony on a piece of legislation in one of the previous sessions, and there was a resulting news article where the utility executives took extreme offense to my statements saying that they care about their customers, et cetera, et cetera. And I think they misunderstood me because I wasn't making a statement about that one way or the other. But for folks that are lawyers like me or trained in law, you understand that an investor-owned utility has a fiduciary duty to its shareholders, and to pretend otherwise is just simply rejecting, like, a fact.
David Roberts
Yes, I know. It's weird. To me, this is the fundamental way we've structured the utility sector. That's what an investor-owned utility is. That literally is the structure of the business model, that they make money by spending money and thus have no incentive to do things that cause them to spend less money. That's not an insult or anything. It just is the way we set it up. So of course, it has obvious — it's weird to me that they're so invested in denying or obfuscating that. I guess once people understand it, they understand the obvious problems.
Marissa Gillett
No, it is weird to me, and it's caused me to be perceived as having put my foot in my mouth a couple of times when I just thought I was making a rational observation. And when the investors come into play, I find them impossible to communicate with because in fact, I think it's inappropriate for commissioners to communicate with investors, frankly. But I'm told repeatedly that investors want predictability and certainty. And here I am coming along in PBR telling you exactly what I'm looking for and how to get it. And yet that's caused you to say that I'm disrupting in a way that is going to be problematic — I have a hard time rationalizing.
David Roberts
This is a perfect segue to the third thing I wanted to talk about. This is so interesting to me, the way they try to personalize this, as though you're insulting their hearts, like, "No, we have care in our hearts for customers." I'm like, it's not about whether you're good people or not, right? It's just about these structural incentives that have been set up. And so a lot of the pushback you're getting is from investors. And as you say, the way they're characterizing this is you're disrupting utilities, thus creating uncertainty, which makes for an inclement climate, investment climate, because investors want certainty.
And this is the sort of character of the pushback that's coming at you. And much like you, it breaks my brain because a) welcome to capitalism, guys. This idea that there should be a whole sector of the economy where you just plow money in and the state guarantees you get a certain amount of returns back that's not written in the heavens that you deserve that. That's some sort of like something that God granted you and you're coming along and taking it away from them. Why shouldn't there be a little bit of dynamism and risk even in the utility sector?
Like, the idea that there should be none is just — I don't know where they're getting that premise.
Marissa Gillett
Yeah, I don't either, obviously. And I also really, reall get upset by the implication that I'm creating an environment that's bad for business because I think the failure of our media to push back on business as being equated to the utility is silly. They are businesses, but they're monopolies. So when I see headlines that say that PURA's actions have been bad for business in the state, I really take offense to that, because businesses in the state are the folks paying these rates. They're not the utilities who are getting a guaranteed profit. And when you talk to folks and they say that their cost of living or the cost of doing business is too high in Connecticut, they're talking about the rates.
David Roberts
And these are businesses, mind you, that face actual risk of failure.
Marissa Gillett
Yeah, and competition for their customers. Exactly. And I think that's fundamentally where folks don't understand my regulatory philosophy. Like, I see a lot of quotes from utility executives who think that my job is to balance what is fair for the utility and for the ratepayer, and I reject that characterization. I think what PURA's role is, is to serve in place of the free market. And I get a lot of feedback suggesting that I'm being mean to them. Like, you made a joke earlier about me being a meanie. I have literally been told I'm too mean to them, which I don't know what to do with, but —
David Roberts
That just reflects a history of their cushy treatment. It's insane to me that this idea that there should be a public agency, an arm of government, whose job it is to protect the interests of big investors.
Marissa Gillett
Yeah.
David Roberts
Just why would there be such a thing in a capitalist democracy? Like, why would you have such a thing?
Marissa Gillett
I don't know.
David Roberts
A) when they say, "You're creating unpredictability or a bad business environment," I think what they mean is just, it's not going to be as easy and thoughtless for us to make money here as it was before. But that's a different thing. Right? As you say, you're creating very specific metrics, a very specific framework. It's very clear what they need to do to prosper in this new situation. So that seems clear, right? It's not murky.
Marissa Gillett
It's the type of clarity that I've been told investors are seeking and the utilities want.
David Roberts
No, not that kind of clarity.
Marissa Gillett
No, not that kind of clarity. The other big criticism that they levy at me is that they didn't know the rules in advance. So we had two really contentious rate cases last year. In those two rate cases, we actually did not apply performance-based regulation that's still underway. What I applied in those two rate cases was tried and true cost of service regulatory principles that have been around for 150 years. And what they're saying and what I have tried to convey to the administration, elected officials, the media, others, what I think they're objecting to is the fact that PURA has decided we are going to do our job.
And by law, they are required to demonstrate they have the burden of proving that what they're asking for is a just and reasonable rate, et cetera. And for decades, I mean, I wouldn't hazard to guess how long they have succeeded in getting that request, either through settlements or something else. And they have gotten used to not having to meet that burden. And so what I've tried to say to folks is, "No, listen, I haven't put different rules of the road. I'm much more acting like an umpire; I'm calling balls and strikes. And the fact that a different umpire called different balls and strikes doesn't mean that I have new rules. It means that I'm applying discretion that is, either as a regulator empowered to exercise."
David Roberts
Yeah, that's the nice way of saying it. The more blunt way of saying it might be, "I'm finally applying rules that have just sat unapplied for years." I mean, you now, I think people following US politics over the last however many years are familiar with the idea that a privileged class of people views fairness —
Marissa Gillett
Differently.
David Roberts
and equality as oppression. Right? This is a dynamic you see all over the place in the US now. And you really get that vibe when you read these news stories about you saying to these utilities, "Well, no, you can't have that massive rate increase; you haven't justified it."
Just the absolute stunned umbrage on their part just reeks of that. Like, "Excuse me, sir, I've been getting this cushy deal for years and years. How dare you?"
Marissa Gillett
Well, and I'm frankly really tired of the overt sexism that they're layering in things. And it's something that our local media has chosen not to cover. But if you go look up, I'm just tired of it. If you go look up the appeals that they've filed, particularly Eversource's appeal of the water rate case, they single me out. They refer to me as emotional, unpredictable.
David Roberts
Hysterical, even, one might say.
Marissa Gillett
Yeah, and I just was looking around like, "Look, you couldn't possibly suggest that I have a vendetta. I'm not from this state. I'm trained in this area. I had more experience than either of my colleagues when I took this role. It's mind-boggling."
David Roberts
And you have written and expressed the justifications for your actions in extensive detail. Nobody has to guess why you're doing what you're doing. Yeah. I noticed that even in some of the news coverage, sort of like the good old boys who just do what the investors want —
Marissa Gillett
Are the rational actors.
David Roberts
That's rational. Right. And when you try to stand up for ratepayers or ask these businesses to actually tighten up and compete and try, all of a sudden you're emotional. I noticed that leaking through in the news coverage as well.
Marissa Gillett
Yeah. And I confronted one of their executives about it when she questioned my leadership. And I said, "I appreciate that you're expressing respect for me as being a fellow woman in the industry, but I can't believe that you would stand for this then." And her response was that I started it. I'm not kidding. That I started it, and that they had a right to defend themselves. So that's what we're working with here.
David Roberts
Yes. Well, like I keep saying, if you've been getting a cushy deal for years and years and years, and you've built up all your habits and all your ways of thinking around that, taking those privileges away and asking you to compete feels like an attack on people. This is in large part explains political dynamics in this country and I think explains the utility sector well, as well. So we're getting to the end of our time. And I wanted to wrap up by sort of asking. I follow this area pretty closely and have been sort of pounding the table trying to get people to pay more attention to PUCs, these state regulatory bodies, because they have their hands on a huge portion of the country's emissions.
They have jurisdiction over and control over a huge portion of the country's emissions and come in for almost no public scrutiny just because, as I'm fond of saying, they're sort of surrounded by a force field of tedium, acronyms and phases and things like that. So it's difficult for people to wrap their heads around what's going on. So a lot of this goes on sort of outside public view, which I think explains a lot of why it's gotten so comfy and cozy and cushy in states. But now we need to shake that up. So why are there so few, it seems to me, people on PUCs, commissioners on these bodies that think like you do, because the way you're thinking seems very common sense to me.
And yet, as we're here discussing it is greeted with absolute flummoxed outrage among all parties involved when someone actually comes in and tries to shake this up. So why are there so few of you? And what sorts of kind of rules and procedures could be put in place to create more distance between utilities and regulators?
Marissa Gillett
I love this question because I think that looking at a lot of states who have commissioners that are appointed by their chief executive, their governor, a lot of the statutes, including Connecticut's, will have language in there that loosely refers to commissioners needing to have experience with consumer protection or this or that. And I think that's a good start. But I think it's critical that you actually have a defined skill set that is applicable to what we're doing, whether you're an engineer or a lawyer, which I'm both, or an accountant or there's any number of disciplines that could be relevant. But I think you have to start with the recognition that you need a variety of those disciplines represented on your commission. You can't have three lawyers. You can't have —
David Roberts
So many lawyers in this area. Lawyers are thick on the ground in this area.
Marissa Gillett
You can't have three legislators — you've got to have a complement of skill sets, and I think you also have to have a really strong code of ethics. And whether that's a statewide code of ethics or one that your commission creates, we have supplemented our processes internally where our general counsel has drafted guidance for us that says —back to my issue of speaking to investors — he has advised us that it is legally inappropriate to speak to investors if you have an open rate proceeding, for example, which, again, common sense.
Seems obvious.
David Roberts
But you have to have a code of ethics in place.
Marissa Gillett
You have to stop the notion that commissioners can go on these junkets that are paid for by industry associations. You can go on that if you're going to pay your own way, but that's what we need to do. And ultimately, what we really, really need is for groups to focus on communicating to the governors in the state how critical these types of appointments are.
David Roberts
Yeah, it's a really terrible place for a patronage job. Like, if I could just throw that in, this is a terrible place to put the cousin of your chief of staff or whatever. These are important jobs, especially today, especially going forward.
Marissa Gillett
Especially, and I love that folks are starting to wake up to utility commissions having an outsized role in realizing some of our ambitious clean energy transition goals. And I think that we need to embrace that. But that really starts with lobbying your government to let them know that this is a critical position moving forward.
David Roberts
So, to wrap up, then, what's next for you? How long do you envision — like, are you in this for as long as they'll let you do it? How quickly do you — I mean, you're trying to kind of turn this entire very old, very inertia-bound system around. And I know that way lies insanity. How long?
Marissa Gillett
Yeah. No one told me before I moved to Connecticut for this job that Connecticut's motto was the "land of steady habits," which —
David Roberts
It takes a sinister air, doesn't it?
Marissa Gillett
It sure does. My first term is up this March, and I am seeking reappointment. I don't know that I would go so far as to say that I'd do the job as long as they'll have me, because I do think that regulators need fresh ideas.
David Roberts
Do you support term limits, by the way? Because there's a couple of legislative proposals that would impose term limits on PUC commissioners in Connecticut. How do you feel about that?
Marissa Gillett
Oh, that's a dangerous question. The average term of a commissioner nationwide is three to four years.
David Roberts
Your two colleagues have been, what, 10 and 30 years, ish, on the commission?
Marissa Gillett
11 and 27 or 26. Yeah. There's a real risk of becoming too cozy or not having fresh ideas the longer you stay in any position. And I think it's important, whether it's voluntary or imposed, that we have fresh faces at the helm of an incredibly important agency more than once every turn of the century. That was probably too far, but I've said it.
David Roberts
No, that was relatively circumspect. Well done. Okay. Well, this has been an absolute treat. I'm so glad that you are out there doing what you're doing, shaking up this sleepy corner of things. I wish people would pay more attention to it and follow it more closely. And Connecticut's a great place to tune in now. Things are actually happening.
Marissa Gillett
We're trying to make it happen. I appreciate the platform.
David Roberts
Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf. So that I can continue doing this work. Thank you so much and I'll see you next time.
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