August 28, 2020
The latest from the folks across the street from the Capitol

From Paddi's Desk

As I said a few weeks back...when it rains in Connecticut, it really pours!
Especially for Connecticut's two electric distribution companies. As you're well aware, almost two weeks ago about a third of the state had no power. No lights, no air conditioning, no refrigerators and no access to devices that let you work from home. It wasn't pretty for those 900,000 residents, but it was even worse for Eversource and United Illuminating.

After days of frustration with residents (aka their customers) and town and state officials not knowing what the plan exactly was and who was in charge of fixing what, Eversource broke its silence and their CEO appeared in several interviews where he elaborated on the changing dynamics leading up to that fateful stormy Tuesday.

Some say "too little, too late." Folks didn't want to hear the facts, they wanted to know the plan and when things were going to get fixed.

You might say that Eversource and UI were victims of the perfect storm. Connecticut and the rest of the nation has had a streak of bad luck. First, last spring, we were hit by the unknown and unstable COVID-19 virus. As folks learned how to work from home and shelter in place, word started going around that this was going to be the new normal for the foreseeable future. It might not be until 2021 that folks can return to their offices and not have to worry about being teaching assistants.

We then all experienced massive social injustice. An experience that left us with yet another emotional challenge. The legislature and Governor jumped into action and fast tracked major changes on how police should conduct themselves and how they will be held accountable for specific actions.

Then came the popular Fourth of July weekend. Folks began to chill a bit and tried to enjoy that comfortable cadence we wait all year for-the beautiful, hot and relaxing days and nights of summer. But troubles bubbled up yet again as a localized storm knocked out power to a decent amount of homes in the northwestern towns of Litchfield County. Eversource jumped on it, restored power and life appeared to return to a somewhat even keel, even as temperatures continued to break all-time records.

But then a planned, but not well publicized, electric rate increase caught consumers by surprise and the wheels started to fall of the car again. Residents began complaining about massive bills and some began seeking restitution-calling elected officials, taking to social media platforms and bombarding the electric distribution companies' customer service lines. Legislators were caught in the hot seat, since back in 2017 they approved policy changes that would allow for a major deal where Millstone nuclear power plant would get an above market 10-year contract that many folks said would contribute to massive rate hikes.

Many seemed to not realize that with most of Connecticut working from home, schools shut down for the year and the increased use of power-hogging devices that the average household electric usage jumped from 500 megawatts to 970 megawatts. With it being the second hottest July on record, those air conditioners were cranking full speed 24/7.

Not so fast! Tropical Storm Isaias began stirring up trouble in the southern U.S. and predictors said it would hit Florida hard. Nope! It changed course and rolled through the Carolinas, only to turn its temper to Connecticut. And by then it was MAD.

So why did I pick this topic to write about this week? It was a summer storm and-yeah-everyone was stuck in a bind. But the table turned on the electric distribution companies. I think the pot was already boiling. Folks lost a lot of food, some lost medicine and some lost work because, as has been reported, the companies missed the mark on preparing and knowing how hard Connecticut would get hit.

After more than 11 days, power was finally restored-but not without consequences. The Governor, Attorney General and state agencies handling electric issues all started to pile on Eversource and UI. Prior to the storm, many were seeking public and regulatory hearings to address the massive rate hikes. They then ordered Eversource to roll back their increase until the agency had time to regroup and relook at them. Folks criticized Eversource for handling the situation in a casual manner and for not providing folks with the answers they wanted. In their mind, the facts were in the perception.

This past week the legislature and the regulatory body held two different hearings. The one with PURA was very formal and detailed. After a presentation, multiple parties examined the companies' senior leaders, demanding answers to fit their perceptions. When that didn't come, the frying pan got even hotter.

On Thursday the Eversource CEO appeared before the Energy Committee and laid out the situation as he saw it. But again, perception was driving this train and folks were still looking for their pound of flesh. Even though Connecticut law does not require Eversource to make restitution, consumers and legislators are demanding rebates, rollbacks and additional penalties. They are looking for HUGE changes to the regulatory framework and some are even suggesting we breakup the regional grid management system.

Yikes! This dialogue will continue in the weeks ahead, during a tentative special session the first week of September and the 2021 Legislative Session. It's my guess that there will be HUGE changes, but to me the lesson to be learned here is that you always need to stay ahead of the 8 ball and be ready to act. Or you could have the table turn on you.

CT Agency Corner
State Budget: Bad, but Could be Worse 
by Mike Johnson

Everyone who has read our articles in the past few months has seen what our budget deficit looks like for the next three years: grim, with painful cutting/new revenue decisions inevitable.
That said, it may shock you to know that despite our projected $8.5B deficit over the next three years there are some positives that we have going for us in Connecticut:
A Large "Rainy Day Fund"
Our state's reserves fund (otherwise known as our Rainy Day Fund) is the 9th largest in the nation, proportionately according to a report done by Pew Charitable Trusts. Some states have little to nothing left in their fund which leaves them in even worse financial balance to handle the COVID-19 economic backlash.
Unallocated Bond Resources
Believe it or not, the state is sitting on a treasure chest of accumulated bonding capital that has not been allocated. Over $4B of unallocated resources for infrastructure is in the capital budget now but we'll likely see that amount get spent down quickly on consolidation projects without the traditional line-item way to budget appropriations. The hope being that these dollars will be spent on efficiencies that can reduce the size of government without feeling the pain on the front or back end since the authorizations have already been approved.
Bond Covenant
In the last economic recession in 2009 the legislature and Governor Rell approved a plan to actually borrow funds to help pay down the state's operating expenses which made the private finance sector cringe when providing credit ratings for Connecticut. 

Fortunately, we are practically guaranteed that history won't repeat itself since in 2018 the state entered into what's called a "bond covenant" which is a promise the state made to all private entities purchasing state bonds that Connecticut won't repeat that mistake and will account for revenue with their spending packages.
Possibility of Federal Bailout Funds
The CARES Act was single-handedly the largest socialization of government subsidies for businesses in our country's history but unfortunately no funding was made available to state governments for the purpose of accounting for revenue losses. In 2009 and 2010 Connecticut benefited from some portion of the federal package going simply to making up for their shortfalls. With Sen. McConnell (Federal Senate Majority Leader) unwillingly to compromise on that it would likely take a large Democratic swing in the presidency and Congress to see that policy change.

Pictures from an Empty State Capitol 

Mike from our office was able to pick up a proclamation requested by a client this morning and during his quick visit to the State Capitol he grabbed some photos to show what the building looks like these days.

Here are some pictures of areas that would normally be overflowing with visitors, media and state officials:

In This Issue:

The Eversource Hearing: Quotes from the Day   
by Mike Johnson 

The Energy & Technology Committee hearing on the Eversource rate increases and power outages from Tropical Storm Isaias is (no pun intended) the hottest subject matter hearing to occur this summer.

Here are the must-read quotes from regulators that resonated the most:

"I don't want you to be the most hated company in Connecticut."
-Rep. Buckbee (R-New Milford) 

"I have seen just a handful of storms come through during my time in the legislature. I have never seen mayors and first selectmen react with such outrage over the communication".
-Rep. Arconti (D-Danbury)

"Pretty much unanimously, everybody in the state of Connecticut believes that your company operates for the benefit of shareholders and the benefit of the executive."
-Sen. Needleman (D-Essex)

""I agree I'm extremely well compensated. That comes from someone who lived more than half their life in a triple-decker in the inner city. I know how well I'm paid. I also know that the compensation is very much in line with CEOs of similar sized utilities."
-James Judge, CEO of Eversource commenting about his compensation when asked by Rep. Buckbee.