States challenge utility costs backed by ‘fleet of lawyers’

By Jason Plautz | 04/06/2023 06:54 AM EDT

Rate cases are a standard part of regulating electric and natural gas utilities, but officials are questioning how much of the cost should fall on consumers.

Photo collage with USA map, electric bill and power cord.

POLITICO illustration by Claudine Hellmuth/Photos by Freepik, iStock

Home heating and electricity bills spiked this winter because of conditions on an international and atmospheric scale: volatile gas prices and unusually cold weather.

But in some states, officials examining the causes and impacts of high bills are also digging into utilities’ accounting books — down to how much money they spend negotiating rates.

A bill moving through the Connecticut General Assembly would bar utilities from passing along numerous costs, from litigating rate cases to certain advertising expenses. In Colorado, lawmakers are exploring similar legislation. And policymakers in states such as Maryland, Minnesota and New York are increasingly placing utility spending and tactics under the microscope.


The details of regulatory proceedings fly under the radar for many consumers compared with the impacts of international wars and natural gas production cuts. Still, state officials across the country say deeper examinations of utilities are necessary to foster a sense of fairness in how energy providers operate.

“My job as I see it is to make sure that we are working diligently to protect the ratepayers and make sure they are getting the best value for their money,” said Connecticut state Sen. Norm Needleman (D). “When you go through the bills and some of these costs, you begin to question whether you are getting that value.”

Needleman is the lead sponsor of S.B. 7, which would amend 2020 legislation known as Take Back Our Grid that established a performance-based system to determine utility rates in Connecticut. Besides requiring utilities to stop passing on business costs and expenses related to rate cases, S.B. 7 would also give state regulators more power over setting rates, including performance-based rates that would tie rates to how utilities deliver service.

Needleman pointed to the money utilities spend on attorneys, economists and witnesses during proceedings where regulators approve new rates. Those costs, which can reach several million dollars per rate case, are passed on to consumers in most states.

The state inquiries also come as U.S. investor-owned utilities are proposing new power generation and transmission lines to help meet goals to cut climate-warming emissions and boost resilience, which in turn means they are requesting higher rates.

Utilities counter that the costs of arguing rate approvals are minimal compared with issues that affect bills, saying the expenses are necessary to ensure providers get a fair hearing and can offer service in line with state rules.

Eversource Energy, Connecticut’s largest electric utility, said in an email that a rate case “is an important part of the equation to conduct utility service in a safe, reliable and environmentally sound manner.” It called rate proceedings “an unavoidable cost of service” that benefit customers in the long run.

Costs from such proceedings are “highly unlikely to have any noticeable impact on customer bills,” Eversource argued. The company estimates that eliminating all the costs detailed in the Connecticut bill — including dues for trade organizations — would save the typical customer just 5 cents per month, or less than one-tenth of 1 percent of the average bill.

That hasn’t stopped lawmakers from going after what they say is excessive spending when customers are feeling financial pain. Bills for some consumers doubled or tripled in some places this winter thanks in part to higher natural gas prices. In Colorado, the average Xcel Energy Inc. customer paid 25 percent more for electricity and 75 percent more for gas in December than a year earlier (Energywire, Feb. 21).

A legislative committee in that state formed to probe high rates also seized on rate cases as a way to reduce bills, or at least strike back at utilities’ political power.

Colorado Rep. Chris deGruy Kennedy (D) told E&E News “there’s a bit of an unfairness issue” if a utility can spend millions on experts to justify higher rates while state regulators and consumer advocates are limited by their office budgets. He pointed to Xcel, the Minneapolis-based company that operates Colorado’s largest electric utility and has operations in several other states.

“When Xcel shows up with a fleet of lawyers, all of a sudden ratepayers are the ones paying for Xcel’s fight for higher rates,” Kennedy said.

“If Xcel wants to go that big, maybe they should have a little bit of skin in the game,” Kennedy said.

Behind the rates

The rate case is a necessary result of utilities’ existence as regulated monopolies.

Regular proceedings are a chance for a company to set the price it charges the customers it has an exclusive franchise to serve — and a chance for regulators to review how the company is spending ratepayer money.

“Basically, the utility has to go line by line and justify every single expense,” said Lillian Federico, an analyst with S&P Global Commodity Insights who studies rate cases.

That means examining infrastructure costs, power generation, financing of debt and future expected growth — complicated issues and forecasts that all go into setting the base rate for consumers. That base rate is different than the variable costs of fuel that are also passed on to ratepayers.

Some critics have charged that regulatory commissions are too quick to rubber stamp utilities’ proposals, potentially leaving ratepayers on the hook for higher bills than they should. Observers often note the volume of material that has to be processed and argue that regulatory staff and outside groups may not have the staffing to fight every detail.

Utilities will call analysts and economists to pore over and justify thousands of pages of spreadsheets. Regulatory commission staff members counter with their own analysis, as do intervenors that can include business customers, environmental groups and ratepayer advocates.

The result is bills that typically run between $1.5 million to $2.5 million for Xcel Colorado’s rate cases, the utility said in an email. That includes costs borne by the state’s Public Utilities Commission and Utility Consumer Advocate’s Office.

Lawmakers in Colorado balked at spending that much just to determine rates. “Would it be fair to say that we are paying for things that allow the utilities to raise rates?” asked state Sen. Lisa Cutter (D) at a committee hearing last month.

Utilities counter that it’s vital to make sure that a rate case accurately reflects the competing needs of ratepayers and shareholders.

Robert Kenney, president of Xcel Colorado, told the Colorado legislative committee that he considers the proceeding “not a case to raise rates, but a case to make investments.” Kenney added that the fact that ratepayers are exposed to the cost of the case motivates the utility to keep it low.

Brian Reil, a spokesperson for the Edison Electric Institute, which represents investor-owned utilities, said “complex and highly technical” rate proceedings “rightfully benefit from involvement from stakeholders with specialized knowledge and expertise.”

“The associated legal fees are reasonable business costs associated with the open and transparent rate review process, and there is no question that the outcome is better for customers when truly experienced experts are involved,” Riel said in an email. “It also is worth noting that commissions always have discretion to disallow costs found to be unreasonable or imprudent.”

Jeff Ackermann, who chaired the Colorado Public Utilities Commission for four years, said that even if the costs are minimal, lawmakers are still right to examine what can be an “outmoded and ineffective way of setting rates.”

He recalled one rate case during his tenure when a utility called 22 witnesses, the final one being an expert on Wall Street ratings. When nobody stood up to cross-examine the witness, Ackermann recalled, he spoke up and said, “Does that mean this person is unimpeachable or just that you’ve exhausted everyone in the room?”

“The point is, nobody else has the budget to bring in 22 witnesses,” Ackermann said. “If you pass those costs through, there’s no restriction on you, and that sends the wrong message.”

Thinking bigger

State legislative efforts come amid increased attention to other ways utilities spend customer money.

Michigan Attorney General Dana Nessel (D) recently filed a request for DTE Energy, an electric utility in the state, to provide details of $30 million in lobbying and political spending over the last decade in response to public outrage after widespread outages in February, the Detroit News reported.

An ongoing proceeding at the Federal Energy Regulatory Commission could change accounting rules to prevent electric and gas utilities from spending ratepayer money on political and lobbying activities, potentially including dues for trade associations that lobby for policy.

“Customers should pay for things that benefit them directly, not that benefit utility shareholders and their political agenda. There are certainly enough profits from which they can draw money for that,” said David Pomerantz, executive director of the Energy and Policy Institute, a group that frequently criticizes utilities. “Even if it’s just a few dollars, that’s a few dollars that customers shouldn’t have to pay.”

Pomerantz’s group released a report in January calling on policymakers to enact “tighter, updated rules to prevent utilities from using ratepayer money for any political activity, broadly and clearly defined.”

A handful of states have already done so.

New York passed a law in 2021 barring the use of ratepayer money from regulated utilities for trade association memberships, updating a 1979 law that said legislative lobbying could not be included in rate cases. Some states require trade organizations to specify how much of their budget goes to lobbying and require that utilities not charge that percentage to customers.

The Minnesota Public Utilities Commission, for example, tells utilities to remove lobbying expenses from initial rate case filings but often finds additional disallowances during the review process.

According to data shared by the state, that includes $464 paid by gas utility CenterPoint Energy Inc. to the Edison Electric Institute, $47,545 paid by Otter Tail Power Co. to the Lignite Energy Council and $337,000 paid by Great Plains Natural Gas Co. to the American Gas Association.

Averaged out among thousands of customers, however, those costs were relatively low. Great Plains’ disallowed gas association fees came to less than $17 per customer.

Reil of the Edison Electric Institute said the group provides “broad benefits to the customers of our member companies,” including assistance planning and response, security coordination and training programs.

“It is disingenuous for outside groups and other stakeholders not to acknowledge that EEI and our member companies are prioritizing the interests of customers while leading the clean energy transition,” Riel said.

A bill moving through the Maryland General Assembly has a different take on transparency. It would require utilities to publicly issue an annual report detailing their votes on committees associated with a regional electric grid operator. That would make Maryland the first state to require such a report, and the proposal has been touted as a way to shine more light on policies that could affect rates.

The committee in Colorado has not announced any legislative proposals. But some observers say lawmakers should think bigger and find a way to overhaul the entire ratemaking process. That could mean anything from reducing the frequency of hearings by setting rates several years in advance to encouraging settlements to reducing the amount of information intervenors can seek during rate cases.

Xcel Colorado spokesperson Tyler Bryant said in an email that the utility has advocated for a “more stable, multi-year” regulatory framework for recovering costs that would “achieve regulatory efficiency and allow government agencies, stakeholders and utilities alike to plan and allocate resources.”

The company, he said, has proposed ideas that would streamline the ratemaking process, such as multiyear cases that would make projections further into the future and reduce the number of proceedings.

Ackermann, the former Colorado regulator, said the state could follow the lead of Connecticut and use hearings as an opportunity to establish a performance-based standard. That could reward utilities that plan ahead to avoid spikes in the natural gas market or move more quickly to renewable energy.

The trick, Ackermann said, is to balance wide-ranging goals with the desire to capture the political outrage over high bills.

“Public discourse has a short lifespan,” he said. “Can we leverage this moment with a visionary sense of what a better electric grid looks like and holistically solve many of our issues at once?”

Correction: A previous version of this story misstated Lillian Federico’s affiliation.