Case Title: GenConn Energy, LLC v. Public Utilities Regulatory Authority

Citation: 

Docket Number: 

State: connecticut

Court: Connecticut Supreme Court

Date: 2024-02-27T00:00:00Z

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GENCONN ENERGY, LLC v. PUBLIC UTILITIES
REGULATORY AUTHORITY
(SC 20716)
Robinson, C. J., and McDonald, D’Auria, Mullins,
Ecker, Alexander and Moll, Js.
Syllabus
Pursuant to statute (§ 16-243u), ‘‘in an annual retail generation rate contested
case,’’ a peaking generation facility ‘‘shall be entitled to recover its
prudently incurred costs,’’ and the Public Utilities Regulatory Authority
(PURA) ‘‘shall review such recovery of costs consistent with the princi-
ples set forth in sections 16-19, 16-19b and 16-19e . . . .’’
Pursuant further to statute (§ 16-19e (a) (4)), PURA shall examine and review
a peaking generation facility’s recoverable costs to ensure ‘‘that the level
and structure of rates be sufficient, but no more than sufficient,’’ to
cover the facility’s operating costs.
The plaintiff electric supplier, G Co., appealed to the trial court from the
final decision of the defendant, PURA, which reduced G Co.’s proposed
return on capital with respect to two of G Co.’s peaking generation
facilities that were designed to provide additional electric supply to
Connecticut consumers at times of increased demand. G Co., as a peak-
ing generation provider, is required to submit its Annual Fixed Revenue
Requirements application (application) to PURA every year to set out
the recoverable capital it seeks for the upcoming year. In determining
the allowable recoverable capital, PURA first determines the peaking
generation facility’s rate base, which represents the value of the property
on which the facility is permitted to earn a rate of return. The rate base
is then divided based on the debt-to-equity ratio to find the portion of
the rate base that is attributable to each. Finally, the portion of the rate
base that is attributable to debt and the portion that is attributable to
equity are multiplied by the applicable rate to find the total amount the
facility should be allowed to recover. For each of G Co.’s applications
for 2010 through 2020, it sought and was allowed to recover, as part of
the recoverable capital, its actual annual financing costs. When G Co.
submitted its 2021 application, PURA concluded that G Co. was not
entitled to recover the entire $8.573 million actual interest expense and
determined that a reduction was warranted. PURA found that there
were certain inaccuracies in both the debt-to-equity ratio and the debt
rate proposed by G Co., and that G Co.’s miscalculations would lead to
an overrecovery of costs. PURA’s solution was to maintain G Co.’s
proposed debt-to-equity ratio but to reduce the debt rate, ultimately
reducing G Co.’s recoverable capital by approximately $2.861 million.
According to PURA, this result would be more in line with the recovery
contemplated by § 16-19e (a) (4), in that the rates paid by consumers
would be ‘‘sufficient, but no more than sufficient,’’ to cover G Co.’s
capital costs. PURA therefore approved G Co.’s 2021 application but
only authorized a return on interest of approximately $5.712 million
rather than the $8.573 million that G Co. sought. The trial court rendered
judgment dismissing G Co.’s administrative appeal, concluding that
PURA was authorized to adjust G Co.’s overall recovery as it did. On
appeal from the trial court’s judgment, G Co. claimed, inter alia, that
§ 16-243u required PURA to use the statute’s specific rate-making meth-
odology applicable to peaking generation and not the general rate-mak-
ing principles found in § 16-19e, and that the plain language of § 16-243u
did not give PURA the authority to lower the recovery of G Co.’s actual
annual financing costs. Held:
1. The trial court correctly determined that PURA had acted within its
statutory authority to lower G Co.’s debt rate in its decision on G Co.’s
2021 application, PURA having acted pursuant to its authority under
§ 16-243u when it reviewed G Co.’s recovery of costs consistent with
the general rate-making principles of § 16-19e:
Because § 16-243u incorporates § 16-19e by reference, the plain meaning
of § 16-243u must be determined by considering § 16-19e alongside of
it, and, when the two statutes are considered together, it is clear that
§ 16-243u directs PURA to review a peaking generation facility’s recover-
able costs pursuant to § 16-19e (a) (4) to ensure that the rates are ‘‘suffi-
cient, but no more than sufficient,’’ to allow a peaking generation facility
to cover its operating costs.
Moreover, there was no merit to G Co.’s claim that § 16-243u’s reference
to § 16-19e authorizes PURA only to consider the principles in § 16-19e
for the recovery of costs but not for the setting of rates, as cost recovery
and rate setting are interrelated in that a peaking generation facility
recovers its costs only through the setting of rates.
Furthermore, G Co.’s contention that PURA must allow a full recovery
of costs for any costs that were previously deemed ‘‘prudent,’’ without any
additional evaluation, would render the language in § 16-243u requiring
an ‘‘annual retail generation rate contested case’’ and a review by PURA
of ‘‘recovery of costs consistent with the principles set forth in [§] . . .
16-19e’’ meaningless.
In addition, although it was undisputed that PURA previously determined
that the interest costs that G Co. had incurred from a 2012 refinancing
of its debt were prudent, PURA had the authority, under § 16-243u, to
reevaluate and recharacterize costs that were previously deemed pru-
dently incurred in a prior year and to determine that they nevertheless
may not properly be recovered from consumers in a subsequent year.
There also was no merit to G Co.’s claim that PURA had violated the
plain language of § 16-243u by preventing G Co. from recovering a reason-
able rate of return on equity when it disallowed some of G Co.’s recovery
of costs and thus effectively reduced the rate of return on equity to less
than the amount on which the parties had previously agreed, as the
reduction in G Co.’s recoverable capital resulted from a reduction in the
debt rate rather than a reduction of the rate of return on equity, and,
accordingly, PURA allowed a reasonable rate of return on equity pursuant
to the same rate of return on equity that had previously been agreed on
by the parties.
This court concluded that G Co.’s interpretation of the statutory scheme,
if applied, would leave PURA powerless to fix excess recoveries, which
would conflict with the plain meaning of § 16-243u and with the broad
authority granted to PURA in § 16-19e to set rates.
2. PURA’s action in lowering the debt rate in its decision on G Co.’s 2021
application after not doing so for more than one decade was not arbitrary
and capricious, as the administrative record contained substantial evi-
dence to support PURA’s conclusion that a reduction in G Co.’s debt
rate was necessary:
The evidence presented and examined by PURA provided a substantial
basis from which PURA reasonably could infer that G Co. had sought
an overrecovery of costs, that finding supported PURA’s conclusion that
an adjustment was necessary to ensure that the rates set by G Co. were,
pursuant to § 16-19e (a) (4), ‘‘no more than sufficient’’ to allow G Co.
to recover its costs, and PURA provided an adequate and full explanation
in both its final decision and subsequent briefs for the reasons behind
the change.
(One justice dissenting)
Argued September 8, 2023—officially released February 27, 2024
Procedural History
Appeal from the decision of the defendant reducing
the plaintiff’s proposed return on capital with respect
to certain peaking generation facilities, brought to the
Superior Court in the judicial district of New Britain,
where the court, Klau, J., granted the motion to inter-
vene filed by the Office of Consumer Counsel; there-
after, the court, Cordani, J., rendered judgment dis-
missing the appeal, from which the plaintiff appealed.
Affirmed.
Jennifer M. DelMonico, with whom were Marilyn B.
Fagelson and, on the brief, Proloy K. Das and Daniel
J. Sorger, for the appellant (plaintiff).
Seth Hollander, assistant attorney general, with
whom were Scott Muska, general counsel, and, on the
brief, William Tong, attorney general, for the appellee
(defendant).
Thomas H. Wiehl, staff attorney, with whom were
William E. Dornbos, legal director, and, on the brief,
Jessica Gouveia, staff attorney, for the appellee (inter-
venor Office of Consumer Counsel).
Opinion
McDONALD, J. This case concerns the authority of
the defendant, the Public Utilities Regulatory Authority
(PURA), to review and set the rates for peaking genera-
tion facilities within the state. The plaintiff, GenConn
Energy, LLC, operates two peaking generation facilities,
which are designed to provide additional electric energy
to Connecticut consumers at times of increased demand.
Each year, GenConn is required to submit an Annual
Fixed Revenue Requirements (AFRR) application to
PURA proposing the revenue that it believes is required
to recover its allowed costs1 and for it to receive a
reasonable rate of return on equity. When GenConn
submitted its 2021 AFRR application, PURA found,
under the general rate-making principles of General
Statutes § 16-19e, that GenConn sought to overrecover
from electric ratepayers. As a result, PURA lowered
GenConn’s overall recovery of revenue to ensure that
‘‘the level and structure of rates be sufficient, but no
more than sufficient, to allow public service companies
to cover their operating costs . . . .’’ General Statutes
§ 16-19e (a) (4).
On appeal to this court, GenConn argues that the
trial court erred in concluding that PURA had acted
within its authority. GenConn contends that PURA
acted outside the scope of its authority under General
Statutes § 16-243u, which specifically addresses peak-
ing generation facilities, when it applied the general
rate-making principles from § 16-19e in adjusting Gen-
Conn’s recovery. GenConn also contends that PURA’s
change in methodology in evaluating the 2021 AFRR
application was arbitrary and capricious. For its part,
PURA contends that § 16-243u expressly affords it the
authority to use the rate-making principles in § 16-19e,
and, because it is statutorily obligated to review Gen-
Conn’s recovery each year, its decision to lower Gen-
Conn’s recovery was not arbitrary and capricious.2 We
conclude that § 16-243u authorized PURA to determine
GenConn’s recovery using the general rate-making prin-
ciples found in § 16-19e and that the ‘‘change’’ in PURA’s
methodology does not constitute an arbitrary and capri-
cious decision. Accordingly, we affirm the judgment of
the trial court.
An overview of certain aspects of this state’s electric
supply industry and relevant statutes is necessary to
understand the issues in this appeal. Historically, during
times of peak demand, the state had to procure addi-
tional electricity from out-of-state providers to satisfy
the demand of electric consumers within the state. See
50 S. Proc., Pt. 15, 2007 Sess., p. 5066, remarks of Senator
Donald E. Williams, Jr. Importing electricity in this man-
ner was expensive and resulted in higher prices for
ratepayers year-round. See id. In 2007, in an effort to
reduce electric rates for Connecticut consumers, the
General Assembly passed No. 07-242 of the 2007 Public
Acts (P.A. 07-242), titled ‘‘An Act Concerning Electricity
and Energy Efficiency’’ (act). The purpose of the act
was to encourage investment in peaking generation
facilities by assuring investors that they would recover
their costs. See 50 S. Proc., supra, pp. 4960–62, remarks
of Senator John W. Fonfara. By incentivizing the devel-
opment of these peaking generation facilities, the state
would not have to purchase out-of-state electricity at
a premium, thereby reducing the cost of electricity for
Connecticut ratepayers. See id., p. 5066, remarks of
Senator Williams. Section 50 of P.A. 07-242 provides in
relevant part that, ‘‘[f]rom January 1, 2008, until Febru-
ary 1, 2008, any person may . . . submit a plan to build
peaking generation . . . to be heard in a contested
case proceeding before the Department of Public Utility
Control. . . .’’3 The act was later codified at General
Statutes (Supp. 2008) § 16-243u, which provides that
the selected peaking generators would fully recover
the ‘‘prudently incurred costs’’ of the selected projects,
including ‘‘capital costs, operation and maintenance
expenses, depreciation, fuel costs, taxes and other gov-
ernmental charges,’’ as well as ‘‘a reasonable rate of
return on equity.’’ For the purposes of this opinion, the
‘‘prudently incurred costs’’ and the ‘‘reasonable rate of
return on equity’’ referenced in § 16-243u will be referred
to collectively as the ‘‘recoverable capital.’’
With this background in mind, we turn to the facts
and procedural history specific to this case. In February,
2008, GenConn submitted a proposal to PURA with
multiple options to construct peaking generation facili-
ties. Included in the proposal were options to construct
facilities in the Devon neighborhood of Milford and
in Middletown. PURA ultimately selected GenConn to
develop, finance, and construct both facilities. The
Devon facility became operational in June, 2010, and
the Middletown facility became operational in June,
2011. The initial capitalization for GenConn’s facilities
was 50 percent equity and 50 percent debt.4 Then, in
June, 2012, as required by PURA,5 GenConn applied to
refinance its outstanding debt, which at the time totaled
$236.5 million. PURA approved the refinance, which
had a coupon rate of 4.73 percent.6 The interest expense
for this refinancing is amortized and fixed each year
from 2013 through 2041. The actual interest expense
for the refinancing in 2021 was $8.573 million.
GenConn, as a peaking generation provider, is required
to submit its AFRR application to PURA each year to
set out the recoverable capital it seeks for the upcoming
year. In determining the allowable recoverable capital,
PURA first determines the rate base for the peaking
generation facility. The rate base represents the total
investment of the generation facility, or, in other words,
the value of the property on which the facility is permit-
ted to earn a rate of return. See Federal Energy Regula-
tory Commission, Cost-of-Service Rates Manual (1999)
pp. 8–9, 15, available at https://www.ferc.gov/sites/default/
files/2020-08/cost-of-service-manual.pdf (last visited Feb-
ruary 20, 2024). The rate base is then divided based on
the debt-to-equity ratio to find the portion of the rate
base that is attributable to each. In the present case,
PURA and GenConn agreed that the 2021 rate base was
$225.315 million, and, because GenConn had put forth
a 50 percent/50 percent debt-to-equity ratio, the rate base
for both debt and equity was approximately $112.658
million. The portion of the rate base that is attributable
to debt and the portion that is attributable to equity are
then multiplied by the applicable rate—in this case,
GenConn sought a debt rate of 7.61 percent and an
equity rate of 9.85 percent—to find the total amount
the facility should be allowed to recover (recoverable
capital).7
For each of GenConn’s AFRR applications for 2010
through 2020, it sought and was allowed to recover,
as part of the recoverable capital, its actual annual
financing costs, which included interest on its long-
term and short-term debt. When GenConn submitted its
2021 AFRR application, it sought to recover the $8.573
million actual interest expense for the 2021 refinancing.
PURA disagreed that GenConn was entitled to recover
the entire actual interest expense for 2021 and deter-
mined that a reduction was warranted.
PURA concluded that there were inaccuracies in both
the debt-to-equity ratio and the debt rate proposed by
GenConn. Regarding the debt-to-equity ratio, PURA
found that GenConn had incorrectly determined its
debt-to-equity ratio to be 50 percent/50 percent based
on its internal balance sheets, when the actual ratio
was closer to 75 percent/25 percent. PURA based this
finding on the fact that GenConn was financing its rate
base with a debt of $172.485 million rather than with
$112.658 million, as indicated by the rate base. Regard-
ing the debt rate, PURA found that, although GenConn’s
coupon rate on its debt was only 4.73 percent, GenConn
was calculating the proposed debt rate using the actual
interest owed, $8.573 million, which represented the
interest on the $172.485 million in debt rather than on
the $112.658 million. This resulted in the higher debt
rate of 7.61 percent proposed by GenConn.
PURA determined that the effect of the miscalcula-
tions by GenConn in its proposal would result in approval
of recoverable capital appropriate for a rate base of
$285.143 million rather than the agreed $225.315 million
rate base. The solution imposed by PURA was to keep
GenConn’s proposed 50 percent/50 percent debt-to-
equity ratio but to reduce the debt rate from 7.61 percent
to 5.07 percent,8 ultimately reducing GenConn’s recov-
erable capital by approximately $2.861 million. According
to PURA, this result would be more in line with the
recovery contemplated by § 16-19e (a) (4), in that the
rates paid by customers would be ‘‘sufficient, but no
more than sufficient,’’ to cover GenConn’s capital costs.
PURA therefore approved GenConn’s AFRR application
but only authorized a return on interest of approxi-
mately $5.712 million rather than the $8.573 million
requested by GenConn. It is this reduction that is at
issue in this appeal.
GenConn appealed PURA’s final decision, claiming
that PURA was not authorized to lower GenConn’s debt
rate. The trial court dismissed the appeal after conclud-
ing that PURA was authorized to adjust GenConn’s over-
all recovery as it did. GenConn appealed from the judg-
ment of the trial court to the Appellate Court, and we
transferred the appeal to this court. On appeal, Gen-
Conn asks this court to overturn the trial court’s deci-
sion on the grounds that it violates the plain meaning
of § 16-243u to allow PURA to consider the rate-making
principles in § 16-19e and that PURA’s change in meth-
odology after more than one decade of evaluating Gen-
Conn’s AFRR applications constituted an arbitrary and
capricious decision.
Judicial review of an administrative agency’s determi-
nations is governed by the Uniform Administrative Pro-
cedure Act, General Statutes § 4-166 et seq., and is ordi-
narily restricted in scope, with the court’s ‘‘ultimate
duty’’ being to decide, ‘‘in view of all of the evidence,
whether the agency, in issuing its order, acted unreason-
ably, arbitrarily, illegally or in abuse of its discretion.’’
(Internal quotation marks omitted.) Murphy v. Com-
missioner of Motor Vehicles, 254 Conn. 333, 343, 757
A.2d 561 (2000). However, when a case presents a pure
question of law, the court’s review of the agency’s deci-
sion is plenary. See, e.g., 1st Alliance Lending, LLC
v. Dept. of Banking, 342 Conn. 273, 280–81, 269 A.3d
764 (2022).
I
STATUTORY INTERPRETATION CLAIM
GenConn argues that the plain language of § 16-243u
does not give PURA the authority to lower the recovery
of GenConn’s actual annual financing costs. It asserts
that § 16-243u requires PURA to use ‘‘the specific rate-
making methodology applicable to peaking generation
set forth [in § 16-243u]’’ and not ‘‘the general rate-mak-
ing principles found in . . . § 16-19e.’’ PURA argues
that the plain language of § 16-243u requires it to
‘‘review a peaking [generation] facility’s capital costs
in accordance with traditional regulatory principles,
including those set forth in § 16-19e.’’
Whether § 16-243u authorizes PURA to utilize the rate-
making principles set forth § 16-19e is a question of
statutory interpretation. Because neither party in this
case argues that PURA’s interpretation has been time-
tested or previously subjected to judicial scrutiny, ‘‘the
traditional deference accorded to an agency’s interpre-
tation . . . is unwarranted,’’ and, therefore, our review
is plenary. (Internal quotation marks omitted.) 1st Alli-
ance Lending, LLC v. Dept. of Banking, supra, 342
Conn. 280–81. Review of § 16-243u and the relevant
statutory scheme must be in accordance with General
Statutes § 1-2z and the familiar principles of statutory
construction. See, e.g., Sena v. American Medical
Response of Connecticut, Inc., 333 Conn. 30, 45–46, 213
A.3d 1110 (2019). The meaning of § 16-243u must, ‘‘in
the first instance, be ascertained from the text of the
statute itself and its relationship to other statutes.’’ Gen-
eral Statutes § 1-2z.
Section 16-243u sets forth the law applicable only to
peaking generation facilities and provides in relevant
part that a peaking generation facility ‘‘shall only recover
the just and reasonable costs of construction of the
facility and, in an annual retail generation rate contested
case, shall be entitled to recover its prudently incurred
costs of such project, including, but not limited to, capi-
tal costs, operation and maintenance expenses, depreci-
ation, fuel costs, taxes and other governmental charges
and a reasonable rate of return on equity. The authority
shall review such recovery of costs consistent with the
principles set forth in sections 16-19, 16-19b and 16-
19e, provided the return on equity associated with such
project shall be established in the initial annual con-
tested case proceeding under this section and updated
at least once every four years. . . .’’ (Emphasis added.)
Section 16-19e, which is expressly referenced in the
text of § 16-243u, sets forth general rate-making princi-
ples applicable to all energy generators in this state. It
provides in relevant part that PURA ‘‘shall examine and
regulate . . . the establishment of the level and struc-
ture of rates in accordance with the following principles
. . . (4) that the level and structure of rates be suffi-
cient, but no more than sufficient, to allow public ser-
vice companies to cover their operating costs includ-
ing, but not limited to, appropriate staffing levels, and
capital costs, to attract needed capital and to maintain
their financial integrity . . . (5) that the level and struc-
ture of rates charged customers shall reflect prudent
and efficient management of the franchise operation
. . . .’’ (Emphasis added.) General Statutes § 16-19e (a).
In short, § 16-243u provides in relevant part that a
peaking generation facility ‘‘shall be entitled to recover
its prudently incurred costs’’ and that ‘‘[t]he authority
shall review such recovery of costs consistent with the
principles set forth in sections 16-19, 16-19b and 16-19e
. . . .’’ ‘‘As a general rule, [when] one statute specifi-
cally cites another statute, it is incorporating by refer-
ence the other statute, and the other statute must be
considered in determining the plain language.’’ 73 Am.
Jur. 2d 251, Statutes § 13 (2023); see, e.g., State v. Bemer,
339 Conn. 528, 541–42, 262 A.3d 1 (2021) (when one
statute explicitly referenced another, this court consid-
ered provisions of each in tandem to determine plain
meaning under § 1-2z analysis). Section 16-243u incor-
porates § 16-19e by reference, and the plain meaning
of § 16-243u must therefore be found by considering
§ 16-19e alongside it. In doing so, it is clear that § 16-
243u directs PURA to review a peaking generation facili-
ty’s recoverable costs to ensure that ‘‘the level and
structure of rates be sufficient, but no more than suffi-
cient, to allow public service companies to cover their
operating costs . . . .’’ General Statutes § 16-19e (a)
(4).
GenConn argues that § 16-243u references § 16-19e
only to the extent that PURA may consider the princi-
ples in the latter statute for the recovery of costs but
not the setting of rates. We agree with PURA that such
a distinction fails to consider the interrelated nature of
cost recovery and rate setting. In the energy field, rates
are ‘‘set at a level designed to recover the company’s
prudently incurred costs, plus an adequate return on
investment.’’ Report of the State Commission Practice &
Regulation Committee, 30 Energy L.J. 765, 769 (2009).
In other words, ‘‘[o]nce a [peaking generation facility]
establishes its revenue requirement, the [facility] must
then spread the revenue requirement to several estab-
lished classes of ratepayers, and set rates, based on
historical data, that the [facility] expects to generate
its required revenue.’’ Commonwealth Edison Co. v.
Illinois Commerce Commission, 16 N.E.3d 713, 720
(Ill. App. 2014). GenConn’s argument fails because a
peaking generation facility recovers its costs through
the setting of rates.
The plain meaning of § 16-243u, then, directs PURA
to use the principles of § 16-19e in determining the
generator’s appropriate recoverable costs each year,
and that amount is used to set the rates. To hold other-
wise, as GenConn suggests—that PURA is authorized
to look to § 16-19e only in determining the recovery of
costs but must disregard that analysis in setting the
rates—would lead to an absurd result. PURA deter-
mines the recoverable capital, which includes the recov-
ery of costs and return on equity, in order to set the
rates for the peaking generation facility. The facility
can recover its costs only through the setting of rates.
GenConn’s interpretation of the statute would require
PURA to determine the recoverable capital but then
discard that number when setting the rates and instead
set the rates using whatever costs had been deemed
‘‘prudently incurred’’ pursuant to § 16-243u. There
would be no purpose, then, for PURA to determine the
recovery of costs consistent with § 16-19e because it
would serve no purpose in setting the rates. We decline
to read the statutory scheme in a way that would lead
to such an absurd result. See, e.g., Raftopol v. Ramey,
299 Conn. 681, 703, 12 A.3d 783 (2011) (court ‘‘con-
strue[s] a statute in a manner that will not . . . lead
to absurd results’’ (internal quotation marks omitted)).
Furthermore, GenConn’s contention that PURA must
allow a full recovery of costs for any costs that were
previously deemed ‘‘prudent,’’ without any additional
evaluation, would make the mandatory annual rate con-
tested case required by § 16-243u meaningless. ‘‘It is a
basic tenet of statutory construction that the legislature
[does] not intend to enact meaningless provisions. . . .
[I]n construing statutes, we presume that there is a
purpose behind every sentence, clause, or phrase used
in an act and that no part of a statute is superfluous.
. . . Because [e]very word and phrase [of a statute] is
presumed to have meaning . . . [a statute] must be
construed, if possible, such that no clause, sentence
or word shall be superfluous, void or insignificant.’’
(Internal quotation marks omitted.) Lopa v. Brinker
International, Inc., 296 Conn. 426, 433, 994 A.2d 1265
(2010). Section 16-243u provides in relevant part that
there shall be an ‘‘annual retail generation rate con-
tested case . . . .’’ It is this annual rate case that fore-
casts the recoverable costs for the upcoming year. If
PURA had no power to review the recoverable capital
at these annual rate cases and was merely required to
allow recovery of any cost that had already been
deemed prudent, there would be no purpose for the
annual review. Moreover, such a construction would
render the phrase in § 16-243u that ‘‘[t]he authority shall
review such recovery of costs consistent with the princi-
ples set forth in [§] . . . 16-19e,’’ meaningless. Because
we presume that the legislature had a purpose behind
every phrase it includes in a statute, we decline to
conclude that the legislature deemed an annual review
necessary but intended that PURA have no authority
to make determinations about a peaking generation
facility’s recovery based on that review.
GenConn advances two additional arguments in sup-
port of its contention that PURA’s decision violates the
plain language of § 16-243u. First, GenConn argues that
PURA’s decision ‘‘illegally depriv[es] GenConn of its
statutory right to recover prudently incurred costs.’’ It
reasons that, because PURA approved the 2012 refi-
nancing of GenConn’s debt as being in the best interest
of consumers, the limitation set by § 16-243u, that only
‘‘prudently incurred costs’’ may be recovered, is fully
satisfied.9 GenConn asserts that PURA’s decision to the
contrary creates a bizarre result because costs that were
already ‘‘deemed prudently incurred’’ in 2008 and 2012
can ‘‘be reevaluated and potentially recharacterized as
not prudently incurred on an annual basis’’ and essen-
tially ‘‘reads [the directives about prudently incurred
costs and return on equity] out of the statute,’’ making
it meaningless legislation.
In its brief, PURA clarified that it does not dispute
that the interest costs that GenConn incurred from the
2012 refinancing were prudent but that ‘‘[t]he relevant
question is whether PURA is authorized to determine
the prudently incurred capital costs [that] may be recov-
ered from consumers . . . .’’ (Emphasis added.) In
other words, can a situation arise in which PURA deems
a peaking generator’s costs to be prudent at some point
prior to the AFRR application, but then subsequently
finds that the entire cost, though prudent, may nonethe-
less not be properly recovered from consumers? We
conclude, based on the clear directives within § 16-
243u, that PURA does have this authority. Section 16-
243u sets out the categories of ‘‘prudently incurred
costs’’ that the peaking generation facility is entitled to
recover. It then explicitly states that this recovery of
prudently incurred costs will be reviewed consistent
with § 16-19e. See General Statutes § 16-243u. There-
fore, although GenConn is correct in stating that § 16-
243u allows it to recover its ‘‘prudently incurred costs,’’
it ignores the subsequent sentence, which directs PURA
to ‘‘review such recovery of costs’’ that may be recover-
able from consumers according to § 16-19e. General
Statutes § 16-243u.
Second, GenConn argues that PURA’s decision vio-
lates the plain language of § 16-243u by preventing it
from recovering a reasonable rate of return on equity.
Section 16-243u provides in relevant part that a peaking
generation provider ‘‘shall be entitled to recover . . .
a reasonable rate of return on equity. . . .’’ The statute
further provides in relevant part that the return on
equity ‘‘shall be established in the initial annual con-
tested case proceeding under this section and updated
at least once every four years. . . .’’ General Statutes
§ 16-243u. The rate of return on equity proposed by
GenConn and accepted by PURA for 2021 was 9.85
percent. GenConn argues that PURA, by disallowing
some of GenConn’s recovery of costs, reduced the rate
of return on equity to less than 9.85 percent because
GenConn now must ‘‘absorb the $2.861 million in direct
costs that should have been recovered,’’ resulting in
‘‘an effective rate of return [on equity] of 7.59 [percent]
. . . .’’ This argument is unpersuasive. The rate of
return on equity was not lowered by PURA. It is true
that GenConn’s recoverable capital is lower than what
it requested in its AFRR application by a total of $2.861
million, but this is a result of a reduction in the debt
rate. The rate of return on equity remains 9.85 percent,
which, when multiplied by the portion of the rate base
designated as equity ($112.658 million), totals a return
of approximately $11 million. Simply because Gen-
Conn’s overall recoverable capital was lowered as a
result of the reduction in the debt rate does not mean
that the return on equity has been altered. See, e.g.,
Duquesne Light Co. v. Barasch, 488 U.S. 299, 312, 109
S. Ct. 609, 102 L. Ed. 2d 646 (1989) (discussing rate of
return on equity as separate and distinct from total
overall return and noting that rate of return on equity
can be one figure, while ‘‘overall return’’ may be lower
one). PURA did not violate the plain language of § 16-
243u because it allowed a reasonable rate of return on
equity pursuant to the same rate of return that pre-
viously had been agreed on by the parties.
PURA and the Office of Consumer Counsel (OCC)
also point out, and we agree, that GenConn’s interpreta-
tion, if applied, would leave PURA powerless to fix
excess recoveries, which would conflict with not only
the plain meaning of § 16-243u, but also with the broad
authority granted to PURA in § 16-19e to set rates. The
OCC emphasizes the importance of PURA’s ‘‘flexibility’’
in examining an AFRR application and notes that PURA
must be able to do so ‘‘in light of the entire universe
of facts and circumstances available to it . . . .’’ (Foot-
notes omitted.) PURA is ‘‘[statutorily charged] with
ensuring that Connecticut’s [investor owned] utilities,
including the state’s electric . . . companies, provide
safe, clean, reliable, and affordable utility service and
infrastructure.’’ Public Utilities Regulatory Authority,
Dept. of Energy & Environmental Protection, About
PURA (2024), available at https://portal.ct.gov/PURA/
About/About-PURA (last visited February 20, 2024). It
is for this reason that § 16-243u directs PURA to review
the peaking generation facility’s recovery of costs con-
sistent with § 16-19e to ensure that ‘‘the level and struc-
ture of rates be sufficient, but no more than sufficient, to
allow public service companies to cover their operating
costs . . . .’’ General Statutes § 16-19e (a) (4). Given
this clear purpose, PURA must be able to protect the
interests of ratepayers, and, when it determines that a
company is overrecovering, it must be allowed to adjust
the rates. Furthermore, this court has repeatedly held
that PURA has broad authority to regulate electric utili-
ties and to set rates. See, e.g., Greenwich v. Dept. of
Public Utility Control, 219 Conn. 121, 126, 592 A.2d
372 (1991) (‘‘[PURA’s] enabling statute . . . evinces a
legislative intent to rely on [PURA] to regulate and
supervise public utilities, and to establish rates that are
not unreasonable. . . . [W]e conclude that the lan-
guage of the enabling statute is sufficiently flexible to
permit [PURA] to create necessary policies, including
rate equalization, to guide its rate-making decisions.’’
(Footnote
omitted.)).
Indeed,
the
United
States
Supreme Court has repeatedly emphasized the impor-
tance of the discretion afforded to regulatory agencies.
See, e.g., Duquesne Light Co. v. Barasch, supra, 488 U.S.
313 (‘‘[w]e have never doubted that state legislatures
are competent bodies to set utility rates’’); Minnesota
Rate Cases, 230 U.S. 352, 433, 33 S. Ct. 729, 57 L. Ed.
1511 (1913) (‘‘[t]he rate-making power is a legislative
power and necessarily implies a range of legislative
discretion’’); see also, e.g., Permian Basin Area Rate
Cases, 390 U.S. 747, 767, 88 S. Ct. 1344, 20 L. Ed. 2d
312 (1968) (discussing broad responsibility given to reg-
ulatory agency and stating that ‘‘it must be free, within
the limitations imposed by . . . statutory commands,
to devise methods of regulation capable of equitably
reconciling diverse and conflicting interests’’). We see
no reason, given the importance and purpose of PURA’s
regulatory authority, to change course now.
Accordingly, we conclude that PURA was within its
authority afforded by § 16-243u to review GenConn’s
requested recovery of costs and to adjust the debt rate,
thereby lowering GenConn’s return on financing costs.10
II
ARBITRARY AND CAPRICIOUS CLAIM
GenConn also contends that PURA’s 2021 decision
was ‘‘arbitrary and capricious’’ because it changed the
methodology PURA had used for one decade in deter-
mining recovery for peaking generation facilities. In
response to this contention, PURA explains that it first
discovered GenConn’s ‘‘rate-making artifice,’’ which had
led to one decade of overrecovery, in 2021. PURA argues
that, after this discovery, it ‘‘fixed the problem’’ by
adjusting GenConn’s recovery to reflect ‘‘the just and
reasonable capital costs allowable under traditional
rate-making principles.’’
GenConn’s claim that PURA’s decision was arbitrary
and capricious requires this court to determine whether
there is ‘‘substantial evidence in the administrative
record to support [PURA’s] findings of basic fact and
whether the conclusions drawn from those facts are
reasonable.’’ (Internal quotation marks omitted.) Mur-
phy v. Commissioner of Motor Vehicles, supra, 254
Conn. 343. ‘‘An administrative finding is supported by
substantial evidence if the record affords a substantial
basis of fact from which the fact in issue can be reason-
ably inferred.’’ (Internal quotation marks omitted.)
Commissioner of Mental Health & Addiction Services
v. Freedom of Information Commission, 347 Conn.
675, 708, 299 A.3d 197 (2023). When an agency ‘‘has
stated its reasons for its actions, the court should deter-
mine only whether the assigned grounds are reasonably
supported by the record and whether they are pertinent
to the considerations [that] the [agency] was required
to apply under the . . . regulations.’’ (Internal quota-
tion marks omitted.) R & R Pool & Patio, Inc. v. Zoning
Board of Appeals, 257 Conn. 456, 470, 778 A.2d 61
(2001).
We conclude that there is substantial evidence in the
record to support PURA’s final decision. The evidence
presented and examined by PURA—the actual coupon
rate of GenConn’s debt, the agreed on rate base, the
agreedondebt-to-equityratio,andtheactualdebt-to-equity
ratio as supported by GenConn’s balance sheets—pro-
vides a substantial basis from which PURA reasonably
inferred that GenConn sought an overrecovery of costs.
See part I of this opinion. PURA’s finding, in turn, sup-
ported its conclusion that an adjustment was necessary
to ensure that the rates set by the agency were ‘‘no
more than sufficient’’ to allow GenConn to recover its
costs. General Statutes § 16-19e (a) (4). The evidence
examined by PURA and reflected in the administrative
record provides substantial support for both its findings
of fact and subsequent action in lowering the debt rate.
Furthermore, PURA’s ‘‘change in methodology’’ is not
a failure to abide by its own rules but, rather, an attempt
to protect ratepayers from bearing the financial burden
of GenConn’s overrecovery. PURA failed to notice the
overrecovery that GenConn had benefited from in prior
years by incorrectly increasing its debt rate, and, once
PURA discovered the issue, course corrected. More-
over, even if we were to consider this change to be a
failure by PURA to follow its own rules, PURA provides
an adequate and full explanation in both its final deci-
sion and subsequent briefs for the reasons behind the
change. See R & R Pool & Patio, Inc. v. Zoning Board
of Appeals, supra, 257 Conn. 459–60. As such, PURA’s
action in lowering the debt rate after one decade of
neglecting to do so can in no way be said to be arbitrary
and capricious. See id., 470, 479–80. Rather, it avoids
an unjust windfall on the part of GenConn at the rate-
payers’ expense.
CONCLUSION
The trial court correctly determined that PURA acted
within its statutory authority to lower GenConn’s debt
rate in its 2021 AFRR decision. Specifically, we con-
clude that PURA acted pursuant to its authority under
§ 16-243u when it reviewed GenConn’s recovery of
costs consistent with the general rate-making principles
of § 16-19e. We also conclude that, because the adminis-
trative record contains substantial evidence to support
PURA’s conclusion that a reduction in the debt rate
was necessary, its decision does not constitute an arbi-
trary and capricious one.
The judgment is affirmed.
InthisopinionROBINSON,C.J.,andD’AURIA,MULLINS,
ALEXANDER and MOLL, Js., concurred.
1 The allowed recoverable costs include the projected capital costs, opera-
tions and maintenance costs, and administrative and general expenses. Capi-
tal costs include the cost of debt. See, e.g., Federal Power Commission v.
Hope Natural Gas Co., 320 U.S. 591, 603, 64 S. Ct. 281, 88 L. Ed. 333 (1944).
2 The Office of Consumer Counsel (OCC) is an intervenor in this matter
and, as such, filed a brief in this appeal. The OCC is an independent govern-
ment agency designated by statute as the advocate for all consumers of
the state’s regulated electric, natural gas, water, and telecommunications
utilities, as well as the customers of electric suppliers. See General Statutes
§ 16-2a (a). Section 16-2a (a) authorizes the OCC ‘‘to appear in and participate
in any regulatory or judicial proceedings, federal or state, in which such
interests of Connecticut consumers may be involved . . . .’’ Unless other-
wise noted, the arguments made by the OCC largely track those of PURA.
3 The Department of Public Utility Control is PURA’s predecessor. See
Public Acts 2011, No. 11-80, § 1; see also, e.g., Kleen Energy Systems, LLC
v. Commissioner of Energy & Environmental Protection, 319 Conn. 367,
370 n.1, 125 A.3d 905 (2015). For convenience, we hereafter refer to the
Department of Public Utility Control as PURA.
4 The ‘‘capitalization’’ or ‘‘capital structure’’ is a representation of how the
facility has financed its investment. Federal Energy Regulatory Commission,
Cost-of-Service Rates Manual (1999) p. 15, available at https://www.ferc.gov/
sites/default/files/2020-08/cost-of-service-manual.pdf (last visited February
20, 2024). It is represented as a ratio of debt to equity. See id. ‘‘For example,
a [generator that] has financed its investment with $6 million debt and $4
million in common equity, is referred to as having a 60 [percent]/40 [percent]
debt-equity capitalization ratio.’’ Id. ‘‘A utility’s capital structure is used as
a basis in determining the overall rate of return on a utility’s investment.’’
In re Zia Natural Gas Co., 128 N.M. 728, 731, 998 P.2d 564 (2000).
5 PURA’s criteria decision, which established the criteria that would be
used to ‘‘evaluate the proposals’’ to build the peaking generation facilities,
provides that all refinancings sought by a peaking generation facility ‘‘will
be required to be approved by [PURA].’’
6 The coupon rate is the fixed interest rate of the loan.
7 In the AFRR decision, PURA accepted GenConn’s proposed rate of return
on equity of 9.85 percent. In its decision, PURA stated that, ‘‘[p]ursuant
to the [2007 criteria decision], GenConn is permitted a [return on equity]
determined by the average of The Connecticut Light and Power Company’s
(Eversource Energy) and The United Illuminating Company’s (UI) currently
allowed [return on equities] plus 67.5 basis points. Neither Eversource
Energy nor UI [has] had a rate proceeding since the 2020 AFRR [application];
hence, the [return on equity] base remains the same. Specifically, Eversource
Energy has a [return on equity] of 9.25 [percent], and UI has a [return on
equity] of 9.10 [percent]. The resulting average [return on equity] of 9.175
[percent] is added to 67.5 basis points for a total of 9.85 [percent].’’
8 PURA found the 5.07 percent debt rate to be the ‘‘all-in cost of debt,’’
explaining that this rate ‘‘accounts for the coupon rate of GenConn’s long-
term debt, recoverable fees and costs, and interest from short-term letter
of credit (LOC) debt.’’
9 The dissent, accepting GenConn’s invitation, also argues that the lan-
guage of § 16-243u ‘‘indicates a mandatory entitlement’’ to recovery of Gen-
Conn’s prudently incurred costs. As we explained in part I of this opinion,
the relationship between §§ 16-243u and 16-19e is essential to understanding
what power PURA has to adjust GenConn’s recovery of costs. The language
of § 16-243u directs PURA to review the recovery of prudently incurred
costs consistent with the principles of § 16-19e, which, in turn, gives PURA
the authority to set rates so that they are ‘‘no more than sufficient’’ to allow
GenConn to ‘‘cover [its] operating costs . . . .’’ General Statutes § 16-19e
(a) (4).
10 The dissent maintains that PURA was authorized to adjust GenConn’s
recovery through other mechanisms available to it. We note that we agree,
as does PURA, that PURA likely could have reduced GenConn’s recovery
even more than it did in this case. Specifically, as the dissent suggests,
PURA could have reduced GenConn’s recovery by adjusting the debt-to-
equity ratio and the debt rate. Such adjustments would have resulted in a
recovery of around $14 million for GenConn, a recovery that is approximately
$5.6 million less than that which was originally requested. Our disagreement
with the dissent lies in its reading of § 16-243u as precluding PURA from
adjusting the cost of debt to disallow an overrecovery, which we found to
be an authorized action.