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*********************************************** 
GENCONN ENERGY, LLC v. PUBLIC UTILITIES REGULATORY

AUTHORITY—DISSENT

ECKER, J., dissenting. I disagree with the majority’s

conclusion that the Public Utilities Regulatory Authority (PURA) acted within the scope of its authority under

General Statutes § 16-243u when it applied the general

rate-making principles of General Statutes § 16-19e to

adjust the return on capital of GenConn Energy, LLC

(GenConn). In my view, § 16-243u requires GenConn to

recover its actual, prudently incurred cost of debt in

full, a result that is wholly consistent with the principles

of cost recovery set forth in § 16-19e. My analysis is

based on the pertinent statutory text and is bolstered

by two prior decisions of PURA and its predecessor,

the Department of Public Utility Control (DPUC), that

relate specifically to the project at issue and provide

direct support for the conclusion that GenConn is entitled to recover its actual cost of prudently incurred

debt.1

I hasten to add that my statutory analysis ultimately

may leave GenConn in a worse position than does the

result reached by the majority. Although I do not believe

that, on this record, PURA has discretion to deny GenConn its prudently incurred cost of debt, the agency is

not powerless to utilize other means to prevent GenConn from obtaining an unfair and unjustified return

on capital. More particularly, GenConn is entitled to

recover its actual, prudently incurred cost of debt, but

it cannot obtain an excessive return on capital. The

issue in the present case, however, is limited to whether

PURA is authorized by statute to regulate GenConn’s

return by denying the recovery of its actual, prudently

incurred cost of debt. I would answer that question

‘‘no.’’

The majority and I agree that the text of § 16-243u

controls the outcome of this case. In relevant part, the

statute provides: ‘‘From January 1, 2008, until February

1, 2008, any person may, and an electric distribution

company shall, submit a plan to build peaking generation, or the electric distribution companies may submit

a joint ownership plan to build peaking generation, to

be heard in a contested case proceeding before the

Public Utilities Regulatory Authority. . . . Any plan

approved by the authority shall . . . include a requirement that the owner of the peaking generation is compensated at cost of service plus reasonable rate of

return as determined by the authority . . . . Such person 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, capital costs, operation

and maintenance expenses, depreciation, 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 contested case

proceeding under this section and updated at least

once every four years. . . .’’ (Emphasis added.) General Statutes § 16-243u.

The only reasonable interpretation of this language

entitles the generator to recover its prudently incurred

cost of debt without reduction by PURA.2 Several considerations lead me to this conclusion. First, the statute

expressly provides that the generator ‘‘shall be entitled

to recover its prudently incurred costs [of debt],’’ language that indicates a mandatory entitlement. General

Statutes § 16-243u; see, e.g., KeyBank, N.A. v. Yazar,

347 Conn. 381, 392, 297 A.3d 968 (2023) (use of term

‘‘shall’’ in statute generally indicates mandatory requirement and will be interpreted as mandatory if prescribed

action is matter of substance rather than convenience).

Although ‘‘shall’’ can mean ‘‘may’’ if the statutory context reflects a permissive intention,3 we can be certain

that the legislature, in drafting § 16-243u, intended to

use the word ‘‘shall’’ to mean something different from

‘‘may’’ because it used both words in the same statute

in a manner demonstrating that it was acutely aware

of their different meanings.4 See, e.g., Lostritto v. Community Action Agency of New Haven, Inc., 269 Conn.

10, 20, 848 A.2d 418 (2004).

None of this means that PURA must allow a generator

to recover every documented cost of debt incurred in

connection with such a project. To the contrary, § 16-

243u is crystal clear that the generator is entitled to

recover only ‘‘prudently incurred’’ costs. My disagreement with the majority lies with its conclusion that,

once costs are determined by PURA to be prudently

incurred, recovery may nonetheless be disallowed by

PURA upon a finding that the costs, though prudently

incurred, are somehow inconsistent with the principles

set forth in § 16-19e. I read the statute to require recovery of actual costs determined by PURA to be prudently

incurred. Because PURA concedes that the cost of debt

at issue in the present case was actually and prudently

incurred, GenConn is entitled to recover that cost as a

matter of law.5

The majority reasons that, ‘‘[i]f 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 [meaningless the provision

in § 16-243u requiring that] ‘[t]he authority shall review

such recovery of costs consistent with the principles

set forth in . . . [§] 16-19e’ . . . .’’ Part I of the major-
ity opinion. This argument refers to the fact that the

relevant portion of § 16-243u contains two adjacent sentences, the first entitling the generator to recover its

prudently incurred costs, the second requiring PURA

to review cost recovery consistent with the principles

in § 16-19e.

Unlike the majority, I discern no tension that would

compel us to choose between these two provisions by

creating a category of prudently incurred costs under

§ 16-243u that nonetheless are inconsistent with (and

therefore not recoverable under) the principles set forth

in § 16-19e. Indeed, the majority never explains why

the legislature would create such a category of costs.

Nor does the majority identify any coherent principle

that would justify disallowance of a cost that PURA

has deemed prudently incurred within the meaning of

§ 16-243u. A far more cogent interpretation understands

these two sentences to create a harmonious and complementary scheme under which prudently incurred

costs are recoverable, with any question as to whether

the costs are prudent to be resolved by PURA consistent

with the principles set forth in the designated statutes.

Once (as in the present case) the costs are deemed

prudent, PURA can still use those principles to adjust

a generator’s return, so long as that adjustment permits

recovery of the costs already deemed prudently incurred.

This interpretation adheres most closely to the rule

obligating courts to search for a construction that

makes a harmonious whole of a statute’s constituent

parts. See, e.g., Harpaz v. Laidlaw Transit, Inc., 286

Conn. 102, 130, 942 A.2d 396 (2008).

The majority’s construction fares no better upon

examination of the specific provisions of § 16-19e that

it claims provide PURA the authority to deny GenConn’s

entitlement under § 16-243u to recover its prudently

incurred cost of debt. The majority, following PURA’s

lead, locates PURA’s authority in § 16-19e (a) (4) and

(5), which authorize PURA to regulate ‘‘the level and

structure of rates in accordance with the following principles . . . (4) that the level and structure of rates be

sufficient, but no more than sufficient, to allow public

service companies to cover their operating costs

including, but not limited to, appropriate staffing levels, and capital costs, to attract needed capital and to

maintain their financial integrity . . . [and] (5) that the

level and structure of rates charged customers shall

reflect prudent and efficient management of the franchise operation . . . .’’ (Emphasis added.)

The majority appears to assume that the applicability

of these provisions to the particular circumstances of

this case is self-evident, and it provides no explanation

as to why or how the foregoing language allows PURA

to deny recovery of GenConn’s prudently incurred cost

of debt under the framework established by § 16-243u.

Section 16-19e (a) (4) requires PURA to ensure that the
cost recovery ‘‘be sufficient, but no more than sufficient,

to allow [generators] to cover their . . . costs [of debt]

. . . to attract needed capital and to maintain their

financial integrity . . . .’’ PURA has made no finding

that permitting GenConn to recover its proposed cost

of debt was somehow ‘‘more than sufficient’’ to cover

the actual cost, to attract needed capital, or to maintain

its financial integrity. To the contrary, all parties agree

that the cost item at issue is a prudently incurred cost;

indeed, the record indisputably demonstrates that PURA

approved the refinancing precisely because the expenditure enabled GenConn to obtain needed capital in a

manner that redounded to the benefit of ratepayers as

well as the generator.6

The same analysis applies to § 16-19e (a) (5), which

articulates the principle that rates reflect the ‘‘prudent

and efficient management of the franchise operation

. . . .’’ Again, there is no suggestion that the cost of

debt at issue manifested imprudent or inefficient management of the peaking generation facility. There is no

claim that GenConn’s actual cost of debt increased at

any time after the refinancing—in fact, the cost was

lower than projected7—and PURA concedes that the

costs were prudently incurred. Rather, PURA’s concern

is that GenConn sought to overrecover from ratepayers

because the generator applied to recover not only its

actual cost of debt but also a return on equity premised

on a capital structure that GenConn failed to maintain

despite its obligation to do so.8 PURA may have a legitimate grievance in this regard, and, if so, PURA would

appear to have jurisdiction to remedy the problem

through corrective measures that it is authorized to

take with respect to GenConn’s return on equity. It is

clear, however, that the legislature did not intend such

measures to include allowing PURA to override the

express, specific provision in § 16-243u entitling the

generator to recover its actual and prudently incurred

cost of debt.

In my view, the single sentence in § 16-243u relied

on by the majority to import the entire rate-making

apparatus of § 16-19e cannot bear the heavy weight

assigned to it. The provision states only that PURA shall

review the generator’s recovery of costs ‘‘consistent

with the principles’’ set forth in §§ 16-19, 16-19b and

16-19e. General Statutes § 16-243u. If the legislature had

intended this language to mean that, notwithstanding

the specific provisions of § 16-243u expressly entitling

the generator to recover its prudently incurred costs,

PURA nonetheless may in its discretion disallow recovery of any such costs on the basis of the general ratemaking principles set forth in § 16-19e, then it is a

grossly imprecise and confusing way to express that

grant of authority. I would not construe this language

to encroach any more than necessary on the far more

specific directive of the preceding sentence, which

employs plain language to entitle the generator to
recover its prudently incurred costs.

In the same regard, it is also clear to me that the

majority misapprehends the statutory scheme when it

concludes that, ‘‘[i]f 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.’’ Part I of the majority opinion. This argument loses all force when we recognize

that the annual review operates to consider forecasted

costs on a prospective basis, as PURA made clear in

the criteria decision: ‘‘[PURA] will use a forecasted rate

year. All costs will be forecasted at the time of the

annual rate case for the upcoming ‘rate year’ subject

to the provisions described below.’’ The purpose of the

prospective approach is to incentivize generators to

control their costs in the upcoming year. This is why

the criteria decision provides that ‘‘[g]enerators will be

allowed to keep any over earnings and will be at risk for

any underrecovery during the rate year.’’ The process,

in other words, is premised on the fact that the contemplated costs are projected costs that have not yet been

reviewed or approved by PURA as prudently incurred.

To name a few, these costs will typically include operation and maintenance expenses, fuel costs, and other

as yet approved costs for which the generator seeks

recovery. Depending on the circumstances, the review

may also include cost of debt—but not in the present

case in connection with costs incurred in the 2012 refinancing, which already have been deemed to be prudently incurred.

Two decisions of PURA and its predecessor, DPUC,

bolster my conclusion that GenConn is entitled to

recover its prudently incurred cost of debt. See footnote

1 of this opinion. The first is the criteria decision issued

by DPUC in 2007. When DPUC issued the criteria decision, the agency anticipated that generators may seek

to obtain refinancing in the future and specifically

addressed a generator’s entitlement to recover its cost

of debt after a refinancing—the context of the present

case. The criteria decision assures all prospective generators as to how the agency would proceed with

respect to the cost of debt incurred in connection with

a refinancing: ‘‘All refinancings will be required to be

approved by the [agency]. Projects will recover the

actual interest expense, subject to prudency investigation, if the actual costs exceed the costs included in

their proposal.’’ (Emphasis added.) I take this to confirm that the generator is entitled to recover its prudently incurred cost of debt and, in the case of a refinancing approved by the agency, that the generator will

be entitled to recover the prudently incurred interest

expenses associated with the refinancing, even if the

cost exceeds those originally approved.

With this assurance, GenConn subsequently requested
PURA’s approval to refinance the project in 2012 due

to advantageous market conditions. PURA approved

that request in its August 8, 2012 refinancing decision,

thereby authorizing GenConn to incur the attendant

costs consistent with the refinancing proposal. GenConn obtained its refinancing on September 17, 2013,

and PURA does not contend that the actual costs

thereby incurred exceed the costs that GenConn had

included in its proposal9 or ‘‘dispute that the costs GenConn incurred from its 2012 refinancing were prudent.’’

Second, my interpretation of the statute also finds

support, ironically, in a concession made in PURA’s

final decision under review in this very appeal, which

identifies the operative principle of cost recovery in

clear and certain terms and recognizes that PURA must

allow GenConn to recover its cost of debt. The final

decision provides that ‘‘[a] primary component to ‘just

and reasonable cost-of-service compensation’ [required

by § 16-243u] is the return on capital employed to

finance the facilities used to provide service. The return

is designed to pay interest on debt and provide a fair

return on equity.’’ (Emphasis added.) I am unable to

reconcile this acknowledgment of the statutory mandate with PURA’s decision denying GenConn the funds

needed to pay the interest on its debt.

It also is important to understand that GenConn’s

decision to refinance was highly advantageous to ratepayers. In approving the refinancing proposal, PURA

observed that GenConn pledged only to execute the

refinancing if it was ‘‘economically favorable to Connecticut ratepayers at the then current market conditions, including interest costs . . . .’’ (Emphasis

added.) PURA further noted that GenConn’s proposal

was ‘‘premised on refinancing the present [l]oan [f]acility to lower costs to Connecticut ratepayers. . . .

[S]ince interest rates are at historic lows, GenConn

believes that it is important to refinance the [l]oan

[f]acility if it can access the capital markets and or

bank markets to obtain a lower rate on the proposed

financing which will benefit Connecticut ratepayers.’’

PURA itself concluded that, ‘‘based on the assumptions

. . . savings [should be] produced through refinancing,’’ and that the ‘‘approvals are in the public interest

. . . .’’ After refinancing, GenConn submitted its compliance filing to PURA, ‘‘demonstrat[ing] that the [refinancing] resulted in a benefit to the ratepayers of

approximately $23.4 million, or 85 basis points, on an

all-in cost basis over the life of the debt.’’ PURA has

never contended that the refinancing was not ‘‘economically favorable to Connecticut ratepayers’’ as required.

There is no reason to believe that the legislature

would enact legislation that would permit PURA to

reverse course eight years after formally approving the

refinancing and its attendant costs, and after accepting

the benefits flowing to ratepayers as a result of the
refinancing. PURA knew that the refinancing required

GenConn to incur interest costs, and PURA’s decision

to approve the refinancing necessarily means that it

deemed the benefits to justify those costs. Again, PURA

has never suggested otherwise and, to this day, deems

those costs prudently incurred.

This interpretation of the statutory scheme also

makes sense of a statute that permits private businesses

to participate and compete in a newly created in-state

market for the construction and operation of peaking

electric generation facilities on a cost of service basis.10

As GenConn argues, ‘‘[f]or generators to be willing to

invest hundreds of millions of dollars in Connecticut’s

critical energy infrastructure, and for Connecticut residents to benefit from the resulting reliable electric service, generators need to have confidence that PURA

will enforce the project terms set by the Connecticut

legislature and PURA itself.’’ In a single paragraph of

statutory text, the Connecticut legislature assures prospective generators that they will recover their costs

of service. Specifically with respect to costs recovered

as part of the annual retail generation rate contested

case review, the generator is assured that it is legally

entitled to recover its ‘‘prudently incurred costs . . . .’’

General Statutes § 16-243u.

Again, my construction of the statute does not mean

that PURA is without recourse if it believes that GenConn seeks to recover an overall return that is excessive

in light of the project’s actual capital structure for the

year at issue. The mechanism for addressing that concern, however, is not artificially to reduce the actual and

prudently incurred cost of debt previously approved by

the regulatory agency. Instead, PURA appears to be

authorized by § 16-243u, consistent with the principles

set forth in § 16-19b, to reduce GenConn’s return on

equity to reflect the project’s actual capital structure

in any given year. See General Statutes § 16-243u

(authorizing PURA to update a generator’s return on

equity at least once every four years). If, as PURA contends, GenConn impermissibly altered the project’s capital structure by reducing its equity investment beneath

proper limits but still sought to recover a return on

equity as if its capital structure remained unchanged,

then PURA presumably has statutory authority to

address that situation by reducing the generator’s return

on equity to reflect the actual capital structure, or perhaps by other means. The appropriate alternative procedures and calculations PURA properly could use, however, are not issues before the court in the present case.

The issue at this time is whether PURA is authorized by

§ 16-243u to deny GenConn’s recovery of its prudently

incurred cost of debt. I would conclude that it cannot

do so on this record.

For the foregoing reasons, I respectfully dissent. I

would reverse the trial court’s judgment and direct that
the case be remanded to PURA for further proceedings

in accordance with this decision.

1 Specifically, I rely on (1) PURA’s final decision, dated December 23,

2020, on GenConn’s 2021 Annual Fixed Revenue Requirements application,

and (2) DPUC’s criteria decision, dated December 14, 2007, setting forth

how costs and debt would be reviewed by DPUC and recovered by peaking

generators.

2 Capital 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).

3 See, e.g., Statewide Grievance Committee v. Rozbicki, 219 Conn. 473,

480–81, 595 A.2d 819 (1991) (noting that, ‘‘in the interpretation of statutes

the word shall may have a meaning that is directory rather than mandatory’’

and that ‘‘whether a statute is mandatory or directory [hinges on] whether

the prescribed mode of action is the essence of the thing to be accomplished,

or in other words, whether it relates to a matter of substance or a matter

of convenience’’ (internal quotation marks omitted)), cert. denied, 502 U.S.

1094, 112 S. Ct. 1170, 117 L. Ed. 2d 416 (1992).

4 The first sentence of § 16-243u illustrates the point: ‘‘From January 1,

2008, until February 1, 2008, any person may, and an electric distribution

company shall, submit a plan to build peaking generation, or the electric

distribution companies may submit a joint ownership plan to build peaking

generation, to be heard in a contested case proceeding before the Public

Utilities Regulatory Authority.’’ (Emphasis added.)

5 To be clear, I do not contend that PURA is without authority to reduce

the generator’s debt rate, so long as the generator is allowed to recover its

actual and prudently incurred cost of debt for the year at issue. Thus, in

the present case, I agree that PURA did not act improperly when it decided

to reduce GenConn’s debt rate to 5.07 percent.

6 We can be certain that the level and structure of the rates that PURA

approved in its final decision were insufficient to allow GenConn to cover

its capital costs because recovery of its cost of debt was reduced below

the $8,573,000 that both parties agree GenConn was required to pay to its

lender in 2021. The ‘‘financial integrity’’ of GenConn plainly is not put at

risk by allowing the cost recovery, and PURA never suggested otherwise.

GenConn alleges that the opposite is true—its financial integrity was

impaired by PURA’s decision not to allow the cost recovery. General Statutes

§ 16-19e (a) (4).

7 When GenConn completed the refinancing and sent PURA its compliance

filing in 2013, the interest costs for 2021 were projected at approximately

$8,908,000. These costs ultimately amounted to $8,573,000.

8 PURA argues that denying GenConn’s full cost of debt is justified because

its 2021 proposal sought an excessive return on its capital (its return on

debt and equity combined). In its final decision, PURA found that GenConn

sought both to recover its full cost of debt and to ‘‘simultaneously earn [a

return on equity] based on a different debt-to-equity ratio’’ than that approved

by the agency or actually maintained in the project by GenConn.

9 After refinancing, GenConn submitted its compliance filing on November

15, 2013, containing schedules of its projected interest costs from 2013 to

2041. PURA permitted GenConn to recover these interest costs each year

from 2013, when the refinancing went into effect, until 2020. Only in 2021, the

year presently at issue, did PURA deny GenConn’s recovery of these costs.

10 See 50 H.R. Proc., Pt. 20, 2007 Sess., pp. 6591–92, remarks of Representative Vickie Orsini Nardello.