Background
The Connecticut Light and Power Company (CL&P), doing business as Eversource Energy, filed a 2017 rate case with the Public Utilities Regulatory Authority (PURA) seeking approval of amended rate schedules. In January 2018, CL&P reached a settlement agreement with PURA’s prosecutorial division and the Office of Consumer Counsel that established new base rates for 2018–2020 and created a novel “new capital tracker” — referred to as the electrical system improvement (ESI) tracker — allowing CL&P to recover core capital spending exceeding $270 million annually in its current base rates without waiting for the next general rate case. Costs under the tracker were reconciled each year through an annual rate adjustment mechanism (RAM) proceeding.
Between October 2017 and May 2018, five catastrophic storms struck Connecticut and damaged CL&P infrastructure. PURA approved the settlement in April 2018 with an amendment allowing CL&P to seek prudence review of all post-December 31, 2016 storm costs either in its next rate case or in a separate contested case. CL&P chose the latter route and in November 2018 initiated a contested proceeding covering only incremental operation-and-maintenance storm costs; it did not seek review of nonincremental capital costs in that forum. Instead, CL&P later attempted to recover more than $17 million in storm-related capital costs through the ESI tracker in its 2021 RAM filing.
PURA rejected that approach in its final 2021 RAM decision, concluding that the settlement preapproved only capital expenditures projected in CL&P’s original 2017 rate-case application and that storm capital costs fell outside those projections. PURA ordered the $17 million deducted from CL&P’s ESI tracker request, indicating the amount would be recoverable — if found prudent — in the next general rate case. CL&P appealed to the Superior Court, which dismissed the appeal without construing the settlement agreement, instead concluding that PURA possessed broad rate-setting discretion under General Statutes § 16-19e and that substantial evidence supported PURA’s decision. CL&P appealed, and the Supreme Court accepted transfer from the Appellate Court.
The Court’s Holding
The Supreme Court reversed and remanded. The court held that a trial court reviewing an agency’s interpretation of a settlement agreement governing utility rates must first conduct a threshold determination of whether the contract language is clear and unambiguous before applying any administrative deference. Because PURA’s rate-making discretion under § 16-19e is constrained by binding settlement agreements it has approved, the trial court erred by leaping to deference without examining the contract. The court grounded this rule in its prior decision in Southeastern Connecticut Regional Resources Recovery Authority v. Dept. of Public Utility Control, 244 Conn. 280 (1998), which held that a predecessor agency could not set rates contrary to clear and unambiguous contract terms.
Proceeding in the interest of judicial economy, the court itself performed the threshold ambiguity analysis and found the settlement agreement facially ambiguous on three related points: (1) whether the term “emergent equipment failures” in a chart incorporated by reference into the agreement encompasses capital costs from catastrophic storm damage; (2) whether the agreement preapproved for immediate base-rate recovery only capital expenditures that had been specifically projected in CL&P’s 2017 rate-case testimony, or whether it permitted broader recovery of unbudgeted spending; and (3) whether costs from both catastrophic and noncatastrophic storms were within the scope of preapproved core capital spending. The court found that neither the face of the agreement nor the available extrinsic evidence and the parties’ course of dealing definitively resolved any of these ambiguities.
Because the agreement was ambiguous, CL&P could not prevail on its claim that the ESI tracker unambiguously entitled it to immediate base-rate recovery of the storm capital costs. The court remanded to the Superior Court to resolve the ambiguities on a full administrative record, or to remand in turn to PURA for that purpose. The court also preserved for the trial court on remand the unresolved question of what deference, if any, is owed to PURA’s factual findings about the parties’ intent when PURA’s own prosecutorial division was a signatory to the agreement.
Key Takeaways
- Courts reviewing a utility agency’s interpretation of a rate-setting settlement agreement must first determine whether the contract is clear and unambiguous — deferring to agency rate-making discretion is not a substitute for that threshold analysis.
- PURA’s broad discretion under § 16-19e does not override binding settlement agreements; where contract language is clear, the agency must follow it.
- Ambiguous contract terms — here, “emergent equipment failures” and the scope of “preapproved” core capital spending — cannot be resolved in a utility’s favor by asserting one plausible reading, even if the other side’s reading is also plausible.
- On remand, courts must grapple with the novel question of what deference applies to an agency’s factual findings about contractual intent when the agency’s prosecutorial arm was itself a contracting party.
Why It Matters
This decision establishes a clear analytical sequence for Connecticut courts handling disputes between utilities and PURA over rate-setting contracts: contract interpretation comes first, agency deference comes second. That sequencing has significant practical consequences, because a clear contractual entitlement is reviewed de novo and enforced as written, while an ambiguous provision triggers the more agency-friendly substantial-evidence standard for factual findings. Any future settlement between PURA and a utility will need to address storm-damage capital costs with far greater precision to avoid protracted litigation over contract meaning.
The unresolved deference question flagged for the trial court on remand could also prove consequential beyond this dispute. When the agency that will later interpret a settlement agreement has its own prosecutorial division at the bargaining table, standard administrative deference to agency fact-finding may be in tension with basic contract-law principles governing the intent of the parties — an issue the Supreme Court deliberately left open for further development in the lower courts.