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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 Author-
ity (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 enti-
tled 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 Gen-
Conn its prudently incurred cost of debt, the agency is
not powerless to utilize other means to prevent Gen-
Conn 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 genera-
tion, 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 require-
ment that the owner of the peaking generation is com-
pensated at cost of service plus reasonable rate of
return as determined by the authority . . . . Such per-
son 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 reason-
able 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, pro-
vided 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.) Gen-
eral 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 con-
siderations lead me to this conclusion. First, the statute
expressly provides that the generator ‘‘shall be entitled
to recover its prudently incurred costs [of debt],’’ lan-
guage 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 require-
ment and will be interpreted as mandatory if prescribed
action is matter of substance rather than convenience).
Although ‘‘shall’’ can mean ‘‘may’’ if the statutory con-
text 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. Com-
munity 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 disagree-
ment 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 recov-
ery 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 sen-
tences, 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 com-
plementary 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 prin-
ciples . . . (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 lev-
els, 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 fran-
chise 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 expen-
diture 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 man-
agement 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 legiti-
mate 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 recov-
ery of any such costs on the basis of the general rate-
making 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 pur-
pose for the annual review.’’ Part I of the majority opin-
ion. 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 contem-
plated 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 opera-
tion 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 refi-
nancing, which already have been deemed to be pru-
dently 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 deci-
sion, 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 gen-
erators 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 investiga-
tion, if the actual costs exceed the costs included in
their proposal.’’ (Emphasis added.) I take this to con-
firm that the generator is entitled to recover its pru-
dently incurred cost of debt and, in the case of a refi-
nancing 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. Gen-
Conn 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 Gen-
Conn 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 man-
date 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 rate-
payers. In approving the refinancing proposal, PURA
observed that GenConn pledged only to execute the
refinancing if it was ‘‘economically favorable to Con-
necticut ratepayers at the then current market condi-
tions, including interest costs . . . .’’ (Emphasis
added.) PURA further noted that GenConn’s proposal
was ‘‘premised on refinancing the present [l]oan [f]acil-
ity 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 refinanc-
ing,’’ and that the ‘‘approvals are in the public interest
. . . .’’ After refinancing, GenConn submitted its com-
pliance filing to PURA, ‘‘demonstrat[ing] that the [refi-
nancing] 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 ‘‘economi-
cally 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 resi-
dents to benefit from the resulting reliable electric ser-
vice, 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 pro-
spective 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 Gen-
Conn 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 con-
cern, 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 con-
tends, GenConn impermissibly altered the project’s cap-
ital 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 per-
haps by other means. The appropriate alternative proce-
dures and calculations PURA properly could use, how-
ever, 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 Commis-
sion 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 Representa-
tive Vickie Orsini Nardello.