Christopher Hailstone is a seasoned veteran in the complex world of energy management and utility law, bringing years of experience in navigating the intersection of grid reliability and regulatory compliance. As our lead utilities expert, he has spent decades analyzing how federal mandates impact the financial stability of transmission owners and the long-term security of our electrical infrastructure. Today, we sit down with Christopher to discuss the recent regulatory shifts in New England, the high stakes of return-on-equity disputes, and the multi-billion-dollar implications for both shareholders and clean energy development.
Regulators often require proof of irreparable injury to halt financial refunds during an appeal. What specific financial metrics define this threshold, and how does a company demonstrate that a refund is truly beyond remediation?
In the eyes of the commission, “irreparable” means an injury that is truly beyond remediation, which is a massive hurdle for a utility to clear. To meet this burden of proof, a company must move beyond bare allegations and prove that once the money—in this case, upwards of $1.5 billion—leaves their accounts, it cannot be recovered even if they win their appeal. From a metric standpoint, regulators look for evidence of imminent insolvency or a credit rating downgrade so severe it would freeze their access to capital markets. In this specific New England case, the utilities actually undermined their own argument by admitting that if they win the appeal later, they could simply apply future surcharges to customers. By acknowledging that a mechanism for recovery exists, they essentially signaled to the regulator that the injury is not permanent, making the request for a stay an “extraordinary remedy” that was ultimately denied.
With litigation regarding return on equity spanning over 15 years, how do retroactive adjustments affect a utility’s historical accounting? Could you walk us through the process of calculating interest on refunds dating back to 2011 and explain the resulting impact on current shareholder dividends or capital projects?
When you have litigation stretching back to 2011, the accounting becomes a monumental task because you aren’t just dealing with the principal; you are dealing with a staggering accumulation of interest over 15 years. For instance, Eversource is looking at a high-end estimated loss of $932 million, and a significant chunk of that—up to $256 million—is strictly interest. This creates a massive hole in the current balance sheet for historical periods that were long ago considered closed. These refunds are often pulled from retained earnings, which directly tightens the belt on current shareholder dividends and can delay the “breaking ground” phase of new capital projects. It’s a bitter pill for investors who expected a certain return for over a decade, only to find out that the revenue must now be clawed back to satisfy a retroactive 9.57% rate.
If a refund order is later vacated on appeal, utilities may need to implement future surcharges to recover those funds. What are the logistical challenges of clawing back billions through consumer surcharges, and what metrics are used to evaluate the risk of rate shock for the end consumer?
The logistical nightmare of a “yo-yo” rate—refunding $1.5 billion now only to surcharge it back later—is something utilities desperately want to avoid. If the original order is vacated, companies have to track every customer account over a decade-long period to ensure the surcharge is equitable, which is an administrative burden of the highest order. To measure “rate shock,” regulators look at the percentage increase on the average monthly bill; if a surcharge causes a sudden double-digit spike, it can trigger political backlash and further regulatory intervention. Utilities have to weigh the immediate cash outflow of nearly $880 million for a company like Eversource against the future risk of trying to explain to a frustrated public why their bills are suddenly rising to pay back a refund they already spent.
There is a significant gap between the mandated 9.57% return on equity and the 11.39% rate currently requested by regional transmission owners. What specific market data justifies this higher request? Please elaborate on how these different rates influence the feasibility and timeline of large-scale clean energy projects.
The push for an 11.39% return is rooted in the argument that the current economic climate—marked by higher inflation and increased costs of borrowing—makes the 9.57% rate insufficient to attract investors. Transmission owners argue that without a more competitive return, they cannot justify the massive risks associated with projects like the 1,200-MW New England Clean Energy Connect line. These clean energy projects are capital-intensive and often face years of local opposition and legal hurdles. If the return on equity is too low, the “math just doesn’t work” for private capital, leading to stalled timelines or the outright cancellation of the very infrastructure needed to meet decarbonization goals. A gap of nearly 200 basis points isn’t just a rounding error; it’s the difference between a project being greenlit or being left on the drawing board.
For a utility facing potential pre-tax losses near $932 million, what internal cost-cutting measures are typically prioritized to maintain operational stability? Could you share anecdotes regarding how these companies communicate such volatility to investors while attempting to sustain long-term infrastructure goals despite the immediate financial outflow?
When facing a pre-tax loss nearing a billion dollars, utilities typically look at deferring non-essential maintenance and pausing corporate expansion or hiring. They have to perform a delicate dance in their SEC filings, such as the one Eversource recently submitted, where they explicitly bracket the loss between $60.4 million and $932 million to show they are prepared for the worst-case scenario. Communicating this to investors requires a narrative of “temporary turbulence” versus “long-term growth,” where executives emphasize that the underlying asset base remains strong despite the regulatory setback. It is a high-stress environment where you might see a company pull back on office renovations or secondary tech upgrades to ensure that the core mission of keeping the lights on is never compromised by the financial outflow.
What is your forecast for New England transmission rates?
I anticipate a period of extreme volatility and upward pressure on New England transmission rates over the next three to five years. While consumers might see an initial reprieve from the $1.5 billion in refunds due by May 2027, this will likely be offset by the utilities’ aggressive push to raise the return on equity to 11.39%. When you combine the potential for future surcharges if the current appeal is successful with the immense cost of integrating new clean energy sources, the net result for the end-user will almost certainly be a steady climb in costs. We are entering an era where the price of grid modernization and the resolution of 15-year-old legal battles will finally land on the monthly bill.
