HARTFORD (LN) — The Connecticut Supreme Court reversed a trial court’s dismissal of The Connecticut Light and Power Company’s appeal from a Public Utilities Regulatory Authority (PURA) decision, holding that the trial court improperly deferred to the agency’s interpretation of a settlement agreement without first determining whether the contract language was ambiguous.
In a decision issued May 12, the court ruled that the trial court erred by concluding that PURA had discretion under General Statutes § 16-19e to resolve the dispute as it saw fit. Instead, the court held that PURA’s rate-making authority is constrained by binding settlement agreements it has approved, and that a court must first interpret the agreement to determine if its terms are clear and unambiguous.
The dispute centered on a 2018 settlement agreement that established base rates for the plaintiff, doing business as Eversource Energy, for the 2018–2020 period. The agreement created a “new capital tracker” mechanism allowing the utility to recover excess “core capital” spending in base rates without waiting for a general rate case.
Five catastrophic storms struck Connecticut between October 2017 and May 2018, damaging equipment and incurring significant capital costs. The plaintiff sought to recover these costs through the new capital tracker in its 2021 Rate Adjustment Mechanism proceeding.
PURA rejected the request, ordering the plaintiff to deduct more than $17 million from its recovery request. The agency concluded that the agreement only preapproved capital spending projected in the plaintiff’s 2017 rate case application, and that storm recovery costs had not been included in those projections. PURA indicated the costs could be recovered general rate case if deemed prudently spent.
The trial court upheld PURA’s decision, finding substantial evidence to sustain the agency’s final decision and concluding that PURA had the discretion to resolve the matter.
The Supreme Court disagreed, noting that while contract interpretation is ordinarily a question of fact, the determination of whether contractual language is clear and unambiguous is a question of law subject to plenary review.
“The trial court first should have interpreted the settlement agreement and determined whether it was clear and unambiguous, rather than deferring to PURA’s rate-making discretion prior to doing so,” the court wrote.
The court then addressed the ambiguity of the agreement itself, concluding that the language was facially ambiguous regarding how capital costs for storm recovery were to be recouped.
The plaintiff argued that the agreement unambiguously permitted recovery because a chart incorporated into the agreement included a row heading for “emergent equipment failures,” which the utility claimed encompassed catastrophic storm damage.
The court found this argument unpersuasive, noting that the word “emergent” has multiple dictionary definitions, including both sudden emergencies and gradual developments. The administrative record failed to definitively resolve whether the parties intended “emergent equipment failures” to include catastrophic storms.
The court identified two additional ambiguities. First, the agreement was unclear on how to handle capital spending that significantly exceeded the budget projections filed in the 2017 rate case. Second, it was unclear whether the agreement drew a distinction between catastrophic storms and noncatastrophic storms for purposes of core capital spending recovery.
The court noted that the plaintiff’s own testimony and filings contained inconsistent references to whether storm damage and emergent equipment failures represented distinct categories of capital spending.
Because the agreement was ambiguous and the administrative record did not clearly resolve the ambiguities, the court remanded the case to the trial court. The trial court must now resolve the ambiguities in light of the complete administrative record or remand to PURA for consideration of evidence relevant to resolving the ambiguities.
The court also noted that the parties did not specifically brief the issue of what deference is to be afforded to an agency’s factual findings regarding the meaning of an ambiguous settlement agreement when the agency’s prosecutorial division was a party to that agreement. The trial court will have an opportunity to consider that issue on remand.
The plaintiff was represented by James J. Healy, with Allison D. White and Vincent P. Pace. The attorney general, William Tong, represented PURA. Andrew W. Minikowski represented the intervenor Office of Consumer Counsel.
The panel included Chief Justice Richard N. Palmer, Associate Justices C. Susan Johnson, Elizabeth H. Sullivan, Raheem L. Mullins, and Alexander J. Blume.