Utility companies charge you for the privilege of raising your rates. A proposal in Massachusetts may change that.
Every few years, gas and electric utilities go before state regulators to lay out receipts for everything they’ve recently spent, and everything they plan to spend in the next few years. During these court-like proceedings — known as rate cases — a utility will usually ask to raise rates, which means collecting more money from you.
Rate cases are long, complicated ordeals that play out at the Department of Public Utilities. The companies spend thousands on consultants and outside lawyers to support their requests. Records show it’s not unusual for a single rate case to cost several million dollars.
And the tab for those fees is picked up by customers — in other words, you.
Massachusetts ratepayers are not alone in covering these fees; most state utility regulators consider them part of the day-to-day cost of doing business and allow utilities to pass those costs on to customers.
But at a time when rising energy costs — and utility profits — are in the spotlight, some states are looking to shake things up.
Massachusetts is one of them.
State senators are considering legislation that would, among other things, prohibit utilities from passing on rate case expenses to their customers. Instead, the utility would foot the bill, taking the money out of its shareholders’ profits.
“I see it as a matter of principle,” said Sen. Cynthia Creem, a Newton Democrat and one of the sponsors of the bill. “Why am I paying for them to go and be able to represent themselves?”
Small amount of money, big downstream effects
Massachusetts gas and electric utilities have spent about $30 million on rate cases, according to state records. Most cases cost between $1 million and $3 million. When spread across all of their customers, that works out to just a few dollars per household each year.
While these charges are not a main driver of skyrocketing gas and electric bills in Massachusetts, they help lay the groundwork for further costs down the line, said Caitlin Peale Sloan, vice president for climate and energy at the Conservation Law Foundation.
During rate cases, regulators determine how much utilities can profit from building infrastructure. And ballooning infrastructure spending is one of the biggest factors behind rising gas and electric bills in the region.
“There are very good reasons to ask utilities to have their shareholders pay for the amount of legal power and consulting power that they put into their rate cases,” Peale Sloane said.
Investor-owned utilities like National Grid and Eversource are for-profit companies. The state gives them monopoly status to ensure that everyone has access to reliable and reasonably priced power. But they also operate to make money for their shareholders.
Utilities don’t make a profit on the gas or electricity they sell you. Instead, they profit from building infrastructure like power lines and pipelines. They’re allowed to bill ratepayers for every dollar they spend on infrastructure, plus a little more. This rate of return — what the industry calls “return on equity,” or ROE — is one of the items determined in a rate case. The higher the return on equity, the more profit a utility can theoretically make.
Bringing in consultants for a rate case doesn’t always lead to higher returns for utilities. But Peale Sloan said she believes it increases the likelihood that a utility’s request will be successful.
“I think it’s prudent to take a look at some of these costs that, while small on their own, contribute to the momentum toward more ROE and more expensive projects that ratepayers will pay for,” she said.
$600/hour experts
Utility rate cases play out like legal proceedings. On one side, the utility typically argues for higher rates. On the other side, the ratepayer advocate usually argues against increases, or at least pushes for smaller increases. In Massachusetts, the advocate is a team from the Attorney General’s Energy and Environment Bureau.
Both sides hire consultants and expert witnesses to assist them. The Attorney General’s Office is allowed to spend $150,000 per proceeding, though it often petitions the state for more.
Utilities have no cap on what they can spend, and as long as they can persuade regulators their payments are “reasonable and cost effective,” they can recoup the money from their customers.
This means consumers pay the rate case costs for both the utilities and the Attorney General’s office, said Creem, the state senator.
Why should people be asked to “subsidize both sides of a contested proceeding at the DPU?” she asked.
It’s hard to know exactly how much consultants charge utilities for their work on rate cases. Massachusetts requires utilities to file invoices, but they don’t have to provide much detail.
In 2023, National Grid filed a rate case for two subsidiaries, the Massachusetts Electric Company and the Nantucket Electric Company. During the 10-month proceeding, documents show the company spent $3.4 million on legal and consulting expenses.
Of that, $1.8 million was for legal services from an outside firm, Keegan Werlin LLP. About $417,000 went to a consulting firm, Concentric Energy Advisors, to help the utility calculate its revenue requirements. Another $210,000 went to a different consulting firm, Brattle Group, to determine the rate of return the utility should request.
The utility’s filings don’t show how many consultants worked on the case, or what they were paid per hour. But there’re only a handful of consulting firms in the country that do this sort of work, said Charlie Spatz, an analyst with the Energy Policy Institute, a utility watchdog group. And in states that require more detailed filings, it’s common to see companies charge $600 per hour, or more.
“Consumers don’t know that they’re paying for very expensive attorneys, very expensive consultants that are testifying to raise their rates,” Spatz said. “It’s frankly insulting.”
Regulators at the Department of Public Utilities don’t automatically approve all rate case charges, and commissioners often express concern about how much companies are spending on these proceedings. But over the last decade, the department has approved the vast majority of rate cases expenses, documents show.
Increased risk
Not everyone agrees that charging utility customers for rate case expenses is a problem.
“The argument suggesting that this is a matter of utilities deploying bigger or better resources in a rate case to obtain an inflated ROE is simply not correct,” Eversource spokesperson William Hinkle wrote in an email. “Absolutely nothing will change by prohibiting the recovery of rate-case expenses, except for increased risk in the regulatory environment.”
Jamie Van Nostrand, the former chairman of the Massachusetts Department of Public Utilities and a former utility lawyer, agreed. He also said he feels uneasy about requiring utilities to cover the full cost of rate case expenses.
To stay in business, investor-owned utilities have to make money, he said, so they need to periodically file rate cases.
Regulators should scrutinize the expenses and make sure they’re not excessive, he added. “But to just do the blanket disallowance, I don’t think is good policy.”
Van Nostrand said he worries Massachusetts could develop a reputation as a state that’s hostile to utilities. Credit rating agencies watch utility regulatory proceedings closely, evaluating whether a state is safe and predictable for investors, he said. If they decide it’s not, that can have repercussions.
Consider what happened in Connecticut recently, he said.
In 2024, the Connecticut Public Utilities Regulatory Authority rejected two requests from gas utilities to raise rates and ordered them to lower bills for customers. As a result, the credit rating agency S&P Global downgraded its rating for several utilities in the state, which made it more expensive for the companies to borrow money. In turn, customer bills went up, too.
“I’m not saying the rate case expense issue would trigger that, but it’s part of that big picture,” Van Nostrand said.
So far, Connecticut is the only state to prohibit utilities from passing rate case costs to customers. States like California and Colorado instead have opted reforms that cap rate case spending or require utilities to split the costs with consumers.
The fate of the Massachusetts rate case spending proposal is uncertain. It’s part of a larger, controversial piece of legislation that would strengthen restrictions on how utilities spend ratepayer money for all sorts of things — lobbying, participating in trade groups and some advertising costs. This idea, which has been kicking around the state for a few years, didn’t make it into this session’s House climate and energy bill. But it could still be in play in the Senate, which is expected to release its version of a large climate and energy bill later this spring.
Still, to Mark Ellis — a former utility executive who now serves as a senior fellow with the American Economic Liberties Project, an anti-monopoly think tank and advocacy group — the fact that people are debating this type of spending is evidence of a bigger problem.
The utility ratemaking process “is a really, really broken system,” he said. And it “isn’t working for consumers.”