You asked for a discussion of the Department of Public Utility Control's (DPUC) treatment of executive bonuses in its ratemaking procedures. Your question was prompted by a request by Connecticut Light & Power in 2007 to provide for recovery, through rates, of certain bonuses. The company subsequently withdrew its request.

The law requires DPUC to follow the principles contained in CGS §16-19e in regulating utilities. Among other things, these principles require that:

1. utilities be fully competent to provide efficient and adequate service to the public by being technically, financially, and managerially expert and efficient; and

2. the level and structure of rates be set so that they are just sufficient to allow the utility to cover its operating and capital costs, attract needed capital, and maintain its fiscal integrity.

Employee compensation, including executive bonuses, is part of a utility's operating costs, and the appropriateness of such compensation is routinely addressed in DPUC rate cases. There is no absolute rule as to whether executive bonuses are properly charged to ratepayers. Among the factors that may be relevant to DPUC's determination are (1) whether the bonuses are needed to attract and retain the executives needed to meet the law's requirement that the company be technically, financially, and managerially expert; (2) how the bonuses are structures, e. g. , whether they are tied to the company's success in minimizing the utility's costs vs. maximizing its earnings; and (3) the amount of the bonus.

KM: dw