Public Utility Commission warns FY26 shortfall, proposes higher application fees to cover merchant projects

The Public Utility Commission told the House Appropriations Committee on Feb. 21 that its FY26 budget will not be fully covered by expected gross receipts tax revenue and that it expects to draw from a special reserve fund to balance operations.

“About 87% of the commission’s budget represents salaries,” Ed McNamara, chair of the Public Utility Commission, said in an opening overview. He described the commission as “a quasi‑judicial independent regulatory body” that enforces public‑good criteria for electric, natural gas and certain water and telecommunications matters.

Why it matters: The commission’s primary revenue comes from a gross receipts tax on regulated utilities; those receipts can vary year to year with weather and customer load. The agency said roughly 95% of FY26 revenue is expected from the gross receipts tax, with application fees and a planned draw from reserves making up the remainder. Commissioners warned that growth in unregulated “merchant” solar projects and increased regulatory workload have created a structural imbalance because those projects do not contribute to the gross receipts tax that funds most commission work.

Key details: McNamara told the committee the commission’s reserve balance is about $4.2 million. The commission used roughly $150,000 of reserves in FY24 and expects to draw additional amounts in FY25 and FY26 to cover a projected shortfall; staff described an FY25 draw and further draws in FY26 (figures discussed in the hearing). Commissioners said they plan a sustainable‑funding study of how peer states fund their utility regulators and will model when electrification (EVs, heat pumps) might substantially increase gross receipts tax revenues.

Fee proposal: The commission proposed raising several application fees for projects it does not otherwise regulate via the gross receipts tax. Under current statute the commission can charge fees but changes require legislative action because the dollar amounts are statutory. Examples presented include: doubling small net‑metering registration fees from $100 to $200; increasing small‑system modification fees from $25 to $200; raising kilowatt‑based fees on larger projects from $5/kW to $8/kW; and increasing larger‑project modification fees from $100 to $400. Commissioners noted the statute channels 40% of such fees to the commission and 60% to the Department of Public Service, so the commission would receive only a portion of any increase.

Workload and systems: Commissioners highlighted that more than 3,000 cases arrive in a year but many are lightweight registrations (largely net‑metering). They said the commission has modernized filings with an online case management system (EPUC) to improve transparency and reduce processing costs. Still, staff reported roughly one‑third of staff time is consumed by applications from independent power producers even though only about 3.7% of revenue is expected to come from those application fees under the proposed increases.

Clean Heat and staffing: Commissioners said FY25 included one‑time general funds to develop the clean heat standard and associated rules; much of that work is finished and the report was submitted, but the commission must still account for residual work tied to any legislative action on the rules. The FY26 budget as proposed backs out clean‑heat funding and therefore shows a decrease from FY25; commissioners said even without that work the commission faces a structural shortfall.

Next steps and study: McNamara said the commission will pursue a sustainable‑funding study to compare funding formulas used by other states, and noted the political and statutory constraints of raising fees. He said the commission will also model when electrification might produce materially higher gross receipts tax revenue.

Ending: Committee members asked follow‑up questions about reserve levels, timing of gross receipts tax transfers (annual, collected April 15 and transferred at fiscal year end), and whether application‑fee adjustments would fully close the gap. Commissioners said proposed fee increases would help but would not eliminate the need to rely on reserves or consider longer‑term changes to the funding structure.