Two major utility companies in Connecticut have called the recent ratings downgrades by S&P Global proof that actions by the state regulator are harming their ability to hold down financing costs for customers.
On Dec. 6 and Dec. 10, S&P Global downgraded the credit ratings of Eversource subsidiaries Connecticut Light & Power (A- from A) and Yankee Gas Services (BBB from A-). The rating agency also downgraded the credit of Avangrid’s Connecticut Natural Gas (CNG) (BBB+ from A) and Southern Connecticut Natural Gas (SCG) (BBB+ from A-).
Following the announcement that S&P downgraded Eversource’s credit rating due to the continuing pattern of adverse regulatory developments for investor-owned utilities operating in Connecticut, Eversource issued the statement below from Vice President of Distribution Rates and Regulatory Requirements Douglas Horton.
“This latest ratings action is independent confirmation that the Connecticut regulatory environment is harming the ability of electric, water and gas companies to hold financing costs down for customers, particularly residents and businesses who are feeling the burden of high energy costs,” Horton said. “Credit ratings are a report card on the financial health of a state’s business environment, and this new ratings action shows that not only is Connecticut failing that test, there is now a ripple effect for our customers in Massachusetts and New Hampshire as well.”
He went on to say the negative impact of the downgrades will be long-lasting, costing customers more money for decades, extending far beyond any single rate cycle. This ratings action will ultimately impact the availability of capital resources needed to fund utility operations at a favorable cost and our company’s ability to invest in initiatives to implement public policy, including power purchase agreements, he added.
Here’s what these credit downgrades mean for customers, according to Eversource:
*Credit ratings dictate the cost and availability of funds for borrowing. The cost increase due from any credit downgrade will result in higher overall customer rates for decades.
*For example, Eversource’s electric and gas subsidiaries in Connecticut have $3 billion in planned long-term borrowing over the next five years. Due to the increased cost of borrowing resulting from a credit downgrade, customers could pay as much as $270 million in additional costs over the life of these loans, depending on market circumstances at the
Avangrid response
Frank Reynolds, president and CEO of CNG and SCG, subsidiaries of Avangrid, issued the following response to the credit rating downgrades from by Standard & Poor (S&P) Global on Friday, Dec. 6.
“S&P’s decision to downgrade CNG and SCG’s credit ratings today reflects the continued, hastening erosion of investor confidence in Connecticut’s utility companies,” Reynolds said. “As S&P outlines in its report, there is only one cause: the increasingly unpredictable and unstable regulatory environment created by the Public Utilities Regulatory Authority (PURA).
“With S&P’s report, the foreshadow of the impacts of PURA’s negative regulatory treatment is now a reality – and more consequences will follow. Unlike any other business, utilities must have the partnership of state regulators to invest in our infrastructure and improve the quality of service for Connecticut residents, small businesses, manufacturers, and municipalities.
“Like all recent decisions issued by PURA, CNG and SCG’s astounding rate cuts of $35 million will profoundly challenge our ability to provide the high-quality service our customers depend on, as well as repay the investors whose loans have supported critical investments in our infrastructure. The results of PURA’s regulatory construct have been higher bills, price volatility, rate shock, and aging infrastructure, with utilities rendered unable to invest in Connecticut’s energy future.”
Key Findings from S&P report
“PURA’s rate-order reductions will negatively affect CNG’s and SCG’s financial performance.”
The “material base-rate decreases for both utilities… will directly weaken their stand-alone financial measures. Furthermore, these rate orders follow a recent pattern of weaker-than-expected rate case orders by PURA for its electric, gas, and water utilities.”
“We now expect that both utilities will be increasingly subject to below-average ROEs, regulatory lag, and an inconsistent ability to earn their authorized ROEs. These developments will increase the utilities’ cash flow volatility, decrease the stability of their financial performances, and weaken their ability to consistently manage regulatory risk.”
“We have assessed PURA’s rate orders over the past two years, which were materially lower than we assumed under our base-case forecasts, as not credit supportive.”
On Nov. 18, PURA issued its final decisions in the CNG and SCG rate cases, which resulted in approximately $35 million in total revenue reductions for those utilities. CNG’s revenue cut amounts to $24.6 million, while SCG faces a $10.8 million reduction. PURA’s rate orders were finalized after a 2-1 vote by the commission’s three members, with Chair Marissa Gillett and Vice Chair John Betkoski in favor and Commissioner Michael Caron opposed.
