CT Utilities: Downgrades Could Have Lasting Effect On Customers

CONNECTICUT, CT — Officials for Connecticut utilities giants Eversource and Avangrid are warning customers about a potential "ripple effect" from a credit downgrades issued by a major ratings house and said the business environment may end up costing customers more money for "decades."

A major ratings house — Standard and Poor's — downgraded Eversource's credit rating "due to the continuing pattern of adverse regulatory developments for investor-owned utilities operating in Connecticut" Eversource’s subsidiaries in Connecticut – Connecticut Light and Power Co. and Yankee Gas Services Co. – were downgraded to A- from A and to BBB from A-, respectively.

On Friday, S&P downgraded credit ratings for Connecticut Natural Gas credit rating by two notches to BBB+ and for Southern Connecticut Gas by one notch to BBB+ due to "Connecticut's regulatory construct … (that) will increase the utilities' cash flow volatility, decrease the stability of their financial performances, and weaken their ability to consistently manage regulatory risk."

Said Eversource 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."

He continued, "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. The negative impact of these credit rating 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. Across the states where we operate, the impact of utility investment accounts for billions of dollars in annual Gross Domestic Product.

"Putting the utility industry into such a precarious position financially is already causing poor results for our customers and the broader regional economy. We will continue to engage constructively with state officials to achieve a more balanced operating environment and to open the door for real progress on the broader energy issues vexing the State of Connecticut. Moving forward, we remain committed to collaborating with all stakeholders across our three-state service territory on cost-effective solutions to ensure safe, reliable service for our customers while supporting local goals at the state level."

According to Eversource, here is the potential effect on customers from the credit downgrades:

• Credit downgrades have a long-lasting negative impact for any company and once a downgrade occurs, it takes many years to turn around. Providing essential utility services is an extremely capital-intensive process and a higher cost of capital will cost customers more across the board to maintain the system.
• Utilities spend much more than they take in through customer rates to make critically needed infrastructure investments, and debt lenders and equity investors are needed to finance the gap. Without money from external investors, utilities cannot fund their operations and therefore cuts in ongoing capital project work and other operating cost would have to occur.
• 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 time of issuance.
• The long-lasting impact beyond five years is even greater. If depressed credit ratings are not reversed, the cost increase will affect 100 percent of the company’s borrowing as it comes due year-to-year.
• Eversource has approximately $15 billion invested in the state of Connecticut. Of that amount, roughly $7 billion is financed by long-term debt – all of which will be affected by higher financing costs.

Frank Reynolds, the president and CEO of CNG and SCG, both subsidiaries of Avangrid, issued a statement.

He said, "S&P’s decision to downgrade CNG and SCG's credit ratings reflects the continued, hastening erosion of investor confidence in Connecticut’s utility companies. 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."

Reynolds's harsh words toward state regulators continued.

"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," he said. "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. Time and again, PURA has shown itself to be entirely disinterested in such a partnership, instead making clear it is willing to sacrifice reliability, resiliency, and long-term affordability in favor of short-term political wins by cutting rates in the here and now.

"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."