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    Sunday, July 21, 2024

    Eversource blames state for negative ratings outlook

    Workers with PAR Electrical Contractors connect guide wires supporting new transmission towers April 24, 2020, along an Eversource right of way in Waterford. (The Day file photo)

    Eversource Energy officials charged this week that the state’s regulatory environment has led the company to a possible ratings downgrade by Moody’s.

    They said that’s due to “arbitrary” utility rate decisions that cut into the company’s potential profits as well as the amount it could spend to address the state’s aggressive clean-energy goals.

    One day after Eversource officials met with The Day’s editorial board on Monday, Moody’s Ratings announced that it had changed its outlook for Connecticut Light & Power, a division of Eversource, from stable to negative.

    "Connecticut Light and Power's negative outlook reflects a weaker financial profile and a challenging Connecticut regulatory environment," said Jeff Cassella, a vice president and senior credit officer of Moody’s, in a news release. The release also cited Connecticut’s “inconsistent and unpredictable regulatory environment, adding that ”the company's ability to sustain an improved financial profile will primarily depend on CL&P's ability to recover the majority of its deferred storm costs.“

    The state and Eversource have been battling over what the Public Utilities Regulatory Authority determined was an inadequate response to the 2020 Tropical Storm Isaias. Moody’s said Eversource could recover as much as $975 million in a settlement of the deferred costs, but it has to prove the prudence of its expenditures.

    The Moody’s decision on CL&P’s financial prospects added fuel to the fiery dispute that has been brewing for some time between the state and Eversource.

    Eversource has been on the offensive, earlier this month announcing along with United Illuminating its decision to forgo a plan to subsidize the cost of new electric vehicle chargers because they were unsure of the payback. Eversource also announced in May its decision to reduce investments in its infrastructure by $500 million over the next five years in Connecticut.

    State regulators from the Public Utility Regulatory Authority fired back last week by telling both utility companies they needed to turn over communications they have had with elected officials, the press and customers regarding the EV program as they review what the firms’ decisions will mean as Connecticut plans for a carbon neutral electricity grid by 2040.

    State Sen. Norman Needleman, D-Essex, who co-chairs the legislature’s Energy and Technology Committee, said in an interview Wednesday that Eversource appears to be using its EV program concerns as another way to target PURA Chair Marissa Gillett and potentially get her fired. The effort fell short earlier this month when Democratic Gov. Ned Lamont gave Gillett his vote of confidence by extending her term on PURA.

    “These guys are still going to make money hand over fist,” Needleman said in a phone interview.

    Needleman said Eversource is still hurting from its decision to invest in and then abandon the state’s nascent wind industry, which he estimated cost the company nearly $2 billion.

    “A regulated utility that doesn’t gamble gambled,” Needleman said. “They lost $2 billion and had to charge it off.”

    Needleman said Eversource used to get everything it asked for from regulators, but is now undergoing more scrutiny from Gillett, whom he describes as a professional who knows the complicated world of utilities.

    “It’s unprecedented that a company would go against a regulator ... no one has ever seen that in the state of Connecticut,” Needleman added. “They’re taking a scorched earth approach.”

    Eversource takes a different view, dating its loss of faith in state regulators to a rate case involving Aquarion Water Co., one of the company’s subsidiaries. According to the officials who spoke Monday at The Day, the company had not sought a rate increase in a decade and went into the proceedings with a vision of getting PURA to agree to a hike in water rates. Instead, the company said, the rates were lowered.

    “I'm not aware of any company that goes in for a rate case that's expecting a rate decrease,” said Steve Sullivan, president of electric operations in Connecticut. “That was a shock to us and really to all utilities and certainly the investor class that's looking at the atmosphere in Connecticut.”

    But PURA spokesperson Taren O’Connor, citing language in the 2023 rate case that allows the company to recoup capital expenditures through rate increases, disputed Sullivan’s characterization. “It is not accurate to state that Aquarion received no rate increases over ten years; nor is it accurate to imply that the company will see no further rate increases until its next rate proceeding,” O’Connor said in an email.

    O’Connor also pointed to a Connecticut Superior Court ruling that upheld PURA's rate case decision after it was challenged by Eversource.

    “The Authority applied well-settled ratemaking standards and principles in its decision, and the Court affirmed this approach,” according to a PURA background report.

    Eversource also cited a recent decision that significantly cut an increase sought by UI in a rate case that the utility has claimed will force it to operate at a loss.

    PURA was again challenged on this case, but won a February Connecticut Supreme Court decision that, according to an agency summary, determined that a UI joint venture “had been overearning millions of dollars each year at ratepayer expense.” The decision upheld the rate decision by PURA.

    The decisions on UI and Aquarion are largely the result of a new tack taken by regulators to transform Connecticut from a traditional model to one that is more heavily weighted on performance.

    Eversource official Sullivan said the recent decisions by PURA have befuddled the company, and he feels regulators have not spent time engaging with utility officials to understand their point of view.

    “We can show that the reliability has basically doubled in terms of improvement for our customers,” he said. “But now, we're at great risk of not being able to recover in a way that we really can understand. So we're basically scaling back.”

    Eversource cited its $14 billion investment in the state, much of which has to be financed through debt and equity. In order to pay the money back, the utility needs to show a profit, and if it doesn’t, the company said, it would no longer be able to access capital to pay for ambitious clean-energy goals sought by the state.

    “We're fine with working in the tough regulatory environment and folks questioning us on the prudency of our investments,” Sullivan said. “But do they really have to have arbitrary decisions where you just kind of get the knees cut open underneath you; we just can't.”

    Doug Horton. an Eversource vice president, said PURA has left the company with only one choice.

    “The only recourse for utility is to ... stop spending,” he said, “because if we truly are going to have that opportunity when our revenues are fixed, the only thing in our control is the level that we're investing or the level that we're spending.”

    Horton added that the problem with the recent PURA decisions has been that “we need to know the rules and need to know how we’re going to be able to pay back our investors before we make the investment.”

    But Sen. Needleman pointed out that the utilities are essentially monopolies and need to be regulated.

    “The only thing that protects ratepayers is a regulator who does her job,” he said.

    The problem, from his point of view, is that public utilities in Connecticut have done a poor job in such areas as the promotion of solar energy projects.

    “They want to stick to what makes them money at very low risk,” Needleman said.

    And when it comes to the EV charging program, Needleman said if neither Eversource nor UI is willing to take it on, the state would find someone else to do so.

    “The state is doing it with you or without you,” he said.

    As for Eversource’s concerns about a possible downgrade in the near future that could cost it tens of thousands of dollars in extra borrowing costs, Moody’s made this projection: “CL&P's rating could be downgraded if Connecticut regulatory decisions continue to be contentious or unsupportive of credit quality and there is no improvement in the regulatory environment or if CL&P's weak financial performance is sustained.”

    l.howard@theday.com

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