Moody’s Ratings lowered its credit outlook for two Connecticut gas companies to negative Thursday based on a proposed rate decision by the state utility regulatory authority that would cut revenues for both companies to levels below where they were at least six years ago.
The downgrades are the latest in a succession of negative investment forecasts for Connecticut utilities over the last year based on what financial analysts have called a “difficult” state regulatory climate.
Moody’s said it is downgrading Avangrid subsidiaries Southern Connecticut Gas and Connecticut Natural Gas because of an “unpredictable” political and regulatory environment that has proven hostile to utility efforts to recover, through rates, the money they borrow to invest in their distribution systems.
“Given the negative outlook for both companies, an upgrade is unlikely over the next 12-18 months,” the rating notice said. “The rating outlook could return to stable if there is a material improvement in the credit supportiveness of the Connecticut regulatory environment.”
But, Moody’s said the two gas companies could be further downgraded “if the political and regulatory environment in Connecticut continues to be unpredictable and unsupportive of utility cost recovery.”
The credit downgrades, which could result in consumers paying for higher company borrowing costs, are certain to become another point of contention in the continuing fight between the Public Utility Regulatory Authority and the state’s utilities, which claim a succession of adverse rate decisions is threatening their ability to deliver reliable service.
Moody’s based its latest downgrade on an Oct. 9 draft decision by PURA that proposes rejecting 4 percent and 9 percent rate increases respectively for CNG and SNG. Instead, the draft decisions propose rates that would cut $75 million from the company’s combined revenues, a figure that exceeds their combined profit of $63 million last year.
The draft decisions would reduce the money the two companies can raise through rates to levels below what they were authorized in 2017 and 2018, when they were last before the authority for rate approvals.
If the draft decisions written by PURA chairman Marissa Gillett are adopted by the full authority, it would lower monthly natural gas bills by about $12 for about 400,000 customers in the southwest corner of the state.
The draft decisions could be modified. SNG and CNG are expected to oppose them at a hearing before PURA on Wednesday. In recent days, the gas company unions have joined management in criticizing the cuts, claiming they will threaten reliability by postponing or eliminating distribution system maintenance and improvements.
Under their business model, utilities raise money to finance operations by borrowing and from investors. They expect to recover those costs plus a profit approved by regulators through rates.
The hearing is expected to be another skirmish in a dispute between Gillett and the state’s principal utilities, Avangrid and Eversource.
Avangrid’s electric subsidiary, United Illuminating, was downgraded earlier this year. Eversource subsidiary CL&P also was downgraded, as was its water utility, Aquarion.
Eversource CEO Joseph R. Nolan told investors last spring that he would reduce capital expenditures in Connecticut by $500 million over the next five years because of a “negative” regulatory climate that prevents the company from recovering money it invests here. He said he was redirecting the money to projects in Massachusetts and New Hampshire.
Lamont and a cross section of the state legislature have supported rate decisions under Gillett and blasted the utilities as greedy. Gillett’s supporters, Lamont among them, argue that utilities have profited excessively under lax regulatory enforcement in Connecticut. State Attorney William Tong said the SNG and CNG rate requests “were riddled with unjustified profits and unnecessary expenses.”
The utilities argue that PURA under Gillett has acted more like an advocacy than regulatory agency and rate decisions, in addition to threatening their reliability, have been arbitrary, at odds with long-standing regulatory practice and and in some cases illegal.
