If you’re a ratepayer in the state of Connecticut, this piece isn’t for you. You know already, through the pain in your wallet, that Connecticut residents and businesses pay some of the highest electricity rates in the country. Righting the ship after decades of decay is tough, time-consuming work.
No, this letter is to the ratings agencies – specifically S&P, and the members of the media who reprinted the utilities’ press releases this week with little to no independent reporting.
Had they done a little digging, they might have uncovered that S&P has made similar pronouncements and warnings for years, ever since Eversource entered the risky, unregulated world of offshore wind, and well before the current Public Utilities Regulatory Authority chair assumed her role.
They may have also discovered that S&P isn’t following its own prior warnings or guidance on funds from operations (FFO) to debt and to what rating certain metrics correspond, but perhaps that’s a little too much to ask for. A little independent reporting might have also uncovered that Eversource just posted a quarterly return on equity in excess of 9% and has a history of continuously increasing its dividend (the payouts made to shareholders).
There are a lot of perverse incentives at play when you are dealing in the world of regulated monopolies. Among them: ratings agencies are paid for directly by the utilities (they use the issuer-pays business model), and utility executives are often their sole source of information and perspective. And until we enacted bipartisan legislation in 2023, known colloquially as SB7, the costs of investor relations were a 100% pass-through to ratepayers like you.
To suggest that these ratings agencies are independent or objective is nonsensical. The utility itself can pass through the cost of debt to its captive customers, so what does the utility care if it becomes the company that cries wolf and provokes a downgrade in pursuit of its grander strategy to warn regulators across New England not to replicate the accountability measures and rate decreases imposed by its Connecticut regulators? That’s certainly the picture that the New Hampshire consumer advocate recently pieced together.
Let’s face the facts: could S&P’s downgrade of the Avangrid and Eversource companies raise rates in Connecticut? That’s an overwhelming: Maybe.
There’s a lot that has to align before that dire warning comes true, and if you’re interested in the facts, we’d encourage you to read this thorough FAQ from our state’s Office of Consumer Counsel. But what was also missed in the rush of the initial reporting on this topic is the other side of the story: the benefits of having a more watchful regulator will likely outweigh any speculative costs.
Let’s also dispel some of those unfounded rumors that have been circulating over the past week. First, Connecticut is not an outlier. Even with last week’s S&P downgrades, Connecticut’s electric and gas monopoly affiliates of Eversource and Avangrid remain rated at or above their peers, and well above junk bond status. The monopoly utilities’ own trade association, the Edison Electric Institute, issued a report stating, “[t]he industry’s average parent company credit rating in 2023 remained at BBB+ for the tenth straight year.”
Additionally, and we cannot stress this enough, any suggestion that these utilities are going to pull out of Connecticut represents a fundamental misunderstanding of the facts and the law. Regulated utilities operate as monopolies – receiving a franchise agreement for exclusive operating rights in exchange for providing safe, reliable access to services at reasonable rates. These utilities are not businesses in the traditional sense – they are regulated monopolies with captive customers, who could face civil and even criminal liability for failure to live up to their statutory obligations. Complying with the duly enacted laws passed by our legislature, supported by the governor, and implemented by PURA is a core tenet of the utilities’ obligations in exchange for their continuing monopoly on service.
Let’s get real. The actual tax-paying businesses in the state of Connecticut who have to compete for customers already know this: a vigilant regulator who orders rate reductions when the record supports it, as well as one that imposes enhanced accountability and transparency in conjunction with the legislature and the governor, is a better long-term bet than the unfounded rhetoric and propaganda of investor-owned monopolies with fiduciary duties to their shareholders.
So the next time you read reporting by or about Eversource or United Illuminating know this: calls for teamwork in achieving our collective goals of safe and reliable service are certainly nice to hear, but actual collaboration is not a one-way street. In an actual collaborative environment, you don’t get 90% of what you’re asking for and come back warning that without the final 10%, the initiative will be abandoned.
As the co-chairs of the state legislature’s Energy and Technology Committee, we stand ready, willing, and able to enact effective regulatory reforms that still permit the utilities to achieve a reasonable rate of return. But this propaganda must end now.
State Sen. Norm Needleman and Rep. Jonathan Steinberg are Co-chairs of the legislature’s Energy & Technology Committee.