CONNECTICUT, CT – Officials at Connecticut utilities Eversource and Avangrid are warning customers about a possible “ripple effect” from a credit rating downgrade by a major ratings firm, saying the business environment could end up costing customers more money for “decades.”

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

On Friday, S&P downgraded Connecticut Natural Gas’s credit rating by two notches to BBB+ and Southern Connecticut Gas’s credit rating down one notch to BBB+ because of “Connecticut’s regulatory construct… (that) will increase utilities’ cash flow volatility and reduce stability.” impact their financial performance and weaken their ability to consistently manage regulatory risks.”

Douglas Horton, vice president of distribution rates and regulatory requirements at Eversource, said: “This latest rating action is an independent confirmation that the regulatory environment in Connecticut is affecting the ability of electric, water and gas companies to manage financing costs for customers, particularly residents and Companies trying to keep it low are feeling the strain 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 rating action shows that not only does Connecticut fail that test, but there is now a domino effect for our customers in Massachusetts and New Hampshire.” “ Well, the negative impact of these credit downgrades will last long-term, costing customers more money for decades. This rating action will ultimately have a favorable impact on the availability of capital resources necessary to finance utility operating costs and our Company’s ability to invest in public policy implementation initiatives, including power purchase agreements. In the states where we operate, utility investments account for billions of dollars annually.

“The utility industry’s precarious financial situation is already leading to poor outcomes for our customers and the entire regional economy. We will continue to work constructively with state officials to achieve a more balanced operating environment and open the door to real progress.” The broader energy issues plaguing the state of Connecticut remain committed to engaging with all stakeholders in our tri-state service area “To work together on cost-effective solutions to ensure safe and reliable service for our customers while supporting local, state-level goals.”

According to Eversource, the potential impact of the credit downgrades on customers is as follows:

• Credit downgrades have a long-term negative impact on any company, and once a downgrade occurs, it takes many years for the credit rating to change again. Providing essential utility services is a highly capital-intensive process, and higher capital costs result in customers incurring higher costs overall to maintain the system.
• Utilities are spending far more than they earn from customer rates to make much-needed infrastructure investments, and debt and equity investors are needed to fund the gap. Without money from outside investors, utilities cannot finance their operations and would therefore have to make cuts to ongoing capital project work and other operating costs.
• Creditworthiness determines the cost and availability of funds for borrowing. The cost increase resulting from a credit rating downgrade will result in higher overall interest rates for customers for decades. For example, Eversource’s electric and gas subsidiaries in Connecticut have planned $3 billion in long-term borrowing over the next five years. Due to increased borrowing costs resulting from a credit downgrade, customers could pay up to $270 million in additional costs over the life of these loans, depending on market conditions at the time of grant.
• The lasting impact beyond five years is even greater. If the degraded credit ratings are not reversed, the increase in costs will impact 100 percent of the company’s year-over-year loans.
• Eversource has invested approximately $15 billion in the state of Connecticut. Of that, around $7 billion will be funded by long-term debt – all of which will be affected by higher financing costs.

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

He said: “S&P’s decision to downgrade the credit ratings of CNG and SCG reflects the continued, accelerating loss of investor confidence in Connecticut’s utilities. As S&P points out in its report, there is only one cause – the increasingly unpredictable and unstable regulatory environment created by the public utilities regulator.

Reynolds’ harsh words toward state regulators continued.

“With S&P’s report, the foretaste of the impact of PURA’s negative regulatory treatment is now a reality – and more consequences will follow,” he said. “Unlike any other company, utilities must partner with state regulators to invest in our infrastructure and improve the quality of service for Connecticut residents, small businesses, manufacturers and communities. PURA has shown time and time again that it is completely uninterested in this.” Such a partnership makes it clear that it is willing to sacrifice reliability, resilience and long-term affordability for the sake of short-term policy gains by cutting interest rates in the here and now.

“Like all of PURA’s recent decisions, CNG and SCG’s staggering $35 million rate cuts will jeopardize our ability to provide the high-quality service our customers rely on and repay the investors whose loans matter “The consequences of PURA’s regulatory construct have been higher bills, price volatility, rate shocks and aging infrastructure, leaving utilities unable to invest Investing in Connecticut’s energy future.”