UI Files 2024 Return on Equity of 3.55 Percent
Frank Reynolds, UI President and CEO, responds to financial damage evidenced by year-end actual returns measuring less than half of company’s “allowed” ROE of 8.63 percent
Historically low ROE inflicted by PURA decisions will impede critical investment projects in reliability, resiliency of the electric grid
ORANGE, Conn. — March 10, 2025 — Today, Frank Reynolds, President and CEO of United Illuminating (UI), a subsidiary of Avangrid, Inc., issued the following statement, which comes after the company informed the Public Utilities Regulatory Authority (PURA) that its actual year-end Return on Equity (ROE) measured 3.55 percent:
“The fundamental role of electricity – in our economy, our relationships, the comfort and livability of our homes – is only becoming increasingly central to every aspect of our lives.
“For that reason, today’s announcement – that UI’s Return on Equity fell to just 3.55 percent in 2024 – should ring alarm bells from Hartford to New Britain, as an ROE this low renders us unable to access capital in the market. These are the returns with which we compensate our lenders for investments in critical reliability and resiliency projects, and ones this low will force us to defer most investments and offer premiums to lenders, passed on to customers, for the projects we cannot defer. Thus, these meager returns will result in both higher bills and decreased service quality – a lose-lose for the 345,000 residents and businesses we serve – while making it impossible for utilities to meet the demands of the moment: increased capacity to support AI, greater electrification, onshoring of more manufacturing and industry, and more.
“The facts are this: for regulated utilities, PURA sets our price, our revenues, and our costs, making it impossible for us to manage our way out of these dire straits. Today’s report is indisputable evidence that those revenues, which make up less than a third of the residential bill, are entirely insufficient. Yet PURA has shown an incredible – and frankly, irresponsible – lack of urgency in correcting it.
“Commissioners at PURA, the chairs of the legislature’s Energy & Technology Committee, and other policymakers like to threaten to use utilities’ ‘franchise agreement’ as a bludgeon: if utilities fail to invest adequately in the system, they’ll chase us out of the state. But they fail to mention our ‘franchise agreement’ is only enabled by PURA appropriately setting our revenues against our prudent operational and capital costs.
“UI’s new rate case provides PURA another opportunity to finally provide UI the support we have needed for years to ensure continued excellent service for our customers. We urge PURA to take seriously its own obligations ‘to monitor and consider the financial condition of the utilities [it] regulates’ and return our company to more solid financial footing on behalf of our workers, our municipalities, and all the customers we serve.” – Frank Reynolds, UI President and CEO
Background
- Return on Equity is a measure of a company’s financial performance, calculated by dividing distribution net income by shareholder’s equity (which is the company’s assets minus its debt). Put simply, Return on Equity measures the company’s profitability.
- For regulated utilities such as UI, PURA sets an upper limit on what utilities are allowed to, but are in no way guaranteed, to earn in their ROE. Following PURA’s Final Decision in UI’s 2023 rate case (Docket #22-08-08), the company is authorized to earn up to an ROE of 8.63 percent, inclusive of penalties. The company’s actual third-quarter 2024 earnings are almost 60 percent less than this allowed ROE and a 22-basis point drop over last quarter’s already devastating 3.73 percent. This indicates unabated financial degradation.
- For an ROE to be sufficient, it must, at the very least, exceed UI’s costs of borrowing, which is currently 4.64 percent. The year-end actual ROE of 3.55 percent is, therefore, substantially insufficient to attract investment, which is essential to funding capital projects and operations.
- A utility company that is not able to attract investment in the market has only two options: either the company must offer investors a premium to incentivize their investment, which are paid for by customers; or the company must defer all capital investments, which are essential to the reliability and resiliency of the energy system.
- As a result, UI is deferring investments, like new substations and protective flood walls, in order to preserve its limited capital for only the projects most essential to immediate-term reliability. Without significant improvements, customers will bear the consequences with poorer quality of service and higher rates. These consequences will be worsened as the company’s falling ROE is coupled with decreased credit ratings, as UI’s sister companies (Connecticut Natural Gas [CNG] and Southern Connecticut Gas [SCG]), as well as Eversource and all its subsidiaries, received in December. (See: CNG, SCG Respond to S&P Global Credit Rating Downgrades - SCG and CNG, SCG Credit Ratings Downgraded by Moody’s Ratings; Outlooks Negative - CNG.)
- UI filed a new rate case in November 2024 (Docket #24-10-04), asking PURA to increase distribution revenues by $105 million to support more than 200 reliability and resiliency investments across the company’s service area.
- SCG and CNG also filed their year-end actual ROEs with PURA on Friday. SCG’s actual ROE at year-end 2024 is 5.84 percent, well under its allowed ROE of 9.15 percent. CNG’s actual ROE at year-end 2024 is 8.77 percent, also under its allowed ROE of 9.15 percent.
Media Contact:
Sarah Wall Fliotsos