UI Statement on Return on Equity (ROE) Filing with Public Utilities Regulatory Authority

Company submits report of 4.35% ROE through Dec. 31, 2023, down from 4.61% for previous quarter



ORANGE, Conn. — March 7, 2024 — Frank Reynolds, President and CEO of United Illuminating (UI), a subsidiary of Avangrid, Inc. (NYSE: AGR), today issued the following statement regarding the company’s regulatory filing with the Public Utilities Regulatory Authority (PURA), reporting its calculation of an earned average Return on Equity (ROE) of 4.35% for the twelve months ending December 31, 2023, utilizing the company’s actual common equity ratio:

“Today’s report on UI’s Return on Equity reflects the ongoing consequences of Connecticut’s unreasonable and unstable regulatory environment. UI cannot attract investment with abysmally low returns that are completely out of step with utilities across the country.  The lack of a fair or reasonable return is rendering UI unable to invest in needed infrastructure to maintain, or improve, our delivery of reliable, resilient electric service to our valued customers.

Importantly, the year-end earned ROE decreased from the third quarter, when UI reported a 4.61% ROE. This stands in stark contrast to the sunny predictions of policymakers like the Office of Consumer Counsel, with representations to customers and others that once the insufficient rate increase took effect, UI’s financial condition would improve. Today’s results show that prediction was and continues to be wrong. As UI has warned for months, PURA’s decision in our rate case was thoroughly insufficient to sustain our financial health, restricting our ability to invest in infrastructure to improve power quality and reliability for customers, both now and into the future. There is no realistic opportunity for UI to ‘self-cure’ the damage caused by PURA’s rate decision, and customers will ultimately pay the price of this damage in future costs.

On behalf of our more than 343,000 customers and 500 employees, all of us at UI will continue to advocate for a consistent, predictable regulatory environment that allows us to make the investments needed to maintain our top-tier reliability, increase our deployment of 21st-century technology, and aid the state in making the clean energy transition by expanding beneficial electrification. A productive regulatory environment does not currently exist, and unless and until that changes, it will inevitably discourage long-term investment in the state of Connecticut.” – Frank Reynolds, President and CEO of United Illuminating (UI)
 

Background

  • The computation of an earned Return on Equity of 4.35% for the twelve months ending December 31, 2023 does not account for the write-off of deferred assets required by the Authority’s Decision in UI’s rate case (Docket #22-08-08), valued at $23.948M on a post-tax basis, in which PURA simultaneously prohibited the company from including these write-offs when reporting its ROE. Had UI included the required write-offs in its ROE calculation, they would result in an ROE of just 0.50%. In comparison, the company is authorized, but in no way guaranteed, to earn an ROE of 8.63%, inclusive of penalties. That is more than twice the amount of its actual 2023 earnings and more than 17 times higher than earnings under the scenario of the forced $24 million write-off.
  • In the company’s view, reporting ROE without the required write-offs strives to purposely misrepresent the deep financial harm that the rate case decision has exacted on the company and its ability to serve its more than 343,000 customers. UI is pursuing legal action against PURA in part for this stunning prohibition on transparent and complete reporting.
  • Between Q3 2023 (the period ending Sept. 30, 2023) and Q4 2023 (the period ending Dec. 31, 2023), UI’s rate base increased by $14 million, which, as the company argued in its rate case and in subsequent filings, is insufficient to cover UI’s costs. Despite UI’s significant austerity measures in the wake of the final decision, including a 50% cut to its capital budget, UI’s utility operating income increased only by approximately $686,000. However, the embedded cost of debt, driven by the Q4 debt offering, increased from 4.28% to 4.59% as prospective bondholders assumed higher risk in Connecticut’s current unreasonable and unstable regulatory environment. Rising costs of capital are a detriment to customers now and in the long-term.
  • For an ROE to be sufficient, it must, at the very least, exceed UI’s cost of borrowing. The current actual ROE of 4.35% is, therefore, substantially insufficient to attract investment to fund operations and capital projects. Ultimately, this will have a consequential negative impact on UI’s ability to invest in its infrastructure, like new substations and protective flood walls, with potential consequences on customers’ quality of service.
  • The Office of Consumer Counsel wrote in the CT Post on Nov. 26, 2023, “PURA’s rate case decision became effective on Sept. 1, and the earnings report reflected UI’s financial performance for the period of Oct. 1, 2022 through Sept. 30, 2023. So less than a month of the report could possibly reflect any impact from PURA’s decision,” implying that once PURA’s decision took fuller effect, UI’s financial condition would improve. UI’s fourth-quarter results disprove this claim. The Office of Consumer Counsel’s full op-ed can be read at Electricity providers need to do better, the consumer counsel says. (ctpost.com). 

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