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

Company’s financial position degrades substantially, with earned ROE of just 3.94%


ORANGE, Conn. — August 6, 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) containing its calculation of an earned Return on Equity (ROE) of 3.94% for the preceding 12 months ending on June 30, 2024:

“How low must UI’s profitability sink before Connecticut policymakers acknowledge that PURA’s decision-making has rendered us incapable of adequately funding our business and attracting the capital we need to provide safe, reliable service to our customers?

We have long said that by authorizing the lowest allowed Return on Equity for any utility in the United States in 2023, PURA would drive investment out of Connecticut and into other utilities, which would leave our company and our customers ill-prepared to take on the concurrent challenges of greater electrification, increased innovation, and increasingly severe storms. Today, it is clear we undersold our concerns. Investors can now make a higher return in their bank’s savings account than by investing in our company due to the uniquely punitive constraints imposed by PURA and the unstable regulatory environment they continue to inculcate.

The consequences of all this are clear. With such low profitability, we will not be able to access the capital needed to build protective infrastructure like flood walls around our substations, to convert our remaining outdated meter fleet to smart meters, or to replace 80-year-old substations with the most advanced technology for our customers’ benefit. Attracting and retaining the union professionals in our front-line workforce, who are essential to maintaining the grid and restoring outages quickly when they occur, will become increasingly difficult as we have no choice but to provide them with yesterday’s toolbox to take on tomorrow’s challenges. In short, UI customers will miss out on the benefits of innovative technologies, faster interconnections, and greater infrastructure build-out, all of which are indispensable in our work to enable the clean energy transition across the state.

On behalf of our 343,000 customers and our 600 employees, we hope this will be a wake-up call for state policymakers. Meeting the challenges of greater beneficial electrification and combatting climate change will require far more investment in the electric grid, yet PURA’s actions and decisions suggest it is does not intend to fund such investment. We urge PURA to take seriously our very low 3.94 percent Return on Equity. Too much is at stake for this to continue.” – Frank Reynolds, President and CEO of UI


Background

 

  • UI’s 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 profitability for the company.
  • Between March 31 and June 30, 2024, UI’s distribution net income dropped from $57.8 million to $53.6 million, a decrease of $4.2 million. This was driven by increased depreciation expense, increased business costs, and increased personnel expenses. 
  • 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 first-quarter 2024 earnings are less than half its allowed ROE and a 49-basis point drop over last quarter, indicating continued financial degradation.
  • For an ROE to be sufficient, it must, at the very least, exceed UI’s financing costs, or the cost of borrowing, which is currently in the range of 5 percent. The current actual ROE of 3.94 percent is, therefore, substantially insufficient to attract investment to fund operations and capital projects. This is having and will continue to have a consequential negative impact on UI’s ability to attract capital to invest in the safety, reliability, and resiliency of its electric grid. Investments, like new substations and protective flood walls, are already being deferred, and without significant improvements, customers will eventually bear the consequences with poorer quality of service.
  • For the preceding 12 months, PURA instructed the company to write off nearly $24 million, while simultaneously prohibiting the company from including these write-offs when reporting its ROE. Had UI included the write-offs in its ROE calculation, they would result in an ROE of just 0.75 percent.
  • In the company’s view, reporting ROE without the write-offs falls far short of representing the deep financial harm that PURA’s final decision in UI’s most recent rate 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.  

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