UI Statement on ROE Filing with Public Utilities Regulatory Authority

Company Submits Report of Damaging Return on Equity (ROE) of 4.61% through Sept. 30, 2023


ORANGE, Conn. — November 6, 2023 — United Illuminating, a subsidiary of Avangrid (NYSE: AGR), today issued the following statement regarding its regulatory filing with the Public Utilities Regulatory Authority (PURA) containing its calculation of an earned Return on Equity (ROE) of 4.61% through September 30, 2023. 

“The report filed today with PURA demonstrates the damaging consequences of PURA’s decision in our rate case, and makes clear the impact on the financial health of UI. Utilities finance operations and capital projects using a combination of debt and equity. In order to sufficiently compensate investors for the greater risk they assume in investing with UI rather than debt markets, utilities offer an ROE that is higher than bonds. Thus, sufficient ROEs are necessary for utility companies like UI to attract investors and consequently afford capital infrastructure investments that promote reliability for its customers. 
The disturbingly insufficient ROE puts Connecticut far out of step with utilities in other states. While Connecticut already offers among the lowest authorized ROEs of any state in the country, with the next-lowest authorized ROE of 9.20 percent for a New York utility, an earned ROE of 4.61 percent is unthinkable and, in the company’s view, confiscatory, making it unconstitutional. UI looks forward to adding this alarming report to its lengthy body of evidence demonstrating PURA’s failure to adhere to ratemaking principles, basic standards of transparency, and the U.S. Constitution in its rate case Decision that exacted this untenable financial harm on the company.”


Background


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. While the company has appealed PURA’s decision and therefore has not included these write-offs in its current ROE calculation, they would result in an ROE of just 0.75 percent. In comparison, the company is authorized, but in no way guaranteed, to earn an ROE of 9.1 percent, nearly twice the amount of its actual 2023 earnings and 12 times higher than earnings under the scenario of the forced $24 million write-off.

For an ROE to be sufficient, it must, at the very least, exceed UI’s financing costs, or the cost of borrowing. Currently, this cost is in the range of 6.2 percent for new long-term debt, making the current actual ROE of 4.61 percent 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.

Because PURA, in its Decision, further prohibited UI from including required write-offs in its calculation of its ROE, UI reported an ROE of 4.61 percent in compliance with PURA’s order. However, in the company’s view, reporting ROE without the write-offs falls far short of representing 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.
 

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