CNG, SCG Respond to S&P Global Credit Rating Downgrades
S&P Global attribute credit ratings downgrades of both companies to BBB+ to “PURA's rate-order reductions, [which] will negatively affect CNG's and SCG's financial performance.”
ORANGE, Conn. — December 6, 2024 — Today, Frank Reynolds, President and CEO of Connecticut Natural Gas (CNG) and Southern Connecticut Gas (SCG), subsidiaries of Avangrid, Inc. (NYSE: AGR), issued the following response to the credit rating downgrades from by Standard & Poor (S&P) Global on Friday, December 6. The agency downgraded CNG’s credit rating by two notches to BBB+ and SCG’s credit rating by one notch to BBB+ due to “Connecticut’s regulatory construct… [which] will increase the utilities' cash flow volatility, decrease the stability of their financial performances, and weaken their ability to consistently manage regulatory risk”:
Statement
“S&P’s decision to downgrade CNG and SCG’s credit ratings today reflects the continued, hastening erosion of investor confidence in Connecticut’s utility companies. As S&P outlines in its report, there is only one cause: the increasingly unpredictable and unstable regulatory environment created by the Public Utilities Regulatory Authority (PURA).
With S&P’s report, the foreshadow of the impacts of PURA’s negative regulatory treatment is now a reality – and more consequences will follow. Unlike any other business, utilities must have the partnership of state regulators to invest in our infrastructure and improve the quality of service for Connecticut residents, small businesses, manufacturers, and municipalities. Time and again, PURA has shown itself to be entirely disinterested in such a partnership, instead making clear it is willing to sacrifice reliability, resiliency, and long-term affordability in favor of short-term political wins by cutting rates in the here and now.
Like all recent decisions issued by PURA, CNG and SCG’s astounding rate cuts of $35 million will profoundly challenge our ability to provide the high-quality service our customers depend on, as well as repay the investors whose loans have supported critical investments in our infrastructure. The results of PURA’s regulatory construct have been higher bills, price volatility, rate shock, and aging infrastructure, with utilities rendered unable to invest in Connecticut’s energy future.
The companies’ sister company, UI, raised the risk of credit downgrades in its 2022 rate case and PURA scoffed at it being an unrealistic threat. But the reality is, right now, Connecticut utilities are running essential electric, natural gas, and water systems on the margins of investments that previous regulatory commissions enabled. If the state insists on continuing down this precarious path, these margins will soon run out. When that happens, the political leaders responsible for the deterioration of the system may have moved on, but we, the public service companies that have served Connecticut for more than 175 years, will still be here. And it will be our customers – the residents and businesses we serve – who will face both higher costs and worsened reliability tomorrow from the state’s mismanagement today.
For more than a century, CNG and SCG have been committed to providing safe, reliable, and resilient natural gas service. Our commitment has not wavered, but our ability to deliver on it is increasingly challenged by PURA’s shortsighted politicization of the ratemaking process. For the benefit of residents, businesses, municipalities, and all our stakeholders, it is past time for state leaders to return to a regulatory environment that makes Connecticut a more attractive place for investment, supports the stability of utility companies, and protects the long-term interests of the customers we serve.” – Frank Reynolds, President and CEO of CNG and SCG
Key Findings from S&P
- “PURA's rate-order reductions will negatively affect CNG's and SCG's financial performance.”
- The “material base-rate decreases for both utilities… will directly weaken their stand-alone financial measures. Furthermore, these rate orders follow a recent pattern of weaker-than-expected rate case orders by PURA for its electric, gas, and water utilities.”
- “We now expect that both utilities will be increasingly subject to below-average ROEs, regulatory lag, and an inconsistent ability to earn their authorized ROEs. These developments will increase the utilities' cash flow volatility, decrease the stability of their financial performances, and weaken their ability to consistently manage regulatory risk.”
- “We have assessed PURA's rate orders over the past two years, which were materially lower than we assumed under our base-case forecasts, as not credit supportive.”
Background
- In today’s report, S&P downgraded CNG’s credit rating by two notches to BBB+ with a Stable outlook, and SCG’s rating by one notch to BBB+ with a Stable outlook, following significant rate cuts imposed by the Public Utilities Regulatory Authority (PURA) in the companies’ recent rate cases.
- On November 18, PURA issued its final decisions in the CNG and SCG rate cases (Docket #23-11-02), which resulted in approximately $35 million in total revenue reductions for CNG and SCG. CNG’s revenue cut amounts to $24.6 million, while SCG faces a $10.8 million reduction. PURA’s rate orders were finalized after a 2-to-1 vote by the commission’s three members, with Chair Marissa Gillett and Vice Chair John Betkoski in favor and Commissioner Michael Caron opposed. The reduction in revenues is expected to significantly strain the companies’ financial health, weakening their ability to maintain high-quality service to their nearly 400,000 customers in the state.
- There has been much attention on the return of the corporate tax credits owed to customers, but this is a misdirection, as returning these credits to customers is not and has never been in question. Following the corporate tax changes in 2017, CNG and SCG followed PURA’s direction to return the tax credits to customers in their subsequent rate cases. Accordingly, from 2017 to 2024, the companies treated this money consistent with PURA’s preferred approach and with national regulatory standards, which resulted in $15 million in interest that customers will benefit from. However, PURA’s instruction to return this money in less than half the time it was collected (i.e., returning it over three years, while it was collected over seven years) has tangible impacts on the companies’ cash flow, which is negatively impacting the companies’ credit ratings.
- Credit downgrades impact the companies’ ability to finance investments in critical infrastructure, as utilities like CNG and SCG rely heavily on bonds to fund capital improvements. A lower credit rating signals higher risk to investors, leading to increased debt costs that customers ultimately pay, raising energy costs in Connecticut. Utilities could also be forced to defer investments, which would have downstream impacts on the quality of service.
- UI, CNG, and SCG have all faced similar downward pressures on their credit ratings due to Connecticut’s current regulatory environment. Downward credit ratings and credit rating outlooks have been previously issues by S&P Global, Moody’s, and Fitch Ratings, among others.
Media Contact:
Sarah Wall Fliotsos
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