Hartford Business Journal

HARTFORDBUSINESS.COM | JANUARY 8, 2024 7 United Illuminating President and CEO Frank Reynolds stands outside a Connecticut Natural Gas operations center in East Hartford after an interview with the Hartford Business Journal. UI and Connecticut Natural Gas are subsidiaries of Orange-based Avangrid Inc., which Reynolds said has been struggling to attract investors due to a hostile regulatory environment in Connecticut. HBJ PHOTO | BRIAN AMBROSE Rate Debate Rate case ignites political, legal battle as electric utility UI scrambles to recover investment costs axed by regulator By Andrew Larson alarson@hartfordbusiness.com U nited Illuminating, an electric company based in Orange that serves more than 341,000 customers in Connecticut, is in a public policy battle with the Public Utilities Regulatory Authority (PURA) over cuts to its recent rate increase request. And the company's President and CEO, Frank Reynolds, isn't pulling punches on his critiques of the state agency, arguing the cuts have delayed infrastructure projects, including upgrades to substations in Bridgeport and Hamden, and vehicle fleet replacements. The cuts could also hinder future investment in electric vehicle charging stations, a key priority for the Lamont administration's clean energy goals. Reynolds, in an interview with the Hartford Business Journal, said PURA has created a hostile regu- latory environment that has roiled investors and compromised UI's ability to attract investment capital. "Our capital is significantly constrained to really investing in what we are mandated to do, to provide safe and reliable service," Reynolds said. "So, we are purely focused on those highest-reliability projects at this point." It's a rare public flare up between a state agency and a publicly traded company that it oversees. But UI isn't the only company that's been at odds with PURA. Connecticut's other electric company, Eversource, has its own ongoing legal battle with the agency, through its subsidiary, Aquarion Water Co. In March, PURA cut Aquar- ion's entire request for a $37 million increase in distribution revenues, and lowered its existing revenue require- ment by $2 million. Aquarion appealed the decision in New Britain Superior Court, and a judge has issued a temporary stay preventing the agency, which regu- lates investor-owned utilities in the state, from enforcing the cut. Lack of funds UI, which provides electric service in 17 towns and cities in the south- western part of Connecticut, aruges that PURA has disallowed millions of dollars for system upgrades as well as operating costs, leaving the company without sufficient funds to maintain and improve its infrastructure. In a final decision issued Aug. 25, PURA approved a $23 million increase of United Illuminating's revenue requirement for a three-year period that began Sept. 1, 2023, and ends Aug. 31, 2026. UI will have revenue of $384.9 million each year, which is 6.4% more than in 2022, but 22% less than the $131 million the company requested for the three-year period. In September, UI, a subsidiary of utility giant Avangrid, filed an appeal in New Britain Superior Court seeking to recoup more than $30 million that it said was unfairly and illegally cut. PURA denied much of UI's original requested increase because it found the company had failed to meet its burden of proof — that the proposed rates are "just and reasonable by a preponderance of evidence." State law requires utilities to provide "safe, adequate and reliable" service to all customers regardless of the outcome of a rate case. Also in the rate filing, UI requested a 10.2% return on equity, which PURA lowered to 9.1%. Until certain performance issues identified by PURA are addressed, the return on equity was further reduced to 8.6%. But UI said its actual return on equity has been much lower in recent quarters. "We've seen it deteriorate, we've seen it fall every quarter," Reynolds said of the company's return on equity, a key financial metric used by inves- tors to measure a company's profit- ability. "In June, it was around 5% or so. Now, it's below 5%. And that's not even including some of the disallow- ances that PURA implemented." UI's return on equity over the last year peaked at 6.33% in the fourth quarter of 2022, and hit a low of 4.61% in the third quarter of 2023. Those lower returns have made it difficult to attract investors, Reyn- olds said, who may decide to invest money in less volatile securities that yield similar returns. PURA said its goal is to ensure a return on equity that is "sufficient, but no more than sufficient," for the company to "cover (its) capital costs, to attract needed capital and to main- tain (its) financial integrity." In UI's recent rate case proceeding, PURA said it calculated what it determined to be a "fair and reason- able" rate of return on the company's capital investments. But the company has to work within the framework PURA provided to achieve them. "It is the company's management team and parent company who exercise exclusive control over the company's operations and financial results, and who may take actions that adversely affect the company's returns; therefore, PURA can only assess in a rate case whether the company is positioned to, or has the opportunity to, achieve its earnings," said Joe Cooper, a PURA spokesman. UI, on Nov. 30, also applied for a rare interim rate increase of $14 million, but PURA rejected that request as well.

• Cover