CNG, SCG Credit Ratings Downgraded by Moody’s Ratings; Outlooks Negative
Moody’s downgrades CNG and SCG by one notch, citing “a challenged regulatory environment”
Moody’s: “Absent a return to more constructive political and regulatory decisions, both utilities could see further credit deterioration over the next two years.”
ORANGE, Conn. — December 17, 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 by Moody’s Ratings. The agency downgraded CNG’s credit rating by one notch to A3 and SCG’s credit rating by one notch to Baa1, both with negative outlooks, due to “a challenged regulatory environment, where the disparity between filed rate requests and ultimate rate orders has become considerable”:
Statement
“Today’s announcement from Moody’s is the latest, alarming signal from the investment community that Connecticut’s regulatory environment is becoming untenable and unsustainable for the companies responsible for providing the state’s most essential services.
“Maintaining high-quality utility service, which customers have come to accept as a given in our state for many decades, requires investment, and those investments can only be made with the support of a responsible and constructive regulatory landscape. The Moody’s report follows broad downgrades by S&P for all Connecticut utilities, and the consequences are serious. Building an energy system for the future will require significant, forward-looking investment. As a result of these downgrades, every dollar invested in Connecticut’s utilities will be more expensive due to financing costs that could have been avoided with a more balanced and sensible regulatory approach.
“Ultimately, it is Connecticut residents and businesses that are on the losing end of PURA’s misguided tactics. Whether through higher long-term costs, or deferred investment in a system that won’t be able to keep pace with the economic growth Connecticut is pursuing, this road serves the interests of no one.
“How many more investors and rating agencies must signal their eroding confidence in the state’s utilities before PURA abandons its reckless path towards becoming the most hostile regulatory jurisdiction in the country? How much more will state policymakers force customers to pay in footing the bill of the state’s failure to instill confidence that Connecticut is a safe place for investment?
“Moody’s, S&P, and every other rating agency has attributed CNG and SCG’s downgrades exclusively to the regulatory environment in Connecticut. Unless and until that environment improves, we should expect this trend to continue. The costs will be lower-quality service, less reliability, higher energy costs, and diminished confidence in the health and safety of critical investments.
“Without action from Connecticut policymakers, there is no limiting principle in the slide towards junk bond status. Customers will pay for their inaction for years to come.” – Frank Reynolds, President and CEO of CNG and SCG
Key Findings from Moody’s
- "The rate outcome is evidence of a challenged regulatory environment, where the disparity between filed rate requests and ultimate rate orders has become considerable.”
- “Absent a return to more constructive political and regulatory decisions, both utilities could see further credit deterioration over the next two years.”
- “The negative outlooks reflect our expectation that few, if any, changes will be made to either utility’s financial prospects and that the degree of financial decline could be prolonged if incremental rate support is not observable over the next 12-18 months.”
- “We further note that many of the state’s most credit supportive legislative features (e.g. forward test year or multi-year rate plans and robust infrastructure replacement cost trackers) have been eliminated or modified to the detriment of utility credit in recent years.”
Background
- In today’s report, Moody’s downgraded CNG’s credit rating by one notch to A3 with a negative outlook, and SCG’s rating by one notch to Baa1 with a negative 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
(757) 407-4255