CNG, SCG Respond to Credit Agencies’ Downgrade of Rating Outlooks

Fitch, S&P Global attribute downgrades to “ongoing regulatory challenges in Connecticut” that are “negative for credit quality”


Reynolds: “Either way, our customers lose. They will pay for that degraded credit rating with either higher bills, or they will pay with lower-quality service”


ORANGE, Conn. — September 26, 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 statement regarding downgrades of credit rating agencies’ outlooks on the companies:

“With negative forecasts from two premiere rating agencies, CNG and SCG are faced with yet more evidence of how regulatory decisions in Connecticut are driving down the companies’ financial stability while hurting our customers’ prospect of receiving affordable, high-quality natural gas service.

Utility companies are extraordinarily capital-intensive: virtually every infrastructure investment we make, whether pipe replacement, gate station construction, or any other project, is funded by loans from our investors. When our credit rating drops, investors are correspondingly less likely to trust our ability to repay them. That leaves us with a choice: either offer our investors a premium to assure them of our commitment to repayment, or forego the investment altogether.

Either way, our customers lose. They will pay for that degraded credit rating with either higher bills, or they will pay with lower-quality service from foregone infrastructure improvements. And eventually, without improvements in the regulatory environment, they will pay with both. Already, leading investors like Stuart Zimmer are sounding warning bells on this very issue: just this week, he partly attributed high energy prices to Connecticut having the second-most ‘hostile regulatory jurisdiction in the United States.’

Rating agencies and others have made it clear the regulatory environment in Connecticut is the driver of credit downgrades and the resulting Sophie’s Choice they create for us in the utility industry. We urge Connecticut elected officials and policymakers to return the fundamental tenets of stability and predictability to the regulatory construct in which we all operate. If they fail to do so, it’s the 391,000 customers served by CNG and SCG – and indeed, all 3.6 million Connecticut residents – who will be forced to pay their price.” – Frank Reynolds, President and CEO of CNG and SCG


Background

 

  • CNG and SCG both filed a rate case on Nov. 3, 2023 (Docket #23-11-02), in which CNG is requesting a rate increase of $19.8 million and SCG is requesting a rate increase of $40.6 million. A Final Decision is expected on November 18, 2024.
  • On September 23, 2024, as part of The Sustainable Clean Energy Summit: Decarbonizing Society and the Grid, Stuart Zimmer, Founder and CEO of the Zimmer Partners LP hedge fund, said, “[Connecticut] is not a friendly state for people to come and open their businesses because there’s ‘reasonable’ electricity prices. Part of the reason [for] that is, after Illinois, Connecticut has the most hostile regulatory jurisdiction in the United States.”
  • On September 5, 2024, Fitch Ratings revised the outlook of The United Illuminating (UI) Company, CNG and SCG’s sister Connecticut-based company, to Negative from Stable, “reflect[ing] the ongoing regulatory challenges in Connecticut… that can impact cash flow profitability and predictability.”
  • In September 2023, S&P Global revised their outlooks on UI and CNG to Negative from Stable and their outlook on SCG to Developing from Positive, which all reflect downgraded outlooks. In March 2024, S&P Global expounded on their downgrade for SCG to Developing, describing how recent regulatory developments, such as rate case decisions for UI and Aquarion as well as increased discretion to PURA from the legislature, have been “negative for credit quality” and “decrease cash flow predictability.”
  • In its September 2024 report, S&P Global forecasts a Negative outlook for CNG over the next 12-18 months, pending an outcome in the company’s rate application. The rating agency notes that the “intervening parties – such as the Office of Consumer Counsel, PURA’s Office of Education, Outreach, and Enforcement (EOE), and the state’s attorney general – all recommended material rate decreases for both companies, which we assess as a negative for their credit quality.”
  • S&P Global further notes, “most of PURA’s rate orders over the last 18 months [have been]… less than credit supportive. Should this trend persist, we would likely revise downward our assessment of Connecticut’s regulatory construct, which would likely result in a downgrade for many of Connecticut’s regulated utilities.”
  • While Fitch held CNG and SCG at Stable, the agency cautioned that recent regulatory and legislative changes, such as the passage of Senate Bill 7, “introduce several restrictive measures that can reduce cash flow predictability for utilities… and future negative rating actions.”

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