Moody’s downgrades Eversource’s CL&P to negative outlook amid CT ‘unpredictable regulatory’ climate

The fight between state regulators and Connecticut’s principal electric utility grew more stark Tuesday when a major credit rating agency downgraded Eversource’s Connecticut Light and Power subsidiary to a negative outlook based largely on “an inconsistent and unpredictable regulatory environment.”

The downgrade by Moody’s Ratings reinforces long standing complaints by Eversource and downstate electric utility United Illuminating, also recently downgraded, that their ability to raise capital is suffering because what they call “arbitrary” regulatory decisions have undercut their ability to earn on the hundreds of millions of dollars they invest annually in clean energy projects and other sorts of grid improvements.

The utilities predicted the CL&P downgrade and it is likely to exacerbate their already shaky relationship with Marissa Gillett, Gov. Ned Lamont’s appointee as chair of the state Public Utility Regulatory Authority.

Eversource ‘pauses’ electric vehicle program in dispute with CT regulators on clean energy spending

Moody’s, which issues widely followed reports on corporate credit worthiness, dropped its rating of CL&P, which is the Eversource electric distribution business in Connecticut, from stable to negative in a notice to subscribers Tuesday.

“CL&P’s electric distribution business operates under the purview of the PURA, a regulatory framework that has become increasingly difficult due to higher political scrutiny and inconsistent regulatory decisions and rate case outcomes,” the notice said.

The downgrade applies to both CL&P’s distribution and transmission systems. If borrowing costs increase, they likely will be passed on to customers.

In March, the credit ratings agency S&P Global Ratings, downgraded United Illuminating from stable to negative in “view of an increasingly challenging regulatory environment in Connecticut.”

The downgrade comes during an unusual standoff between the utilities and PURA. Each accuses the other of misunderstanding and misapplying utility law at the center of rate setting, rates that determine how, when and how much of the money that utilities invest in grid projects they are permitted to recover through rates.

Since spring, the electric utilities have threatened to discontinue investment in Connecticut beyond their core obligation to deliver reliable electricity to homes and businesses. Senior executives at both companies have complained that, based on recent regulatory rulings, they have no reasonable expectation of being allowed to recover, through customer billing, what they invest in clean energy and other programs.

In May, Eversource CEO Joseph Nolan said he was reducing capital expenditures in Connecticut by $500 million over the next five years because of a “negative” regulatory climate that prevents the company from recovering money it invests in the state. He said he was redirecting the money to projects in Massachusetts and New Hampshire.

“You can have my assurance that we will not spend dollars until such time as we have a constructive regulatory environment that allows us to get fair treatment in the recovery of our dollars that we have spent on behalf of the customers in Connecticut to bring better service,” he said on a quarterly earnings call with utility analysts.

The utilities acted on their threats last month by “pausing” their involvement in a popular Connecticut decarbonization project, a rebate program that incentivizes the installation of electric vehicle charging stations in homes. The utilities said they wanted greater assurance they would be able to recover, in less than a year, the $75 million or so they borrowed and already committed to rebates.

A threat to the EV program caught Lamont’s attention and he ordered what turned out to be an angry meeting Friday between, among others, utility executives and Gillett. The result was a resumption of the EV charging program by the utilities, but no one would predict for how long.

The offices of Lamont and Gillett did not respond to requests Tuesday to discuss the Moody’s downgrade.

“Connecticut Light and Power’s negative outlook reflects a weaker financial profile and a challenging Connecticut regulatory environment,” said Jeff Cassella, VP-Senior Credit Officer at Moody’s. “Although CL&P’s cash flow will improve from the recovery of certain costs associated with authorized rate adjustment mechanisms, the long-term sustainability of this improvement will largely depend on the supportiveness of future regulatory decisions related to the company’s storm cost prudency review and rate case proceedings, which is uncertain,”

Moody’s said that, “given the negative outlook, it is unlikely that CL&P will be upgraded in the near term.” It said that could change “if the credit supportiveness of the Connecticut regulatory environment improves with future regulatory decisions that improve the timeliness of the recovery of costs and investments, including deferred storm costs, while providing sufficient allowed returns.”

On the other hand, it said the rating could be further downgraded “if Connecticut regulatory decisions continue to be contentious or unsupportive of credit quality and there is no improvement in the regulatory environment or if CL&P’s weak financial performance is sustained …”