In a draft decision this week, state regulators signaled that they would require Eversource to drop its electrical rates starting in November, but also limited the time frame during which the utility would be penalized for what the Public Utilities Regulatory Authority found was an inadequate response in 2020 to Tropical Storm Isaias. Those penalties reportedly played a part in Moody’s downgrading the company’s credit rating outlook to “negative” in June.
After Isaias, state lawmakers asked that PURA consider temporarily trimming Eversource rates by cutting the company’s allowed return on equity. While not going as far as an earlier proposal, the draft decision would cut the company’s return from it’s current 9.25 percent to 8.8 percent.
An additional 0.9 percent cut, assessed as a penalty for the company’s response to Isaias, would reduce that return on equity further to 7.9 percent.
Of interest to credit rating agencies and investors is the fact that regulators also set an end date for the Isaias penalty, which the state authority had suggested would be indefinite in previous orders. That penalty and its indefinite status played a part in downgrading the company’s credit rating outlook to “negative” in June.
Based on the company’s current revenues, the interim rate decrease could cut its revenue by $13-16 million a year, while the Isaias penalty could have an impact of $26-31 million a year, according to PURA. The authority said the actual impact on customer rates would be known after it issues its final decision.
Amid concerns regarding the long-term impact of an indefinite penalty, Eversource pushed back against the interim rate decrease – arguing another cut to its return would drive away outside investment and ultimately cost its electric customers more.
Under the latest draft decision, the interim rate cut would extend until Eversource’s next approved rate plan begins. While it’s unclear exactly when that would be, if Eversource filed for a new rate plan in November, it would take effect around a year later – and that is when the rate decrease would end, according to state regulators.
The rate penalty in response to the storm response will stay in place longer – until Eversource’s next rate plan ends. Rate plans run between 3 and 4 years, so in the same scenario where the company files for a new rate plan this November, the penalty would remain in effect until about October 2025, according to PURA.
A final decision is expected this October.
Editor’s note: this story was updated to include additional financial information regarding the decision