Three months after regulators rejected a rate hike for United Illuminating, the utility company says it needs $14 million more by February to avoid cutting infrastructure projects in 2024.
The company, which serves about 341,000 customers across 17 municipalities in Fairfield and New Haven counties, has been locked in a dispute with the Public Utilities Regulatory Authority since the regulator rejected a $131 million rate hike that would have raised customer bills by about 11 percent.
UI said it now faces a “financial death spiral” unless it cuts about half of the $140 million of infrastructure projects it planned for 2024, including projects to increase capacity, rebuild substations and improve resiliency. It said it would also have to cut a $3.7 million “smart grid” and cyber security project.
Late Thursday, UI said its attempt to draw outside capital fell flat because Connecticut’s regulatory environment has made the company too risky for investors. It asked PURA to allow it to raise rates by $14 million — almost 2 percent for the average residential customer — starting Feb. 1.
“Our efforts to rebuild aging infrastructure, including substations in Bridgeport and Hamden, and to replace our vehicle fleet, which ensures our workers can quickly and safely respond to outages and emergencies, must be deferred until we are allowed to collect adequate revenue to sustain those efforts,” UI CEO Frank Reynolds said in a statement.
After an unusually public and tense back and forth between UI, state lawmakers and officials in August, PURA rejected the company’s request to raise customer bills, which would have increased its revenue by about $131 million.
Under Chair Marissa Gillett, PURA has set a high bar for utilities looking to increase their rates. The regulator’s decision to reject rate hike requests by UI and Eversource subsidiary Aquarion Water have frustrated the utilities, who say PURA’s new tact makes it harder to draw outside investments for the grid.
Regulators at PURA said the company didn’t do enough to prove it needed the rate hike. But UI quickly appealed the decision to the courts, saying the decision would cut its profits in half and force it to put off infrastructure projects.
UI said its parent company Avangrid tried earlier this month to issue about $305 million bonds for its three utilities in Connecticut, including Southern Connecticut Gas and Connecticut Natural Gas. The cost of that debt was higher than expected, which the company said bankers attributed to “limited interest” in Connecticut utilities because of concerns with the regulatory environment in the state.
The company said the cost of that debt is higher than its expected rate of return under current electric rates. Despite being authorized by PURA to earn an 8.63 percent return on equity, the company said it earned 6.3 percent in 2022, and expects to be below 6 percent this year and next year without a rate increase. That return isn’t high enough to draw investors, it argued.
“PURA’s actions over the past year suggest that the Authority believes the only way to protect the interests of customers is by trading on the financial integrity of the companies it regulates,” Reynolds said. “But this is a misguided and false choice — if the financial harm to the utility impedes its ability to attract the capital necessary to uphold the strength and resiliency of the electric system, customers will ultimately pay the price.”
In its appeal, UI is fighting for $31.9 million in revenue, but is asking for PURA to approve about half of that now. The company said the appeal will likely take more than a year to resolve, and it needs more revenue to keep its “financial integrity” until then.
Allowing UI to raise rates by another $14 million would allow it to increase its capital projects back up to $110 million, the company said.
The company said if it lost its appeal, it would have to pay the rate increase back to customers.