Electric utility United Illuminating Co. said Monday that its return on equity (ROE) in the first-quarter was 3.49% – a number that President and CEO Frank Reynolds called “dismal” and said “makes debt investors nervous.”
UI filed its ROE, which is a measure of the company’s profitability, with the Public Utilities Regulatory Authority on Friday. UI said its profitability has fallen to its lowest level ever, continuing a trend of “financial degradation” since PURA’s 2023 rate decision.
The company’s current 3.49% ROE is less than half its allowed ROE of 8.63%, set by PURA.
PURA sets the maximum ROE that each utility can attain, but does not guarantee that it can be achieved.
Return on equity is a measure of a utility’s profitability. It’s calculated by dividing distribution net income by shareholder equity, which is the company’s assets minus its debt.
Reynolds said that with such low return on equity, investors will require higher premiums to buy UI’s debt, which “will end up on customers’ bills in the form of higher rates.”
“Nothing good comes from a utility that is financially devastated,” Reynolds said. “… Even our fiercest critics and opponents recognize that, at least in theory, energy companies like UI provide an essential service to our customers, and accordingly, regulators must enable them to do so.”
As it becomes more expensive for UI to sell debt, UI will be forced “to limit its investments to only the most basic and necessary to keep the lights on in the immediate term,” he added.
Longer-term, but necessary capital investments – such as rebuilding a 60-year-old substation serving nearly 18,000 customers in southern Trumbull and Bridgeport – will have to be deferred, Reynolds said.
The company also recently reduced its capital investments by $70 million.
Reynolds urged PURA to approve sufficient revenue based on its investment plan filing in November.
“It’s not too late to turn this increasingly dire situation around,” Reynolds said.
UI delivers electricity to about 341,000 households and businesses in New Haven, Bridgeport and the shoreline region of Connecticut.
