Ahead of rate hikes, utilities reinvest in grid
As Eversource and United Illuminating customers come to terms with the announced sharp increases in their monthly bills starting in January, consumers and politicians alike are asking if the utilities are pumping too much money into profits that end up in the pockets of shareholders and executives.
The question typically arises when electricity rates spike or extended outages strike after significant storms. But at the most fundamental measure of earnings — profits as a percentage of revenue — Eversource’s Connecticut operations have been the least profitable of the utility’s service regions, which include Massachusetts and New Hampshire.
Over the past six years, Eversource has averaged 12.1 cents in operating profits on every dollar of revenue in Connecticut, according to annual reports on file with the U.S. Securities & Exchange Commission, versus 12.9 cents in New Hampshire and 14.1 cents in Massachusetts.
Against an index of nearly 40 utilities maintained by the Edison Electric Institute trade association, Eversource has outperformed many peer companies with a 91 percent increase in shareholder returns in the form of annual dividends between 2016 and 2021, compared to 69 percent for other utilities in the index on average. But in the last couple of years, Eversource has trailed on the EEI index for profits paid to shareholders as dividends.
Avangrid, United Illuminating’s parent company, ranks in the top 10 of that group for yields on dividends, but United Illuminating accounts for only 15 percent of the company’s electricity delivery business alongside larger utilities in New York and Maine and separate natural gas and renewables businesses. Avangrid does not break out United Illuminating’s operating profits in its filings with the U.S. Securities & Exchange Commission.
Eversource and United Illuminating do not make money on electricity generation in power plants; they charge only for delivering power to customers over their lines, factoring in the cost of ongoing maintenance and repairs.
Frank Reynolds, CEO of United Illuminating and its parent entity UIL Holdings, owned by Avangrid, told CTInsider on Friday that the rate increase would be the first increase of United Illuminating rates in five years.
“We’re in a heavily regulated industry, and we’re allowed to make a certain return — not a guarantee — but a certain return on investments we make,” Reynolds said. “We bring everybody to the table among our regulators and other intervenors. They have the opportunity to explore all of the investments that we’re proposing to make within our system in continuing to deliver safe and reliable service.”
At an EEI conference in midNovember, Eversource shared updated projections for its investment in its electric transmission and distribution grid, which it anticipates peaking this year above $2.6 billion before dropping annually through 2026 to below $2.1 billion, only slightly off its investment total for 2019 before the COVID-19 pandemic.
Both utilities are on the cusp of significant investments in offshore wind farms and electric vehicle charging infrastructure.
In Southeastern Massachusetts, Eversource is analyzing other big investments in the grid to accommodate an expected boom in solar farms.
“There’s investments that we want to make around transmission to unlock and tap into some renewable resources that cannot get onto the grid in a way that’s meaningful for the operator,” Eversource CEO Joe Nolan said in November on a conference call. “That’s something that will only reduce customers’ cost at the end of the day if we’re able to get at some of those renewables.”
In 2019, Eversource took a $204 million hit to the bottom line after ending a multiyear effort to run power lines through New Hampshire to tap power from hydroelectric plants in Canada, with stockholders absorbing that hit rather than ratepayers. Avangrid is moving ahead with the project on an existing transmission route through Maine.
In response to the backlash in Connecticut over the sharp increase in electric rates, the state’s
two largest utility companies have committed $13 million to provide relief to customers struggling to pay their utility bills this winter.
Eversource will contribute $10 million from what would have
been booked as profits to help qualifying customers. United Illuminating is giving $3 million to Operation Fuel, a nonprofit that provides emergency funding for people to pay their bills.
For people living paycheck to paycheck, another point of contention over the rate increase is the big paydays senior executives receive in the form of bonuses and stock compensation. With Avangrid CEO Pedro Azagra Blazquez new on the job and his Eversource counterpart Joe Nolan getting the corner office only last year, a fuller picture of their pay will emerge in spring.
In a recent Utility Dive study of CEO compensation, Eversource had the most significant dip between 2020 and 2021, but that included a portion of the compensation Nolan was paid before his promotion, replacing Jim Judge. In 2020, Judge had one of the larger pay packages in the nation in Eversource’s peer group of similar-sized utilities at $14.6 million, according to the Utility Dive study.