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June 4, 2024

Moody’s downgrades water utility’s credit rating, citing weakening finances, debt

Contributed A crew installs a water main for Aquarion.
By Andrew Larson

Moody’s Ratings has downgraded Aquarion Water Co.’s credit rating one notch, placing it into a higher-risk category.

In late May, Moody’s lowered the water utility’s credit rating from A3 to Baa1, noting its low overall business risk, with a weakening financial profile.

The credit rating agency said that Aquarion’s rating change reflected increased risk from “adverse regulatory or political decisions,” following the Public Utilities Regulatory Authority’s decision to reduce Aquarion’s revenue and lower its return on equity last year.

In March 2023, PURA cut Aquarion’s request for an annual revenue requirement of $236 million by 17.2%, down to $195.5 million. Also, it approved a return on equity of 8.7%, after Aquarion requested 10.35%.

Aquarion requested the rate increase in August 2022 – its first rate case since 2013. PURA made its decision after roughly 48,000 pages of documents were filed.

Bridgeport-based Aquarion and other Connecticut utilities have said PURA’s crackdown on rate increases threatens their ability to attract capital and will ultimately lead to increased costs for consumers.

Aquarion has appealed PURA’s decision in state courts. A Superior Court judge upheld most of PURA’s decision, noting that “the court observes that Aquarion and its investors face little practical economic risk.”

Aquarion has appealed the trial court’s decision, and the state Supreme Court has agreed to hear the case.

Moody’s said that Aquarion’s lower rating comes as a result of the state’s “less consistent and predictable regulatory environment.”

Moody’s expects the company’s financial metrics to improve in 2024 once its owner, Eversource Energy, repays $360 million of intermediate holding company debt.

The credit rating agency did not take a position on Eversource’s February announcement that it plans to sell Aquarion, a process that is expected to take more than a year.

“It is too early to determine the credit implications, including uncertainties related to PURA's regulatory approval, the acquirer, final valuation and timing, among other things,” Moody’s report states.

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