Item 1A. Risk Factors
Risks Relating to Our Regulatory Environment
Our businesses are subject to substantial regulation by federal, state and local regulatory agencies and our businesses, results of operations and
prospects may be materially adversely affected by legislative or regulatory changes, as well as liability under, or any future inability to comply with,
existing or future regulations or requirements.
The operations of our businesses are subject to, and influenced by, complex and comprehensive federal, state and local regulation and legislation,
including regulations promulgated by state utility commissions and FERC. This extensive regulatory and legislative framework, portions of which are more
specifically identified in the following risk factors, regulates, among other things and to varying degrees, the industries in which our subsidiaries operate, our
business segments, rates for our products and services, financings, capital structures, cost structures, construction, environmental obligations (including in
respect of, among others, air emissions, water consumption, water discharge, protections for wildlife and humans, nuisance prohibitions and allowances, and
regulation of gas infrastructure operations, and associated environmental and facility permitting), development and operation of electric generation facilities
and electric and gas transmission and distribution facilities, natural gas transportation, processing and storage facilities, acquisition, disposal, depreciation
and amortization of facilities and other assets, service reliability, hedging, derivatives transactions and commodities trading.
In our business planning and in the management of our subsidiaries’ operations, we must address the effects of regulation on our businesses, including
the significant and increasing compliance costs imposed on our operations as a result of such regulation, and any inability or failure to do so timely and
adequately could have a material adverse effect on our businesses, results of operations, financial condition and cash flows. The federal, state and local
political and economic environment has had, and may in the future have, an adverse effect on regulatory decisions with negative consequences for our
businesses. These decisions may require, for example, our businesses to cancel or delay planned development activities, to reduce or delay other planned
capital expenditures or investments or otherwise incur costs that we may not be able to recover through rates, any of which could have a material adverse
effect on the business, results of operations, financial condition and cash flows of our businesses. In addition, changes in the nature of the regulation of our
business could have a material adverse effect on our business, results of operations, financial condition and cash flows. We are unable to predict future
legislative or regulatory changes, initiatives or interpretations, and there can be no assurance that we will be able to respond adequately or sufficiently
quickly to such changes, although any such changes, initiatives or interpretations may increase costs and competitive pressures on us, which could have a
material adverse effect on our business, results of operations, financial condition and cash flows. There can be no assurance that we will be able to respond
adequately or sufficiently quickly to such rules and developments, or to any other changes that reverse or restrict the competitive restructuring of the energy
industry in those jurisdictions in which such restructuring has occurred. Any of these events could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
Our businesses are subject to the jurisdiction of various federal, state and local regulatory agencies including, but not limited to, FERC, the CFTC, the
DOE, and the EPA. Further, Networks’ regulated utilities in New York, Maine, Connecticut and Massachusetts are subject to the jurisdiction of the NYPSC,
the MPUC, the New York State Department of Environmental Conservation, the Maine Department of Environmental Protection, the PURA, the CSC, the
DEEP, and the DPU. These regulatory agencies cover a wide range of business activities, including, among other items, the retail and wholesale rates for
electric energy, capacity and ancillary services, and for the transmission and distribution of these products, the costs charged to Networks’ customers through
tariffs including cost recovery clauses, the terms and conditions of Networks’ services, procurement of electricity for Networks’ customers, issuances of
securities, the provision of services by affiliates and the allocation of those service costs, certain accounting matters, and certain aspects of the siting,
construction and transmission and distribution systems. FERC has the authority to impose penalties on our regulated utilities, which could be substantial, for
violations of the FPA, the NGA, or related rules, including reliability and cyber security rules as described in further detail below. The Financial Accounting
Standards Board, or FASB, or the SEC, may enact new accounting standards that could impact the way we are required to record revenue, expenses, assets and
liabilities. Certain regulatory agencies have the authority to review and disallow recovery of costs that they consider excessive or imprudently incurred and
to determine the level of return that our businesses are permitted to earn on invested capital.
The regulatory process, which may be adversely affected by the political, regulatory and economic environment in New York, Maine, Connecticut and
Massachusetts, as applicable, may limit our ability to increase earnings and does not provide any assurance as to achievement of authorized or other earnings
levels. The disallowance of the recovery of costs incurred by us or a decrease in the rate of return that we are permitted to earn on our invested capital could
have a material adverse effect on our business, results of operation, financial condition and cash flows. Certain of these regulatory agencies also have the
authority to audit the management and operations of our businesses in New York, Maine, Connecticut and Massachusetts and require or recommend
operational changes. Such audits and post-audit work requires the attention of our management and employees and may divert their attention from other
regulatory, operational or financial matters. The last management audit of UI by PURA was completed in 2015. This audit resulted in 64
recommendations. In
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