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30 Sep 2005
MOODY'S PLACES COMMONWEALTH EDISON COMPANY (Baa1: SR. UNS.) UNDER REVIEW FOR POSSIBLE DOWNGRADE
Approximately $ 6.0 Billion of Debt Securities Affected.
New York, September 30, 2005 -- Moody's Investors Service placed the ratings of Commonwealth Edison
Company (ComEd: Baa1 senior unsecured) under review for a possible
downgrade, including ComEd's Prime-2 commercial paper
rating. This rating action reflects an increasingly contentious
political and regulatory environment in Illinois at a time when ComEd
is seeking to implement a transitional plan for power procurement and
seeking recovery of investments in its electricity distribution network.
The ratings and outlook are unchanged for Exelon Corporation (Exelon:
Baa2 senior unsecured), ComEd's parent. The ratings
and outlook for affiliates Exelon Generation Company (ExGen: Baa1
senior unsecured) and PECO Energy (A3 senior unsecured) are also unaffected.
This reflects fairly strong performance trends for these units,
which represent a majority of consolidated earnings and cash flow,
and the view that financial and regulatory challenges will be largely
isolated to ComEd.
ComEd is currently operating under a rate freeze, which is scheduled
to expire at the end of 2006. Its power purchase contracts also
expire at that time. ComEd has no generating assets and currently
purchases electricity under a contract with ExGen. Market prices
for wholesale electricity are significantly above the contract level price
due in large part to higher fuel costs, particularly natural gas.
Electric generation rates in Illinois are expected to transition to a
market-based rate beginning in January 2007. Absent a substantial
drop in fuel prices, ComEd's costs to purchase electricity
could increase substantially when the current supply contract expires.
Both the Attorney General (AG) and the Governor have strongly opposed
ComEd's power procurement plans. The AG has filed suit against
the Illinois Commerce Commission (ICC) to halt the procurement proceedings.
The Governor last week took the highly unusual step of removing the Chairman
of the ICC in order to name a candidate who was head of the largest state
consumer advocate group, which has previously filed testimony in
opposition of the utility's procurement plan.
Although utilities are normally entitled to recover prudently incurred
power procurement costs and an eventual settlement of the power procurement
issues is expected, recent actions and statements by Illinois government
officials and the company suggest an increased risk of a serious dispute
over reasonable and timely recovery. If ComEd's costs increase
sharply in 2007 as expected, the ICC and ComEd could reach a settlement
that defers a portion of the needed rate increases and spread these out
over a period of time. However, the credit quality at the
utility could weaken because deferrals over a long time period would likely
result in higher debt levels and increased concern that a portion of costs
may never be recovered.
The rating review will focus on the prospects for a resolution of the
dispute over the transitional plan for power procurement and related rate
increases and timely recovery of the utility's increased costs and
Ratings under review for possible downgrade include:
- ComEd's first mortgage bonds and senior secured tax-exempt
debt rated A3;
- ComEd's senior unsecured debt, senior unsecured tax-exempt
debt, & Issuer Rating rated Baa1;
- ComEd Financing II and ComEd Financing III Trust Preferred Securities
- ComEd preferred and preference stock rated Baa3;
- Shelf Registration for ComEd's issuance of first mortgage bonds,
senior unsecured debt, subordinated debt and preference stock rated
(P)A3, (P)Baa1, (P)Baa2 and (P)Baa3, respectively;
- ComEd's short-term rating for commercial paper rated Prime-2
Headquartered in Chicago, Illinois, ComEd is a regulated electricity
transmission and distribution company, and a wholly-owned
subsidiary of Exelon Corporation.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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