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Rating Action:

MOODY'S UPGRADES NORTHEAST UTILITIES TO Ba3; AND ITS CONNECTICUT LIGHT & POWER AND WESTERN MASSACHUSETTS ELECTRIC COMPANY SUBSIDIARIES TO Baa3

25 May 1999
MOODY'S UPGRADES NORTHEAST UTILITIES TO Ba3; AND ITS CONNECTICUT LIGHT & POWER AND WESTERN MASSACHUSETTS ELECTRIC COMPANY SUBSIDIARIES TO Baa3 Moody's Investors Service upgraded Northeast Utilities (NU) to Ba3 from B1. It also upgraded two of its utility subsidiaries-- The Connecticut Light & Power Company (CL&P) and Western Massachusetts Electric Company (WMECO) -- to Baa3 from Ba2. The upgrades, concluding a review initiated on May 10, 1999, recognize the successful return of Millstone Unit 2 to Connecticut rate base after the unit restarted earlier this month and the strides that the utilities have made in their restructuring efforts. The outlook on the parent and its two utility subsidiaries is positive, reflecting further anticipated benefits of restructuring activities.


Ratings upgraded are: Northeast Utilities' senior unsecured and issuer rating to Ba3 from B1; the Connecticut Light & Power Company's first mortgage bond and secured revolving credit facility rating to Baa3 from Ba2, its issuer and unsecured pollution control bond ratings to Ba1 from Ba3, and its preferred stock rating to "ba2" from "b1"; CL&P Capital L.P.'s preferred stock rating to "ba2" from "b1" and its preferred shelf to (P)"ba2" from (P)"b1"; Western Massachusetts Electric Company's senior secured debt and revolving credit facility ratings to Baa3 from Ba2; issuer rating to Ba1 from Ba3, preferred stock rating to "ba2" from "b1", and shelf ratings to (P)Baa3/ "ba2" from (P) Ba2/"b1".


The restart of Millstone Unit 2 relieves the financial strains caused by the 3-year outage, triggering the return of the unit to rate base in Connecticut after it operated successfully for 100 continuous hours at 75% power. During the lengthy outage, both utilities incurred significant costs totaling roughly $14 million per month for the NU system. Because the unit has been out of rate base in Connecticut since April 1998, CL&P has also incurred an additional (non-cash) $6.6 million penalty per month.


The upgrade also recognizes the strides that both utilities have made in resolving restructuring issues in their respective states. Pursuant to the restructuring legislation in Connecticut and Massachusetts, both have proposed to divest their generation assets, including nuclear assets, operating thereafter as a less-risky transmission and distribution company. WMECO has agreed to sell 290 MW of its fossil fuel and hydroelectric generating facilities to Consolidated Edison Energy, Inc. for $47 million, and will divest another 270 MW later this year. Likewise, CL&P began its auction of 3,500 MW of fossil and hydroelectric assets in early 1999. In addition, both companies plan to sell their share of nuclear units before January 1, 2004.


In addition to divesting, both utilities plan to use securitization to recover remaining stranded costs, as permitted under restructuring legislation. According to NU, actual cash proceeds from the divestiture and securitization will be used to reduce debt, pay off preferred equity, buy out/buy down above-market purchase power contracts, and pay a dividend to NU. Although details related to their restructuring plans are still pending before their respective commissions, Moody's expects that both utilities will have ironed out final details before the end of this year. Further rating actions for CL&P and WMECO will be contingent on the terms and conditions of such rate orders, as well as implementation of restructuring agreements and specific use of associated proceeds.


Although the regulated utilities will exit the generation business, Northeast Utilities intends to bid for its own and others' assets through an unregulated subsidiary. Its success in these auctions will determine to what extent the company remains in the generation business over the long term, and whether such non-regulated activities will have a major ratings impact on NU.


With regard to Public Service Company of New Hampshire (PSNH), NU's other major utility subsidiary, Moody's notes that settlement talks aimed at breaking the deadlock over restructuring terms in New Hampshire will reach a critical juncture over the coming weeks. A successful agreement to implementing retail wheeling would likely have positive rating implications for NU as well as for PSNH.



Headquartered in Berlin, Connecticut, Northeast Utilities is the holding company for The Connecticut Light & Power Company, CL&P Capital, L.P., and Western Massachusetts Electric Company, as well as Public Service Company of New Hampshire.




No Related Data.
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