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Global Credit Research - 09 Jul 2010
Approximately $ 3.3 Billion of Debt Securities Affected
New York, July 09, 2010 -- Moody's Investors Service has affirmed the ratings of Northeast Utilities
(NU: Baa2 senior unsecured) and regulated electric utility subsidiaries,
Connecticut Light and Power (CL&P: Baa1 senior unsecured) and
Public Service Company of New Hampshire (PSNH: Baa2 Issuer Rating)
following recent rate case decisions. The rating outlook for NU,
CL&P, and PSNH is stable.
"The ratings affirmation and maintenance of stable outlooks reflect
the June 2010 outcome of the CL&P and PSNH rate cases, which
we consider to be moderately credit supportive," said Natividad
Martel, Analyst at Moody's. "These final rate
orders at NU's two largest subsidiaries, coupled with a business
risk strategy focused around FERC-regulated transmission investments,
and a conservative dividend payout ratio, should result in credit
metrics commensurate with the existing ratings".
At CL&P, the Connecticut Department of Public Utility Control
(DPUC) granted a rate hike of $63.4 million for the first
rate year ending in June 2011 and $38.5 million for the
second rate year ending in June 2012, which we calculate to be approximately
60% of CL&P's requested amount on a cumulative basis.
The DPUC approved the bulk of the company's proposed investments
in its distribution system, and final rates were based on CL&P's
electricity sales forecasts. We observe that the DPUC adopted a
more moderate approach, as compared to other proposed alternatives,
towards amortizing the $380 million depreciation reserve,
which results in better cash flow. While the rate case outcome
somewhat eases our concerns about the credit supportiveness and predictability
of the regulatory framework in Connecticut, any lingering concerns
are somewhat mitigated by the amount of CL&P capital investment (slightly
less than 50% of the company's rate base) covered under a
more reliable FERC-regulatory framework for electric transmission
At PSNH, the New Hampshire Public Utilities Commission (NHPUC) approved
a multi-year settlement among PSNH, NHPUC staff, and
the Office of Consumer Advocate calling for a $45.5 million
net rate hike effective July 1, 2010 followed by a $2.9
million net decrease in 2011, as well as net increases of $9.5
million and $11.1 million in 2012 and 2013, respectively.
Among other things, the order allows for an increase in the company's
major storm cost reserve and provides for step-ups to fund PSNH's
investments associated with its Reliability Enhancement Program (REP)
and non-REP assets. We believe that the size of the first
year net rate increase helps to address the regulatory lag that currently
exists at PSNH.
Taken together and factoring in cost control initiatives throughout the
company, the company's capital investment program, and continued
execution of conservative capital management, Moody's believes
that the key credit metrics for consolidated NU and CL&P and PSNH
will remain commensurate with the Baa-rating category over the
next several years.
The stable rating outlook for NU, CL&P, and PSNH reflects
the company's lower risk business strategies which are centered
around investments in FERC-regulated transmission projects,
emissions reduction equipment as well as reliability related investments
in the company's distribution network. The stable rating
outlook factors in the company's moderate dividend payout ratio
of 50%, which is particularly important given the sizeable
capital investment expected over the next several years. The stable
outlook further factors in our expectation that the company will execute
a timely extension of its revolving credit facility, which expires
later this year. While we view management's approach to handling
its credit facility extension so close to its expiration date as far from
optimal, particularly in light of today's more challenging
credit environment, we believe that the receipt of the CL&P
and PSNH rate orders should help to facilitate a smooth and timely extension
of the company's working capital facilities in advance of the November
2010 expiry date. Any problems extending these facilities would
result in negative rating action.
Moody's last rating action on CL&P and PSNH was on August 3,
2009, when their senior secured ratings were upgraded one notch
to A2 and A3, respectively in line with our sector-wide review
of first mortgage bonds in the utility sector.
The last rating action on NU occurred on April 17, 2006 when the
ratings were affirmed.
The principal methodology used in rating the debt of CL&P, PSNH
and NU is Rating Methodology: Regulated Electric and Gas Utilities,
published August 2009 and available on www.moodys.com in
the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating these companies can also be found
in the Rating Methodologies sub-directory on Moody's website.
Headquartered in Hartford, CT, NU is the parent holding company
of a largely regulated utilities group, including transmission and
distribution (T&D) utilities, CL&P and Western Massachusetts
Electric Company (senior unsecured Baa2; stable), a vertically
integrated utility, PSNH, and a local natural gas distribution
company, Yankee Gas Services Company (Issuer rating: Baa2).
They comprise the largest utility system in the New England region with
roughly 1.9 million electric and about 205,000 natural gas
customers. As of March 31, 2010, NU's consolidated
assets amounted to around $14.1 billion.
Headquartered in Berlin, CT, CL&P with more than 1.2
million retail customers is the Connecticut's' largest regulated
electric T&D company.
Headquartered in Manchester, NH, PSNH is the largest utility
in New Hampshire serving approximately 70% of the retail customers
in the state (about 490,000).
Infrastructure Finance Group
Moody's Investors Service
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Moody's affirms NU, CL&P, and PSNH ratings; outlooks stable
No Related Data.
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