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Announcement:

Moody's affirms NU, CL&P, and PSNH ratings; outlooks stable

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 investments.

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).

New York
Natividad Martel
Associate Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms NU, CL&P, and PSNH ratings; outlooks stable
No Related Data.
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