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Rating Action:

Moody's affirms PECO's Issuer Rating at A3; Upgrades 1st Mtge Bonds to A1; Outlook stable

25 Aug 2010

Approximately $3.04 billion of debt securities affected

New York, August 25, 2010 -- Moody's Investors Service affirmed PECO Energy Company's (PECO) Issuer Rating and unsecured bank credit facility rating at A3, its preferred stock at Baa2, its short-term rating at Prime-2 and the ratings of PECO's subsidiaries, including the trust preferred stock of PECO Energy Capital Trust III and PECO Energy Capital Trust IV at Baa1. Concurrent with this rating action, Moody's upgraded the ratings for all senior secured first mortgage bonds and all senior secured tax-exempt debt to A1 from A2. The rating outlook for PECO and all Capital Trust subsidiaries is changed to stable from negative.

Upgrades:

..Issuer: Delaware County Industrial Dev. Auth., PA

....Senior Secured Revenue Bonds, Upgraded to A1 from A2

..Issuer: PECO Energy Company

....Multiple Seniority Shelf, Upgraded to (P)A1 from (P)A2

....Senior Secured First Mortgage Bonds, Upgraded to A1 from A2

Outlook Actions:

..Issuer: PECO Energy Capital Trust IV

....Outlook, Changed To Stable From Negative

..Issuer: PECO Energy Capital Trust V

....Outlook, Changed To Stable From Negative

..Issuer: PECO Energy Capital Trust VI

....Outlook, Changed To Stable From Negative

..Issuer: PECO Energy Company

....Outlook, Changed To Stable From Negative

..Issuer: Peco Energy Capital Trust III

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

The rating action reflects our belief that the regulatory framework in Pennsylvania will continue to be credit supportive, and that the transition to market rates for generation, a primary factor underlying the former negative rating outlook, should continue to proceed without any material disruptions over the next several years. PECO has entered into procurement contracts covering the majority of its planned full requirements across customer classes and the results for the last 2010 PECO procurement auction will be announced in October 2010. The rating action also factors in our expectation that the outcome of the company's electric and gas rate cases filed with the Pennsylvania Public Utilities Commission (PA PUC) is more than likely to result in a moderately credit supportive decision. We base this view on our assessment of recent decisions rendered by the PA PUC for other utilities in the state and the fact that the potential rate impact to end-use customers is likely to be far more moderate than what had been previously anticipated, given the decline in wholesale power prices. PECO has requested an electric distribution rate increase of $316 million and a natural gas base rate increase of $44 million. We observe that this electric filing represents the company's first distribution rate request since 1989 and that utility rate cases in Pennsylvania have a history of parties reaching a settlement concerning the major issues.

While the 2010 expiration of the Competitive Transition Charge will negatively impact cash flow metrics beginning in 2011, we believe that a moderately credit supportive outcome coupled with a slowly improving economy will produce financial metrics that position the company near the lower end of the A-rating category as outlined in Moody's August 2009 Rating Methodology for Regulated Electric and Gas Utilities (the methodology). Specifically, we believe that PECO's future cash flow (CFO-pre WC) to debt will approximate 20% and its cash flow coverage of interest will hover around 4.5x in most years. That said, today's rating action recognizes the declining business risk that is likely to occur at PECO as the transition to market rates for generation continues throughout the state allowing this T&D company to focus its attention around infrastructure investments within its service territory.

The upgrade of all of PECO's senior secured first mortgage bonds and all senior secured tax-exempt debt to A1 follows Moody's August 2009 upgrade of the senior secured debt ratings of the majority of its investment grade regulated utilities by one notch. Issuers with negative outlooks outstanding at that time were excluded from the August 2009 upgrade.

The stable outlook reflects our expectations that PECO will continue to experience moderately credit supportive regulation within the state, the transition to market rates for generation will proceed as planned , their liquidity profile will remain above average and the service territory economy will gradually strengthen enabling the company to execute on its moderately sized capital investment program for infrastructure-type investments.

In light of our expectations for PECO's financial metrics over the next several years, in the absence of a material decline in total debt, limited prospects exist for the rating to be upgraded.

The rating could be downgraded if the current credit supportive regulatory environment in Pennsylvania became less reliable and more unpredictable due to broader economic concerns or unexpected legislative actions. Also, the rating could be downgraded if PECO's financial results permanently weaken from expected levels to include PECO's cash flow to debt declining below 15% or its cash flow coverage of interest expense dropping below 3.5x for an extended period.

The last rating action for PECO occurred on July 23, 2009 when the long-term ratings were confirmed with a negative outlook and the short-term rating for commercial paper was downgraded to Prime-2.

The principal methodology used in rating PECO Energy Company was Regulated Electric and Gas Utilities rating methodology published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

PECO Energy provides electric transmission and distribution (T&D) service to about 1.6 million electric customers in the city of Philadelphia as well as several surrounding Pennsylvania counties. PECO also provides gas distribution service to 486,000 natural gas customers in the areas outside the city.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information and confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's Investors Service adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from reliable sources; however, Moody's Investors Service does not and cannot in every instance independently verify, audit or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's affirms PECO's Issuer Rating at A3; Upgrades 1st Mtge Bonds to A1; Outlook stable
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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