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Rating Action:

Moody's assigns Baa2 rating to Monongahela Power's revenue bonds

05 Jul 2018

$73.5 million of revenue bonds rated

New York, July 05, 2018 -- Moody's Investors Service, ("Moody's") today assigned a Baa2 senior unsecured rating to Monongahela Power Company's (Mon Power) $73.5 million tax-exempt revenue bonds (Solid Waste Disposal Refunding Revenue Bonds 2018 Series A) related to its Harrison power plant. The bonds will be issued by the County Commission of Harrison County, West Virginia. The bonds will be subject to mandatory purchase on 15 October 2021. The rating outlook of Mon Power is stable.

RATINGS RATIONALE

"The Baa2 rating assigned to the revenue bonds reflects the unsecured obligation of Mon Power and is two notches below the utility's A3 senior secured first mortgage bond rating" said Jairo Chung, Assistant Vice President. The revenue bonds' rating reflects their relative position in the utility's capital structure compared to the senior secured debt and is identical to Mon Power's Baa2 Issuer Rating. The two notch differential between the revenue bond rating and the senior secured rating on Mon Power's first mortgage bonds is consistent with Moody's methodology guidance for notching securities due to subordination for US regulated utility issuers with senior unsecured ratings or Corporate Family Ratings of Ba2 or higher.

The proceeds of this issuance will be used to pay a portion of the cost of refunding the $73.5 million Solid Waste Disposal Refunding Revenue Bonds 2007 Series D that had been issued by Allegheny Energy Supply Company LLC for the Harrison power plant that was transferred to Mon Power. These bonds were redeemed on 4 June 2018.

Mon Power's Baa2 senior unsecured and Issuer ratings reflects its vertically integrated utility operations that are fully regulated in West Virginia. We view the regulatory environment in West Virginia to be less credit supportive than most other jurisdictions, typically resulting in longer regulatory lag. Also, the credit rating incorporates an economically challenged service territory and the fact that most of Mon Power's electric production is sourced from ageing coal-fired power plants such as Harrison power plant.

Rating Outlook

The stable outlook reflects Mon Power's steady utility operations under a relatively predictable, although at times unsupportive, regulatory environment. It also incorporates Moody's expectation that Mon Power will maintain key metrics that are consistent and appropriate for its risk profile, including its cash flow from operations before changes in working capital (CFO pre-WC) to debt above 16%.

Factors That Could Lead to an Upgrade

A rating upgrade could be considered if there is a significant improvement in financial metrics such as CFO pre-WC to debt in excess of 20% on a sustainable basis. Also, if the regulatory environment improves and shortens regulatory lag in cost recovery and Mon Power's generation portfolio becomes less coal dependent, a rating upgrade could be possible.

Factors That Could Lead to a Downgrade

A rating downgrade could be considered if there is a weakening of the regulatory environment in West Virginia, extending regulatory lag, or the environment becomes contentious; or if credit metrics deteriorate such that CFO pre-WC to debt falls below 16% for a sustained basis.

Monongahela Power Company, a subsidiary of FirstEnergy Corp., is a vertically integrated utility serving approximately 390,000 electric customers in West Virginia. Its service territory is largely rural and has traditionally been economically challenged. Its 3,550 MW of generation portfolio consists of mostly coal-fired power plants and also includes a 487 MW of hydro pump storage.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jairo Chung
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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