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Announcement:

Moody's reviews Commonwealth Edison's ratings for possible upgrade

27 Jan 2012

Approximately $5.8 Billion of Debt Securities Affected

New York, January 27, 2012 -- Moody's Investors Service today placed the long-term and short-term ratings of Commonwealth Edison Company (ComEd) under review for possible upgrade.

RATINGS RATIONALE

"Today's rating action is reflective of continued strong financial performance at ComEd recorded during 2011, coupled with last year's passage of the Energy Infrastructure Modernization Act (EIMA), which should result in increased infrastructure investment at the utility, reduced regulatory lag around cost recovery, and strengthened credit metrics", said A.J. Sabatelle, Senior Vice President of Moody's.

Ratings placed under review for possible upgrade include ComEd's senior secured debt and first mortgage bonds rated Baa1, ComEd's Issuer Rating and senior unsecured rating at Baa3; shelf registrations for the issuance of first mortgage bonds and senior unsecured debt at (P)Baa1 and (P)Baa3, respectively; junior subordinated debt of ComEd Financing III rated Ba1, and ComEd's short-term rating for commercial paper at Prime-3.

Earlier this week, ComEd reported 2011 GAAP earnings of $416 million, a 23% increase over last year's results reflecting the receipt of incremental revenue from the implementation of the company's 2011 electric distribution rate case order (effective June 1, 2011) as well as the receipt of incremental distribution revenues from the performance based formula-rate tariff recently enacted with passage of EIMA. Moody's anticipates that ComEd's near-term financial performance will continue to strongly position the company in the "Baa" rating category from a financial metrics perspective. Specifically, we anticipate that cash flow (CFO pre-WC) will represent about 20% of debt and that cash flow interest coverage should approximate 5.0x for 2011.

The review for possible upgrade also recognizes the increased prospects for continued strong financial performance in the future following last year's passage of EIMA. Under the legislation, a new distribution formula-rate-plan (FRP) ratemaking paradigm for the state's largest electric utilities was introduced. The legislation requires ComEd to invest $1.3 billion over a five-year period in electric system upgrades, modernization projects, and training facilities plus at least $1.3 billion over a 10-year period in transmission & distribution assets and smart-grid system upgrades. Key aspects of the FRP calculation include cost recovery of the utility's actual capital structure, excluding goodwill; a legislatively-set formula for purposes of calculating the allowed return on equity (ROE) equivalent to a 580 basis-point premium above the 12-month average 30-year Treasury Bond yield; recovery of pension-related costs; as well as recovery of certain incentive compensation expenses. If, in the context of an FRP filing, the utility's actual ROE in a given period is more than 50 basis points above or below its authorized ROE, the company is required to refund to/collect from ratepayers any amounts outside of this deadband. In addition, the utility's allowed ROE may be reduced if it fails to meet certain performance metrics. Moreover, the new law requires the utility's FRP to be terminated if the average annual rate increase for the years 2012 through 2014 exceeds 2.5%.

The rating review will focus on the company's near-term financial results, including its ability to earn its authorized ROE, the company's prospective capital spending program under EIMA, the impact of such spending requirements on the utility's annual financing requirements, and the prospective dividend needs expected from ComEd over the next several years.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Chicago, Illinois, ComEd is a regulated electric transmission and distribution company and a subsidiary of Exelon Corporation (Exelon: Baa1 senior unsecured; under review for possible downgrade). ComEd provides energy delivery services to retail and wholesale customers in northern Illinois, including the city of Chicago. ComEd is regulated by the Illinois Commerce Commission and the Federal Energy Regulatory Commission. For year-end 2011, ComEd reported operating revenues of $6.056 billion and net income of $416 million.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

A.J. Sabatelle
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's reviews Commonwealth Edison's ratings for possible upgrade
No Related Data.
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