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Rating Action:

Moody's upgrades Connecticut Light & Power's ratings; outlook is stable

27 Jun 2018

Approximately $3.7 billion of debt securities affected

NOTE: On July 02, 2018, the press release was corrected as follows: In the debt list, under Upgrades for issuer Connecticut Light and Power Company, added “…Underlying Senior Secured First Mortgage bonds, Upgraded to A1 from A2.” Revised release follows.

New York, June 27, 2018 -- Moody's Investors Service (Moody's) upgraded The Connecticut Light and Power Company's (CL&P) ratings, including Issuer Rating to A3 from Baa1 and first mortgage bond rating to A1 from A2. The rating outlook is stable. This rating action concludes the review of CL&P's ratings initiated on 8 June 2018.

Upgrades:

..Issuer: Connecticut Development Authority

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

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Connecticut Light and Power Company

.... Issuer Rating, Upgraded to A3 from Baa1

....Pref. Stock Preferred Stock, Upgraded to Baa2 from Baa3

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

…Underlying Senior Secured First Mortgage bonds, Upgraded to A1 from A2

....Senior Secured Shelf, Upgraded to (P)A1 from (P)A2

Outlook Actions:

..Issuer: Connecticut Light and Power Company

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

"The upgrade of CL&P incorporates our expectation that the utility's financial performance going forward will result in coverage metrics that support a higher rating while benefiting from a credit supportive Connecticut regulatory environment" said Jeff Cassella, Vice President -- Senior Credit Officer.

CL&P's A3 rating reflects its low risk business profile as an electric transmission and distribution (T&D) utility operating under an increasingly supportive Connecticut regulatory framework. The rating also considers that CL&P's substantial transmission business that is under the purview of Federal Energy Regulatory Commission (FERC), which we view as a highly credit supportive regulatory jurisdiction. CL&P's rating upgrade incorporates our view that the company's financial metrics will deteriorate in 2018, such that its ratio of cash flow pre-W/C to debt will decline to the mid-teens range from over 20%, due primarily to recent changes associated with US tax reform. However, we expect CL&P's financial metrics to improve back to historical levels in 2019, including a ratio of cash flow pre-W/C to debt of about 20%.

The upgrade follows CL&P's recent rate case outcome which resulted in a settlement approved by the Public Utilities Regulatory Authority (PURA), a credit positive. The settlement was an indication that Connecticut intervenors and regulatory staff are amenable to agreeing to terms negotiated as part of general rate case filings instead of having to fully litigate rate cases which had been the norm in this jurisdiction for many years.

The settlement resulted in a $124.7 million phased-in base electric distribution revenue increase, including a $64.3 million increase on 1 May 2018, $31.1 million in May 2019 and $29.2 million in May 2020. The phased-in rate increase seeks to mitigate some of the immediate rate effect on customers. Although the agreement was less than half of CL&P's request of $336.9 million, the agreed revenue increase is partially affected by lower revenue collected from customers owing to the recent change in the corporate federal tax rate.

The agreement included a return on equity (ROE) of 9.25% and an equity ratio of 53%. Although the ROE is lower than the national average of around 9.7%, it is higher than the ROE of 9.17% allowed in CL&P's previous 2014 rate-case decision. The utility must share 50% of any earnings above the 9.25% ROE with its customers. Additionally, CL&P will be able to earn a return on a higher equity ratio compared with the 50.38% allowed in its last rate case.

The rate order also allows CL&P to continue to use a revenue decoupling mechanism that was adopted in its last rate case. Revenue decoupling is credit positive because it adds to the predictability and stability of revenue and cash flow generation. CL&P's decoupling mechanism reconciles the amounts recovered from customers, on an annual basis, with the distribution revenue requirement to be set by the PURA. In addition, the settlement included a core capital tracker that will allow for timely recovery of the utility's capital investments for core capital projects of up to $270 million for the calendar years 2018-20 and up to $300 million for each year after 2020 until its next rate case proceeding.

The stable rating outlook reflects our view that CL&P's low business risk as an electric T&D utility will be maintained as it operates in a credit supportive Connecticut regulatory environment that allows for timely recovery of prudently incurred costs and investments. The stable outlook also reflects our expectation that CL&P's financial profile will rebound in 2019 after a decline in its financial metrics in 2018 resulting from the impact from changes in US tax reform. We expect CL&P's ratio of CFO pre-W/C to debt will improve to about 20% in 2019.

Factors that Could Lead to an Upgrade

Given the recent rating upgrade, we do not foresee another upgrade in the near to intermediate future. However, CL&P's rating could experience positive rating momentum if the credit supportiveness of the Connecticut regulatory environment continues to strengthen through future regulatory decisions that further improves the timeliness in recovery of costs and investments and increases allowed returns. In addition, the rating could be upgraded if CL&P's financial profile continues to show sustained improvement such that its ratio of CFO pre-W/C to debt increases to the mid-20% range.

Factors that Could Lead to a Downgrade

CL&P's rating could be downgraded if there is a deterioration in the credit supportiveness of the Connecticut regulatory environment or if CL&P's financial performance declines such that its ratio of CFO pre-W/C to debt declines to the mid-teens on a sustained basis.

The principal methodology used in these ratings 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.

Headquartered in Berlin, CT, CL&P is the state's largest regulated electric transmission and distribution company serving over 1.1 million customers. CL&P is the largest operating subsidiary of Eversource Energy (Baa1 stable), with total assets of about $11.1 billion as of 31 March 2018. CL&P's other affiliated companies include regulated electric utilities NSTAR Electric Company (A2 positive), Public Service Company of New Hampshire (A3 stable), and NSTAR Gas (unrated), a natural gas distribution company in Massachusetts. CL&P's operations are regulated by the Connecticut Public Utilities Regulatory Authority and the Federal Energy Regulatory Commission.

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.

Jeffrey F. Cassella
VP - Sr Credit Officer
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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