Over $3 billion of rate debt affected
New York, June 05, 2019 -- Moody's Investors Service, (Moody's) upgraded NSTAR Electric Company's
long-term ratings, including the Issuer and Senior Unsecured
Ratings to A1 from A2. The outlook is stable. In addition,
Moody's upgraded Western Massachusetts Electric Company's (WMECO)
senior unsecured rating to A1 from A2. WMECO's debt was assumed
by NSTAR Electric when the two companies merged on 31 December 2017.
Upgrades:
..Issuer: Connecticut Development Authority
....Senior Unsecured Revenue Bonds,
Upgraded to A1 from A2
..Issuer: NSTAR Electric Company
.... Issuer Rating, Upgraded to A1 from
A2
....Pref. Stock, Upgraded to
A3 from Baa1
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....Senior Unsecured Shelf, Upgraded
to (P)A1 from (P)A2
..Issuer: Western Massachusetts Electric Company
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
Outlook Actions:
..Issuer: NSTAR Electric Company
....Outlook, Changed To Stable From
Positive
Affirmations:
..Issuer: NSTAR Electric Company
.... Commercial Paper, Affirmed P-1
RATINGS RATIONALE
"We expect NSTAR Electric's financial performance to remain stable as
it operates within a 5-year rate plan that became effective in
February 2018 and where the Massachusetts regulatory environment continues
to remains credit supportive," said Jeff Cassella, VP --
Senior Credit Officer.
NSTAR Electric's A1 rating reflects its low-risk business profile
as a regulated electric transmission and distribution (T&D) utility
and a solid financial profile including a ratio of cash flow from operations
pre-working capital (CFO pre-W/C) to debt we expect to remain
in the 23-24% range. The rating also considers the
strong regulatory support provided by the Massachusetts Department of
Public Utilities (MDPU) and the Federal Electric Regulatory Commission
(FERC), both of which provide credit supportive regulatory frameworks
that enable NSTAR Electric to exhibit a high degree of cash flow stability
and predictability.
From a regulatory perspective, in Massachusetts, NSTAR Electric's
distribution business benefits from a credit supportive regulatory environment
including regulatory recovery mechanisms allowed by the MDPU that provide
timely recovery of costs. On 30 November 2017, the MDPU issued
its final order on NSTAR Electric and its affiliate, Western Massachusetts
Electric Company's recent rate case filing, which became effective
1 February 2018. In the final order, the MDPU approved the
merger of NSTAR Electric and WMECO with NSTAR Electric as the surviving
entity. The final order, which included the impact from US
tax reform, resulted in a net $19 million reduction in rates
for NSTAR Electric and WMECO customers. NSTAR Electric's
authorized return on equity (ROE) is 10% based on an equity ratio
of 53.34% while WMECO's authorized ROE is 10%
based on an equity ratio of 54.51%.
In addition, the final order included performance based ratemaking
(PBR), which will allow NSTAR Electric to implement annual rate
changes based on an inflation adjusted formula to reflect planned capital
investments made to upgrade their distribution networks, assuming
the companies meet pre-determined performance measures.
The PBR is a five-year plan beginning 1 January 2018, and
contains an earnings sharing mechanism (ESM), which calls for earnings
above a 12% ROE to be shared between customers (75%) and
the company (25%).
PBR is meant to incentivize improvements in cost controls as well as administrative
efficiency and effectiveness. As part of the PBR, NSTAR Electric
is expected to increase its capital investment $400 million over
the three year period of 2018-2020 for clean energy and grid modernization
initiatives. These capital improvements would be designated for
the state's clean-energy initiatives.
As part of the rate order, NSTAR Electric was also allowed to implement
revenue decoupling, which was already utilized by WMECO as part
of its last rate order in 2011. Decoupling reconciles the utility's
distribution revenues, on an annual basis, to a baseline distribution
service revenue level established by the MDPU, which would insulate
cash flow from fluctuations in its retail electric sales, thus adding
a higher level of stability and predictability, a credit positive.
Outlook
NSTAR Electric's stable rating outlook reflects our expectation that the
regulatory frameworks under the purview of FERC and the MDPU will remain
credit supportive and that NSTAR Electric's financial metrics will remain
stable, including a ratio of CFO pre-W/C to debt in the 23-24%
range. The stable outlook also incorporates our view that NSTAR
Electric will continue to maintain a strong liquidity profile to support
its Prime-1 short-term commercial paper rating.
Factors that could lead to an upgrade
NSTAR Electric's rating could be upgraded if the regulatory environments
in which it operates remain credit supportive; and the company can
maintain a financial profile that supports a ratio of CFO pre-W/C
to debt of 27% or higher on a sustainable basis.
Factors that could lead to a downgrade
NSTAR Electric's rating outlook could be downgraded if there is a deterioration
of the credit supportiveness of the regulatory environment under the purview
of FERC or MDPU or if NSTAR Electric's financial performance declines
such that its ratio of CFO pre-W/C to debt falls below 22%
on a sustained basis. A negative rating action at the parent,
Eversource Energy, could also have negative implications for NSTAR
Electric's rating.
Headquartered in Boston, MA, NSTAR Electric Company is a regulated
electric transmission and distribution utility company serving approximately
1.47 million customers in western MA and eastern MA including the
City of Boston. NSTAR Electric's distribution and generation (58
MW) operations are regulated by the Massachusetts Department of Public
Utilities (MDPU), while the transmission business is under the purview
of the Federal Energy Regulatory Commission (FERC). On 31 December
2017, Western Massachusetts Electric Company (WMECO, A1 senior
unsecured), a former subsidiary of Eversource Energy (Baa1 stable),
merged with and into NSTAR Electric, with NSTAR Electric as the
surviving entity. As a result, NSTAR Electric serves all
of Eversource Energy's electric customers in Massachusetts.
Upon the closing of the merger, all assets, contracts,
rights and obligations of WMECO were assumed by NSTAR Electric.
NSTAR Electric is the second largest subsidiary of Eversource Energy with
total assets of $11.2 billion as of 31 March 2019.
Its affiliated companies include the regulated electric utilities,
The Connecticut Light and Power Company (A3 Stable), Public Service
Company of New Hampshire (A3 stable); natural gas local distribution
companies, Yankee Gas Services Company (Baa1 stable) and NSTAR Gas
(unrated); and water companies, Aquarion Company (Baa2 stable),
which operates regulated water utilities Aquarion Water Company of Connecticut
(A3 stable), Aquarion Water Company of Massachusetts (unrated) and
Aquarion Water Company of New Hampshire (unrated).
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.
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 - Senior 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
Michael G. Haggarty
Associate Managing Director
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
