Press Release: Oct 3, 2005 (6:33 am)
Approximately $ 6.0 Billion of Debt Securities Affected.
New York - ComEd under review for a possible downgrade, including ComEd's Prime-2 commercial paper rating. This rating action reflects an increasingly contentious political and regulatory environment in Illinois at a time when ComEd is seeking to implement a transitional plan for power procurement and seeking recovery of investments in its electricity distribution network.
The ratings and outlook are unchanged for Exelon Corporation (Exelon: Baa2 senior unsecured), ComEd's parent. The ratings and outlook for affiliates Exelon Generation Company (ExGen: Baa1 senior unsecured) and PECO Energy (A3 senior unsecured) are also unaffected. This reflects fairly strong performance trends for these units, which represent a majority of consolidated earnings and cash flow, and the view that financial and regulatory challenges will be largely isolated to ComEd.
ComEd is currently operating under a rate freeze, which is scheduled to expire at the end of 2006. Its power purchase contracts also expire at that time. ComEd has no generating assets and currently purchases electricity under a contract with ExGen. Market prices for wholesale electricity are significantly above the contract level price due in large part to higher fuel costs, particularly natural gas.
Electric generation rates in Illinois are expected to transition to a market-based rate beginning in January 2007. Absent a substantial drop in fuel prices, ComEd's costs to purchase electricity could increase substantially when the current supply contract expires. Both the Attorney General (AG) and the Governor have strongly opposed ComEd's power procurement plans. The AG has filed suit against the Illinois Commerce Commission (ICC) to halt the procurement proceedings. The Governor last week took the highly unusual step of removing the Chairman of the ICC in order to name a candidate who was head of the largest state consumer advocate group, which has previously filed testimony in opposition of the utility's procurement plan.
Although utilities are normally entitled to recover prudently incurred power procurement costs and an eventual settlement of the power procurement issues is expected, recent actions and statements by Illinois government officials and the company suggest an increased risk of a serious dispute over reasonable and timely recovery. If ComEd's costs increase sharply in 2007 as expected, the ICC and ComEd could reach a settlement that defers a portion of the needed rate increases and spread these out over a period of time. However, the credit quality at the utility could weaken because deferrals over a long time period would likely result in higher debt levels and increased concern that a portion of costs may never be recovered.
The rating review will focus on the prospects for a resolution of the dispute over the transitional plan for power procurement and related rate increases and timely recovery of the utility's increased costs and investment outlays.
Ratings under review for possible downgrade include:
- ComEd's first mortgage bonds and senior secured tax-exempt debt rated A3;
- ComEd's senior unsecured debt, senior unsecured tax-exempt debt, & Issuer Rating rated Baa1;
- ComEd Financing II and ComEd Financing III Trust Preferred Securities rated Baa2;
- ComEd preferred and preference stock rated Baa3;
- Shelf Registration for ComEd's issuance of first mortgage bonds, senior unsecured debt, subordinated debt and preference stock rated (P)A3, (P)Baa1, (P)Baa2 and (P)Baa3, respectively;
- ComEd's short-term rating for commercial paper rated Prime-2 Headquartered in Chicago, Illinois, ComEd is a regulated electricity transmission and distribution company, and a wholly-owned subsidiary of Exelon Corporation.
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Warns of increasingly contentious political regulatory climate
September 30, 2005
(Reuters) — Moody's Investors Service on Friday said it may cut its ratings on Commonwealth Edison Co., citing an increasingly contentious political and regulatory climate in Illinois.
Recent statements by
Moody's currently rates the utility's senior unsecured debt "Baa1," the third-lowest investment-grade rating. Commonwealth Edison is a regulated utility unit of Exelon Corp.
