TEXT-Moody's release on Consolidated Edison

(The following statement was released by the rating agency)

Approximately $2.8 billion of debt affected

March 20 - Moody's Investors Service affirmed the debt ratings of
Consolidated Edison, Inc. (ED.N: Quote, Profile, Research) (CEI; senior unsecured A2; short term rating
for commercial paper Prime-1) and its regulated utility subsidiaries,
Consolidated Edison Company of New York, Inc. (CECONY; senior unsecured A1;
short term rating for commercial paper Prime-1) and Orange and Rockland
Utilities, Inc. (O&R; senior unsecured A2; short term rating for commercial
paper Prime-1). The rating outlook for all three companies is revised to
negative from stable.
In addition to the persistent weakness in key credit metrics for the companies
relative to what we typically see for companies in the "A" rating category,
today's rating action primarily reflects Moody's heightened level of concern
with regard to the ability of the three companies to achieve a materially
stronger financial profile given the rate decision announced on March 19, 2008
by the New York Public Service Commission (NYPSC) with respect to CECONY's most
recent electric rate case. "We believe a stronger financial profile is
necessary to compensate for the rising business and operating risks that go in
tandem with the exceptionally large capital programs that CECONY and O&R face
over the next several years", said Moody's Vice President and Senior Analyst,
Kevin Rose. "The change to negative rating outlooks for the companies also
takes into account a more guarded view than we have had in the past about the
extent to which the New York regulatory environment will be supportive in
future rate case decisions for CECONY and O&R", Rose added. In particular,
Moody's notes the 9.1% allowed return on equity (ROE) used by the NYPSC in late
2007 for O&R's show cause filing for its electric operations and the
aforementioned fully litigated decision in CECONY's electric rate case, which
only granted about 35% ($425 million) of the $1.2 billion rate increase
requested, also based on a very low 9.1% allowed ROE. We view this outcome as
an additional sign of the increasing propensity for the NYPSC to base rate
decisions on a much lower authorized ROE.
Meanwhile, we note that CEI's ratings reflect the substantial contributions to
consolidated earnings and cash flow by its regulated utilities and limited
exposure to unregulated business activities. Moreover, the level of unregulated
business investments is expected to decline considerably later this year as CEI
moves ahead under a definitive agreement to sell 1,706 megawatts of unregulated
generation projects for $1.5 billion in cash, which should result in a $335
million after-tax gain, net of transaction expenses. Management is estimating
that CEI will net about $654 million of cash proceeds from the sale, which will
be available for debt repayments and for redeployment into CECONY and O&R.
The ratings of CECONY and O&R reflect a history of generating relatively stable
and predictable earnings and cash flows through operation of their respective
utility T&D assets, and the benefits that have been derived from past
multi-year rate settlements approved by the NYPSC. We also note that the
utilities (and CEI) have historically maintained sufficient liquidity, with
cash flow from operations supplemented by ample access to a committed bank
credit facility jointly arranged by CEI, CECONY, and O&R. The companies have
demonstrated a history of refinancing debt maturities in the capital markets
and we anticipate that the companies will continue doing so.
Over the next several years, we expect that annual utility-related capital
expenditures will be around $2.7 billion, which will leave CECONY and O&R in a
significantly negative free cash flow position. We continue to expect a mix of
debt and common equity issuance to fund the expected cash flow shortfalls
during the construction cycle, with an eye towards maintaining the common
equity at each of the utilities equal to the level on which the NYPSC allows
them to earn a return on. Although we previously expected that CECONY and CEI
could join O&R by improving CFO Pre-W/C to interest and debt to comfortably in
excess of 4x and in the mid-to-high teens, respectively, we now take a view
that achievement (in the case of CEI and CECONY) and sustaining (in the case of
O&R) of such levels over the next 12 to 18 months appears less likely given the
recent decision in the CECONY electric rate case and the growing propensity for
the NYPSC to extend the cash recovery period for certain previously incurred
costs and to use a much lower allowed ROE as part of the basis for rate case
decisions. The ratings for CEI, CECONY, and O&R could be subject to downgrade
in the intermediate term if there are no visible signs of the ability to
generate CFO Pre-W/C to interest and debt in excess of 4x and the mid-to-high
teens, respectively, on a sustainable basis.
It is worth noting that CECONY is in the midst of a steam rate case while O&R
is in the middle of an electric rate case; however, it is our understanding
that CECONY will be filing yet another electric rate case in May. Given the
level of capital expenditures expected throughout the CEI family, it is
anticipated that the utilities will be active in the rate arena on an annual
basis in the coming years unless they can succeed in settling future
proceedings on a multi-year basis. Against this backdrop, Moody's is more
skeptical than it has been in the past with respect to its view on the extent
to which future regulatory decisions by the NYPSC would be supportive of the
current ratings.
Consolidated Edison, Inc. is the parent holding company for utilities,
Consolidated Edison Company of New York, Inc. and Orange and Rockland
Utilities, Inc., and also has modest investments in energy-related unregulated
businesses. It maintains headquarters in New York, New York.
(New York Ratings Team)