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Fitch Affirms Exelon Corp's and Subsidiaries Ratings



  Fitch Affirms Exelon Corp's and Subsidiaries Ratings

Business Wire

NEW YORK -- February 8, 2013

Fitch Ratings has affirmed the Issuer Default Ratings (IDR) and instrument
ratings of Exelon Corp. (EXC) and each of its existing operating subsidiaries,
including Exelon Generation Company (Exgen), Commonwealth Edison Company
(Comed), PECO Energy Company (PECO) and Baltimore Gas and Electric Co. (BG&E).
The Rating Outlook for Comed has been revised to Positive from Stable. The
Rating Outlook for all other entities remains Stable.

The ratings of EXC and Exgen reflect recent steps taken by management to
solidify their credit quality and ratings in the face of a persistently low
power price environment that is pressuring wholesale and retail profit
margins. The positive actions include substantial reductions in both capex and
the common stock dividend. Consequently, credit protection measures are
expected by Fitch to remain strong during a low point in the commodity cycle
and compare favorably to Fitch's target ratios and their respective peer
groups.

The EXC and Exgen ratings also reflect ample liquidity, and a competitive
nuclear fleet that is low on the dispatch curve and stands to benefit from new
and existing environmental regulations that impose additional costs on coal
plants. The consolidated rating also benefits from the earnings contribution
of three regulated utilities, which account for about 50% of earnings and cash
flow.

KEY RATING DRIVERS

EXC and Exgen

Dividend Reduction: EXC's dividend was reduced 40%, saving approximately $700
million annually. Fitch expects Exgen will be the primary beneficiary of the
dividend reduction and to apply a significant portion of the savings to debt
reduction. The new dividend takes effect in the second quarter of 2013.

Reduced Capex: In November 2012, management lowered Exgen's capex budget by
$2.3 billion over the five year period 2013 - 2017. The capex reduction
includes approximately $1.025 billion from the deferral of planned nuclear
uprates and $1.25 billion from eliminating unidentified wind and solar
investments. The reductions meaningfully reduced pressure on credit quality
measures.

Financial Position: The combined reductions of the common stock dividend and
capex have strengthened the financial positions of both EXC and Exgen. Cash
flow measures are particularly strong. Fitch estimates EXC's adjusted ratio of
FFO/interest to be in excess of 6.0x over the next several years and FFO/debt
approximately 30%. Fitch estimates Exgen's adjusted ratio of FFO/interest to
be in excess of 7.0x over the next several years and FFO/debt in excess of
40%.

Liquidity: Liquidity is ample and debt maturities should be manageable. On a
consolidated basis committed credit facilities aggregate $8.4 billion,
including $5.7 billion at Exgen and $500 million at EXC, and extend to 2017.
Moreover, Fitch expects Exgen to be free cash flow positive over the next
several years.

Low Commodity Price Environment: Low power prices, weak demand and aggressive
competitive pricing behavior have adversely affected Exgen's wholesale and
retail margins and are expected by Fitch to persist for several more years. It
does appear however, that we are in the low point of the commodity cycle with
limited downside risk. Moreover, the lower dividend and spending plan have
positioned both EXC and Exgen to withstand further stresses.

Comed

Credit Metrics: Over the next several years, Fitch expects Comed to sustain
the improvement in credit metrics achieved in 2012, largely due to a rate
increase implemented Jan. 1, 2013 and a new regulatory paradigm in Illinois
that allows for annual rate adjustments to earn a return on new investments
and recover changes in the cost of service. Fitch estimates the ratio of
EBITDA/interest will average about 5.0x and FFO/interest about 4.5x over the
next several years. Over the same period FFO/debt is expected by Fitch to
average about 18% and Debt/EBITDA about 3.9x.

Regulatory Environment: Illinois implemented a formula based rate plan (FRP)
in October 2011 that fundamentally changed regulation of electric delivery
service in Illinois. While the FRP remains less favorable than initially
expected by Fitch, it does provide for annual rate adjustments, recognizes
planned capital additions and includes a true-up mechanism that combine to
reduce, albeit not eliminate, rate lag. The primary negatives are a relatively
low formula based return on equity (ROE) and reliance on an average, rather
than year-end rate base, which reduces the revenue requirement.

FRP Appeal: Following its initial FRP decision, Comed filed an appeal with the
Illinois Commerce Commission (ICC) and in October 2012 the ICC reversed its
position on the treatment of the Comed's pension asset. The reversal restored
about $135 million of revenue in 2012. The ICC maintained its position on the
use of an average, rather than year-end, rate base and capital. Following the
rehearing order, Comed filed an appeal in state court regarding the use of an
average rate base and the interest rate used to calculate the carrying cost on
reconciliation adjusted balances.

Recent Comed Rate Case: On Dec. 19, 2012, the ICC issued an order in Comed's
second FRP filing. The decision was more constructive than the previous order,
but continues to rely on an average rate base and capital structure. The ICC
granted Comed a $72.6 million rate increase compared to $74.2 million
supported by the company. The allowed ROE was 9.71% based on the
pre-established formula (3.91% Treasury yield plus 580 basis points), compared
to 10.05% in the prior case. Prospectively, Comed will file an annual FRP each
May with new rates effective the following January. Since Treasury rates are
unlikely to fall there is limited downside on the ROE.

Rising Capex: Capital expenditures are forecasted to rise to approximately
$4.3 billion over the three-year period 2013-2015, compared to $3.3 billion in
the prior three-year period. The higher outlays are primarily driven by the
Illinois Energy Infrastructure Modernization Act (EIMA), which requires Comed
to invest an incremental $1.3 billion on electric system upgrades over five
years and an additional $1.3 billion for smart grid deployment over 10 years.
The legislation provides for recovery through the FRP filings.

Commodity Price Exposure: Ratings benefit from the absence of commodity price
exposure and the associated cash flow volatility.

Liquidity: A $1 billion unsecured credit facility provides ample liquidity.
Annual debt maturities will require on-going capital market access.

Like-Kind-Exchange: Comed's exposure to the IRS's disallowance of the tax
benefits associated with a like-kind-exchange is a credit concern, however the
issue is not likely to be resolved for several years and was not factored into
the rating decision. As of Jan. 28, 2013, EXC's potential tax and after-tax
interest that could become payable, excluding penalties, is $860 million, of
which $260 million would be paid by Comed.

PECO

Financial Position: Historical and projected credit measures are well in
excess of Fitch's target ratios for the current rating category and the
companies' peer group of 'BBB+' distribution utilities. In 2013, Fitch
estimates EBITDA/interest of approximately 7.0x, FFO/interest 5.0x and
FFO/Debt about 20%.

Regulatory Environment: In February 2012, HB 1294 was signed into law. The
legislation is intended to encourage utilities to invest in infrastructure by
providing cost recovery through an automatic adjustment mechanism. Under the
law, utilities will file a long-term infrastructure improvement plan starting
in 2013 and the Pennsylvania Public Utility Commission (PUC) will establish a
distribution system investment charge (DSIC) to recover the invested capital.
The DSIC will be updated quarterly. The new legislation also allows rate
filings to include fully forecasted test years, significantly reducing
regulatory lag.

Commodity Price Exposure: Ratings benefit from the absence of commodity price
exposure and the associated cash flow volatility.

BG&E

Financial Position: The BG&E rating reflects historical and projected credit
measures that are consistent with the rating category. In 2013, Fitch
estimates EBITDA/interest of approximately 5.5x, FFO/interest 4.5x and
FFO/Debt about 20%.

Regulatory Recovery Mechanisms: Rate adjustment mechanisms outside of base
rate cases tend to stabilize BG&E's on-going cash flow. These include
decoupling for both residential and certain commercial gas and electricity
deliveries and purchased gas and purchased power recovery mechanisms.

Regulatory Environment: The regulatory environment in Maryland remains
challenging largely due to regulatory lag and the authorization of equity
returns that are among the lowest in the industry. The MPSC has been resistant
to adopting forward looking test years or other approaches to shorten
regulatory lag.

Rate Filing: On July 27, 2012, BG&E filed a request with the MPSC for electric
and gas distribution rate increases. Including updates during the rate
proceedings the electric and gas rate requests were $130.1 million and $45.6
million, respectively. The increases are premised on a 10.5% return on equity
(ROE). A decision is required in February 2013.

RATING SENSITIVITIES

What could trigger a negative rating action:

--Lack of rate support for utility infrastructure investments or changes in
the commodity cost recovery provisions in Illinois, Pennsylvania or Baltimore.

--More aggressive growth strategy that increased business risk and/or
leverage.

--Sustained nuclear outage.

--Increase in risk appetite as evidenced by change in hedging strategy at
Exgen.

What could trigger a positive rating action:

--Other than an unexpected change in business strategy (i.e. additional
sources of regulated earnings and cash flow), positive rating action at parent
is unlikely at the present rating level.

--For Comed, a constructive decision in Comed's next FRP proceeding that
supports infrastructure investments and strengthens cash flow could lead to a
one-notch upgrade.

Fitch has affirmed the following ratings with a Stable Outlook:

Exelon Corp.

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured debt at 'BBB+';

--Junior Subordinated Notes at 'BBB-'

--Commercial paper at 'F2';

--Short-term IDR at 'F2'.

Exelon Generation Co., LLC

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured debt at 'BBB+';

--Commercial paper at 'F2';

--Short-term IDR at 'F2'.

PECO Energy Co.

--Issuer Default Rating (IDR) at 'BBB+';

--First mortgage bonds at 'A';

--Senior unsecured debt at 'A-';

--Preferred stock at 'BBB';

--Commercial paper at 'F2';

--Short-term IDR at 'F2'.

PECO Energy Capital Trust III

--Preferred stock at 'BBB'.

PECO Energy Capital Trust IV

--Preferred stock at 'BBB'.

Baltimore Gas and Electric Company

--Issuer Default Rating (IDR) at 'BBB;

--First mortgage bonds at 'A-';

--Senior unsecured debt at 'BBB+';

--Pollution Control Bonds at 'BBB+'

--Preferred stock to at 'BBB-';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Fitch has affirmed the following ratings with a Positive Outlook:

Commonwealth Edison Company

--Issuer Default Rating (IDR) at 'BBB-;

--First mortgage bonds at 'BBB+';

--Senior unsecured debt at 'BBB';

--Preferred stock at 'BB+';

--Short-term IDR at 'F3';

--Commercial paper at 'F3'.

ComEd Financing Trust III

--Preferred stock at 'BB+'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011)

--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 12, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693750

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
Robert Hornick, +1-212-908-0523
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Shalini Mahajan, +1-212-908-0351
Director
or
Committee Chairperson
Philip Smyth, CFA, +1-212-908-0531
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
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