Fitch Rates PECO Energy's $350MM First Mortgage Bonds 'A'

  Fitch Rates PECO Energy's $350MM First Mortgage Bonds 'A'

Business Wire

NEW YORK -- September 17, 2013

Fitch Ratings has assigned an 'A' rating to PECO Energy Co.'s (PECO)
dual-tranche debt offering consisting of $300 million first and refunding
mortgage bonds (FRMBs), 1.20% series due Oct. 15, 2016 and $250 million FRMBs
4.8% Series due Oct. 15, 2043. The Rating Outlook is Stable. The bonds rank
equally with all existing and future secured debt obligations. Net proceeds
will be used to pay at maturity $300 million 5.60% first mortgage bonds due
Oct. 15, 2013 and for general corporate purposes.

Key Rating Drivers

Strong Credit Profile: Historical and projected credit measures are strong and
well in excess of Fitch's target ratios for the current rating category and
the companies' peer group of 'BBB+' rated distribution utilities. Over the
next few years Fitch estimates EBITDA/interest and funds from operations
(FFO)/interest will average more than 7.0x and 6.0x, respectively, FFO/Debt
more than 20% and debt/EBITDA less than 3.0x. The strong performance reflects
expectations of timely rate recovery and moderate debt financing.

Alternative Regulatory Model: Fitch considers the regulatory legislation
enacted in Pennsylvania in February 2012 (HB 1294) to be supportive of credit
quality. Under the law, utilities are required to file a long-term
infrastructure improvement plan and the Pennsylvania Public Utility Commission
(PUC) will establish a distribution system investment charge (DSIC) to provide
timely recovery of the invested capital. The DSIC will be updated quarterly.
The legislation further reduces regulatory lag by allowing traditional rate
filings to include fully forecasted test years.

Manageable Capital Spending: PECO expects to invest approximately $1.6 billion
over the next three years, moderately higher than the $1.4 billion expended in
the prior three years. The rise is primarily attributable to the installation
of advanced meters and a smart grid. The expenditures equate to about 2.2x
depreciation and amortization, which approximates the industry average. Fitch
expects approximately 80% of the three-year capital budget to be funded with
internal sources of cash.

Low Business Risk: Ratings and credit quality benefit from the absence of
commodity price exposure and the associated cash flow volatility. PECO retains
the provider of last resort obligation for customers that do not choose an
alternative energy provider, but recovers its energy supply costs from
customers through a monthly fuel adjustment mechanism. The new regulatory
paradigm in Pennsylvania also reduces business risk.

Demand Reduction: Pennsylvania Act 129 (Act 129) requires Pennsylvania
utilities to reduce electric consumption with the companies absorbing the
associated revenue loss. PECO met the initial 1% consumption reduction target
for 2011 and the 3% reduction by May 31, 2013. Act 129 also requires the
installation of smart meter technology and the implementation of time of use
rates and real time price plans. Importantly, Act 129 provides a surcharge
mechanism to recover the implementation costs (other than lost sales) on a
timely basis.

Rating Sensitivities

Regulatory Changes: Lack of rate support for utility infrastructure
investments or a change in the commodity cost recovery mechanism in
Pennsylvania would adversely affect PECO's ratings.

Parent Risk Profile: An increase in parent company Exelon Corp.'s leverage or
risk profile could adversely affect PECO's ratings.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 12, 2011

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

--'Rating North American Utilities, Power, Gas and Water Companies' (May 12,
2011).

Applicable Criteria and Related Research:

Rating North American Utilities, Power, Gas, and Water Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

Recovery Ratings and Notching Criteria for Utilities

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

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=802289

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Contact:

Fitch Ratings, Inc.
Primary Analyst
Robert Hornick, +1-212-908-0523
Senor 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
Glen Grabelsky, +1-212-908-0977
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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