Fitch Ratings affirms the outstanding ratings for Central Hudson Gas &
Electric (CHG&E) as follows:
--Issuer default rating (IDR) at 'A-';
--Senior Unsecured at 'A';
--Preferred Stock at 'A-';
--Short Term at 'F1'.
The Rating Outlook is stable.
The ratings reflect CHG&E's low business risk profile and adequate
credit metrics for the company's current rating category. The low
business risk assessment results from the limited commodity price
exposure of the company's regulated transmission and distribution
business. Commodity price exposure is mitigated by a combination of
contractual arrangements, owned generation, daily purchases and a
monthly fuel adjustment clause. Fixed price multi-year purchase power
contracts with Entergy Nuclear and Constellation Energy Group account
for 30% of the utility's supply obligation and CHG&E owned hydro
facilities and IPP and hedging contracts 40%, with the remaining supply
needs purchased on the NYISO day-ahead and real-time markets. An
automatic, monthly fuel adjustment clause allows the full pass through
of fuel and purchased power costs to customers. The impact of slower
sales growth on credit quality measures is a credit concern that could
impair ratings if not adequately addressed in a pending rate case. Sales
growth has fallen below levels forecasted in the company's last rate
agreement due to higher power costs, a slowing economy and energy
conservation efforts in the service territory.
Future credit quality will be largely dependent the outcome to the
company's recent rate filing. In July 2008, CHG&E filed an electric and
natural gas rate case with the New York Public Service Commission
(NYPSC), to be effective in July 2009, following the expiration of the
company's existing three-year rate settlement, which included annual
rate increases. CHG&E has requested one-year electric and gas rate
increases of $35.4 million (3.5%) and $14.7 million (8%), respectively,
based on a ROE of 10.25% and an equity ratio of 48%. The rate filing
includes a one-time $21.1 million rate moderator that effectively
reduces the electric distribution rate increase request to $14.2
million. The rate moderator reflects a refund to customers of prior
excess depreciation expenses. The filing also includes a proposal to
implement a number of energy efficiency programs and Revenue Decoupling
Mechanisms (RDM) for electric and gas delivery revenues. The primary
factors contributing to the need for an increase in rates include lower
gas and electric sales, inflationary pressures, and the on-going need
for electric and natural gas system infrastructure improvements.
CHG&E is a subsidiary of CH Energy Group and is a regulated electric
transmission and distribution (T&D) utility providing electric and gas
services to 292,800 and 70,700 customers, respectively, in the Central
Hudson River region of New York State. In addition to delivering
electricity and natural gas, Central Hudson procures supplies of
electricity and natural gas for a majority of its customers. In 2007,
CHG&E contributed approximately 65% of consolidated CH Energy revenue.
The remaining 35% came from Central Hudson Enterprises Corp. (CHEC) that
includes CH Energy's non-regulated business, including fuel distribution
and related services and some equity investments in renewable energy
ventures.
Fitch's rating definitions and the terms of use of such ratings are
available on the agency's public site, 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.
Fitch Ratings
Jill Schmidt, 212-908-0644
Robert Hornick,
212-908-0523
Cindy Stoller, 212-908-0526 (Media Relations)
