Fitch has revised the Rating Outlook for Monongahela Power Co. (Mon Power; Fitch rated IDR of 'BBB-') to Negative from Stable, and affirms the existing ratings, following the company's announcement on Sept. 8 of an increase in the estimate of costs of constructing scrubbers at its Fort Martin plant from $338 million to a range of $500 million to $550 million. The ratings and Rating Outlook of Mon Power's parent company, Allegheny Energy, Inc. (IDR 'BB+') are not affected.
Fitch's Stable Outlook for Mon Power was based on the expectation of an improvement in credit ratios as a result of the implementation of a requested base rate increase and the original $338 million scrubber cost estimate. The ratio of debt-to-EBITDA of 4.6 times (x) for the 12 months ended June 30, 2006 is weak for the existing ratings category and incorporated Fitch's expectation of a balanced outcome in the pending $100 million base rate increase request. The uncertainty as to the level of recovery of these incremental Fort Martin capital expenditures and possibility that these costs could be on-balance-sheet debt financed reduces the probability that credit metrics will come in line with the current ratings category over the one- to two-year Rating Outlook horizon.
Mon Power received an order from the West Virginia Public Service Commission (WVPSC) that permits recovery of $338 million of the emission control equipment for the Fort Martin facility through a securitization transaction that authorizes collection of an environmental control charge on April 10, 2006. Fitch expects the company to file a request with the WVPSC for the recovery of the estimated $162 million-$212 million of incremental costs by financing these expenses through additional securitized debt. Inadequate or delayed rate relief for the recovery of the scrubber and other costs and lack of improvement in credit metrics would put downward pressure on ratings. Allegheny Power filed for a base rate increase on July 26, 2006 of $100 million (annualized), primarily due to the significant rise in the cost of fuel used to generate electricity. See Fitch's Credit Analysis for the company dated July 19, 2006 for additional information.
Monongahela Power Co. is a vertically integrated electric utility subsidiary of Allegheny Energy, Inc. (AYE) that serves West Virginia under the trade name, Allegheny Power. Mon Power owns interests in mainly coal-fired generating capacity totaling 2,136MW (megawatts) and serves approximately 374,000 electric customers.
Monongahela Power Company:
-- Rating Outlook revised to Negative:
Fitch affirms the following:
-- Issuer Default Rating 'BBB-';
-- First mortgage Bonds 'BBB+';
-- Senior unsecured notes 'BBB-';
-- Preferred securities 'BB+'.