OREANDA-NEWS. Fitch Ratings has assigned an 'A-' rating to Commonwealth Edison Co.'s (Comed) new \$400 million 3.7% issue of first mortgage bonds series 118 due 2045. The Rating Outlook is Stable.

Proceeds will be used to refinance at maturity \$260 million 4.7% first mortgage bonds due April 15, 2015 and the remainder to repay a portion of outstanding commercial paper and for general corporate purposes. As of Feb. 19, 2015, outstanding commercial paper was \$579 million.

KEY RATING DRIVERS

Strong Credit Metrics: Higher rates effective Jan. 1, 2015 and a formula rate plan (FRP) that allows for annual rate adjustments each January should allow Commonwealth Edison Co. (Comed) to sustain its currently sound financial position over the next few years. Fitch estimates Debt/EBITDAR and FFO leverage will average about 3.7x and 4.0x, respectively and FFO fixed charge coverage 4.60x over the next several years, which is consistent with the current rating level.

Regulatory Predictability: The FRP implemented in October 2011 provides increased regulatory predictability in Illinois. Instead of periodic rate filings delivery service rates are set annually. Although the FRP relies on an historical test year, it does include post-test year net plant additions and a true-up of the previously allowed revenue requirement. Importantly, the FRP established the data provided in the company's most recently filed FERC Form 1, including the capital structure, as the appropriate cost of service, sets protocols for several items that had been contentious in past rate cases and relies on a legislatively set return on equity (ROE) minimizing disputes. FRP was enacted into law by the Illinois Energy Infrastructure Modernization Act (EIMA).

Recent Rate Decision: In December Comed was granted a \$232.8 million base rate increase effective Jan. 1, 2015. The increase equated to 84% of the company's rate request. A portion of the disallowed revenue will be recovered through other rate adjustment mechanisms. It was Comed's fourth FRP adjustment. The increase was based on a 9.25% ROE reflecting the average rate on the 30-year treasury notes plus 580 basis points (bp) as required by the FRP legislation.

Limited Commodity Price Exposure: Ratings and credit quality benefit from the absence of commodity price exposure, which limits cash flow volatility and reduces business risk. Comed's energy supply costs are recovered from customers through a monthly fuel adjustment mechanism.

Rising Capex: Capital expenditures are forecasted to rise to approximately \$6 billion over the three-year period 2015 - 2017, compared to \$4.4 billion in the prior three-year period. The higher outlays are primarily driven by the 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. The capex also reflects approximately \$1.3 billion in transmission expenditures, which are subject to credit supportive Federal Energy Regulatory Commission (FERC) regulatory policies.

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. As of Sept. 30, 2014, Comed's potential tax and interest that could become payable, excluding penalties, is \$310 million.

RATING SENSITIVITIES

Positive: Continuation of constructive outcomes in FRP filings that drive debt/EBITDAR below 3.6x and FFO fixed charge coverage above 4.65x on a sustainable basis could lead to higher ratings.

Negative: Lack of rate support for infrastructure investments or changes in the commodity cost recovery provisions could lead to lower ratings.