OREANDA-NEWS. The rate settlement reached by Consolidated Edison Co. of New York, Inc. (CECONY), the New York Public Service Commission (NYPSC) Staff, and various other parties, which results in an extended base rate freeze through 2016 for CECONY, has no immediate impact on its ratings and Stable Outlook, according to Fitch Ratings. However, in the absence of near-term rate relief, the settlement does raise concerns regarding CECONY's ability to retain cash flow levels that result in credit metrics supportive of the existing 'BBB+' Issuer Default Rating (IDR), in Fitch's view.

Under the Joint Proposal (JP), which is subject to the NYPSC approval, the rate plan for 2016 leaves base rates unchanged. CECONY will be allowed to continue the use of a revenue decoupling mechanism and trackers that provide recovery of fuel, pension and property tax expenses, and storm costs, including collection from customers on an annual basis of \$81 million related to Superstorm Sandy. The JP stipulates an authorized ROE of 9%, which is significantly below national average, and below the 9.2% ROE authorized in CECONY's most recent rate case.

Under the terms of the JP, CECONY will amortize to revenue an additional \$123 million of regulatory liabilities that were slated to be returned to customers as bill credits, which somewhat mitigates the negative cash flow effect of the extended rate freeze on CECONY's financial profile.

Fitch believes CECONY's next rate filing to be subject to heightened regulatory risk. Given the prolonged rate freeze, CECONY's rate request to recover incremental capex could be sizeable and would likely face rate payer or political push back. Furthermore, ongoing developments associated with the implementation of the Reform the Energy Vision (REV) paradigm could influence the outcome of the next rate proceeding. The REV framework could lead to fundamental changes to New York rate design, including the manner in which New York utilities are allowed to recover capital investments.

Fitch forecasts FFO-adjusted leverage and FFO fixed-charge coverage to approximate 4.7x and 4.1x, respectively, in 2016, moderately lower than prior projections. The projected credit metrics provide little room at the existing 'BBB+' IDR and CECONY's continued ability to efficiently control O&M during the rate freeze will be an important factor to the financial profile. Event risk associated with the NYPSC's review of past capital expenditures and the Harlem gas explosion also weigh on the ratings.