Moody's cuts BGE debt rating

Downgrade is linked to rate relief


Moody's Investors Service downgraded the credit rating of Baltimore Gas and Electric Co. yesterday in response to concerns about the Maryland legislature's recent actions to soften the blow of a 72 percent rate increase and fire the state's five-member utility commission.

This is the second time this year the major credit ratings agency has downgraded BGE's debt in response to the political furor over rising electric rates.

The reaction by Wall Street will likely have the effect of raising electric rates even further by forcing BGE to pay more to borrow money - an expense that is typically passed on to consumers.

The rating was lowered one step to Baa2 from A3. Approximately $4.8 billion of debt is affected by the change. The rating had been lowered from A2 in April. The debt rating for BGE's corporate parent, Constellation Energy Group Inc., was unchanged.

BGE officials were surprised by Moody's decision, saying the legislation allows the utility to recover all of its borrowing costs associated with the rate phase-in plan. "Today's downgrade represents an unfortunate overreaction that fails to recognize the essential cost recovery safeguards for BGE and Constellation Energy included in [the state Senate bill]," said Rob Gould, a spokesman for the utility.

Throughout months of debate over electric rates in the legislature, Moody's and two other major credit reporting agencies have repeatedly expressed concern over what they deem a deteriorating regulatory environment in Maryland that could financially damage utilities.

Lawmakers dismissed the warnings and opted to go ahead with a bill that will require BGE to borrow hundreds of millions of dollars to finance rate deferrals and give back upward of $380 million in revenue in the next 10 years.

That BGE debt is guaranteed through a mechanism called securitization in which customers will pay an average monthly fee of $2.19 based on usage.

The utility's financial performance will be significantly weaker for at least the next 18 months because of substantial regulatory deferral of recovery of sharply higher costs of purchased power, Moody's said in announcing the downgrade.

In downgrading the utility, Moody's expressed concern that lawmakers and a reconstituted regulatory commission could take further actions against BGE that could harm the utility.

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