Fitch Affirms ConEd & Subsidiaries at 'BBB+'; Outlook Stable

Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and debt ratings of Consolidated Edison Inc. (NYSE: ED) and its subsidiaries Consolidated Edison Company of New York, Inc. (CECONY), Orange & Rockland Utilities, Inc. (ORU), and Rockland Electric Company (RECO). Fitch has also affirmed the ratings of the New York State Energy Research and Development Authority's (NYSERDA) issued debt of which CECONY and ORU are the obligors. The Rating Outlook for all entities is Stable. A complete list of rating actions follows at the end of this release.

ED's ratings reflect the low-risk business profile of its two regulated transmission and distribution (T&D) utility subsidiaries, and the financial strength of its largest subsidiary CECONY. The ratings also recognize that credit metrics will be slightly below Fitch's benchmark ratios over the next several years due to high utility capex and a base rate freeze at CECONY until 2016. In addition, parent-level debt is minimal.

CECONY's ratings are driven by the stable earnings from its regulated electric and gas delivery businesses and a relatively balanced regulatory compact in New York. The ratings also recognize that credit metrics will be under pressure over the next several years due to an unfavourable outcome in the last rate proceeding, ongoing base rate freeze until 2016, and high levels of capex that will require sizeable external financing. Fitch forecasts CECONY's projected credit metrics to fall toward the lower range of the current rating level. Event risk from pending investigations into the East Harlem gas explosion and contractor investigations by the New York Public Service Commission (NYPSC) is also a concern. However, management believes insurance proceeds are sufficient to cover its exposure, although Fitch has not been able to verify the extent of the insurance coverage.

ORU's ratings reflect the financial stability and predictability provided by a multi-year electric rate plan in its New York jurisdiction that expires in June 2015. Due to high capex projected through 2016, credit metrics are expected to fall slightly below Fitch's benchmark ratios for the current rating level. The ratings also reflect the earnings contributions from ORU's two T&D utility subsidiaries RECO and Pike County Light & Co. (Pike), operating in the regulatory jurisdictions of New Jersey and Pennsylvania, respectively.

The ratings alignment between ED and CECONY is reflective of strong financial ties within the corporate family. CECONY represented approximately 92% of consolidated EBITDA and 96% of consolidated net income at Dec. 31, 2013, and ED's credit quality is largely dependent of CECONY's financial profile.

The ratings alignment between ORU and ED is reflective of the small size of the utility within the corporate family and the benefit of ownership by a large parent which can provide financial support to ORU if needed. ORU represented 5% of consolidated EBITDA and net income at Dec. 31, 2013. RECO's ratings are reflective of ORU's credit quality.

KEY RATING DRIVERS

Low-Risk Business Model: ED's ratings reflect the predictable cash flows of CECONY and ORU and the financial support it receives from them in the form of dividends for the payment of corporate expenses, dividends to common shareholders, and for other business matters.

Balanced Regulatory Compact: New York utilities benefit from constructive regulatory mechanisms that include full and timely recovery of fuel and commodity costs, forward-looking test years, multi-year rate plans, trackers for large operating expenses, and a revenue decoupling mechanism that isolates net margins from variation in sales.

CECONY's most recent rate decision resulted in a two-year electric base rate freeze through December 2015, and a three-year gas and steam base rate freeze through December 2016. The rate order was more punitive than Fitch's expectation. In Fitch's view, the intense public scrutiny and political backlash that surrounded the case in the aftermath of Hurricane Sandy heavily weighted in the outcome of the rate case and was not, by itself, representative of a more challenging regulatory framework.

The NYPSC's REV proceeding was not a factor in the ratings. Fitch will continue to monitor the progress of the proceeding, which could lead to fundamental changes to the New York regulatory paradigm and rate design. By closely aligning state energy policy goals with utility regulation, the REV framework could minimize the political interference and public scrutiny that have characterized some of CECONY's rate cases in recent years, in Fitch's opinion. Implementation of the REV framework may also lead to greater regulatory predictability and reduced rate case frequency through design of rate plans that span over multiple years, in Fitch's view. The REV proceeding is running on two tracks, one focusing on policy issues, and a second one focusing on regulatory and rate making matters. Policy determinations are expected to be completed in Q2 2015.

Event Risk: Fitch is unable to predict at this time CECONY's potential cash flow exposure associated with the East Harlem gas explosion. On March 12, 2014, an explosion and related fire in East Harlem led to the collapse of two buildings. Eight people died and more than 48 were injured. The NYPSC is also conducting a separate investigation. Although no specific timeline has been established, Fitch would expect the NTSB to release a final report in Q1 2015. Management believes insurance policies in force at the time of the incident will cover the company's costs to satisfy any liability it may have for damages connected to the incident. Fitch's base case projections do not reflect any financial exposure associated with this incident.

The ratings assume no material cash flow effect from the NYPSC's prudence review of certain expenditures following the arrest of employees related to allegations of contractor kickbacks. A NYPSC consultant has estimated total overcharges of $208 million for CECONY. At June 30, 2014, the utility had booked a regulatory liability of $37 million, based on its own estimate of potential cash flow exposure. CECONY is exploring a settlement with the NYPSC staff. In its Base Case projections, Fitch has assumed CECONY refunds approximately $40 million to customers in 2016.

Elevated Capex: Management expects consolidated capex to amount to approximately $8.71 billion over 2014-2016, including $7.05 billion, or 81% of total, at CECONY, $460 million, or 5% of total, at ORU, and $1.19 billion, or 14% of total, at the competitive energy businesses. By comparison, consolidated capex amounted to approximately $7.2 billion spent over 2011-2013. Utility capital spending is earmarked primarily towards replacement of aged infrastructure, enhancement of network reliability, and system expansion, including heating oil to gas conversions of residential and commercial buildings in New York City, which management projects will support gas peak growth of 2.8% over the next five years.

Utility capex also includes approximately $1,000 million of storm hardening projects through 2016, with CECONY representing nearly 95% of total costs. Infrastructure investment spending at CECONY includes, as part of the Indian Point Contingency plan, approximately $369 million of transmission projects that are expected to be in service sometime in 2016 and 2017, with cost recovery to be determined in a future FERC proceeding. Capex at the competitive energy businesses is allocated primarily towards utility-scale solar projects.

Fitch expects ED's internally generated cash flows (after dividends) to support on average between 60% and 70% of consolidated capital spending over the forecast period, with the balance funded primarily with debt.

Credit Metrics Trending Downwards: Fitch projects consolidated credit metrics to weaken over 2014-2016, driven primarily by the rate freeze at CECONY, elevated capex that requires sizeable debt financing, and expiration of bonus depreciation that depresses cash flow measures. Fitch projects ED's FFO-fixed charge coverage ratio to average near 4.8x and adjusted debt/EBITDAR, 3.8x, over 2014-2016. FFO-adjusted leverage ratio is projected to average near 4.3x over the same time frame. For the LTM period ended June 30, 2014, FFO-fixed charge coverage ratio was 5.8x and adjusted debt/EBITDAR, 3.7x.

Fitch forecasts CECONY's FFO-fixed charge coverage ratio to average near 4.8x, and adjusted debt/EBITDAR, 3.6x, over the forecast period. FFO-adjusted leverage ratio is forecasted to average near 4.2x. For the LTM period ended June 30, 2014, FFO-fixed charge coverage was 5.9x and adjusted debt/EBITDAR, 3.7x. CECONY's ability to successfully control operating costs during the rate freeze period will be critical towards maintaining the existing rating level. Fitch believes CECONY will be filing an electric rate case sometime in 2015for new rates to be effective Jan. 1, 2016. CECONY's success in receiving a balanced rate outcome will also be critical towards maintaining the current ratings.

ORU's FFO-fixed charge coverage ratio is forecasted to average 4.5x, and adjusted debt/EBITDAR, 3.4x, over the next three years. FFO-adjusted leverage ratio is forecasted to average near 4.2x over the same time frame. For the LTM period ended June 30, 2014, FFO-fixed charge coverage was 4.6x and adjusted debt/EBITDAR, 3.7x. ORU's financial performance is primarily driven by rate increases stemming from the multi-year rate plan and incremental leverage to support rising capex.

Adequate Liquidity: Group liquidity is supported by a $2.250 billion shared bank credit facility that expires in October 2017. At June 30, 2014, there was $772 million of available consolidated liquidity, including $670 million of unused facilities and $102 million of cash and cash equivalents. Consolidated debt maturities are considered manageable with $489 million due in 2015, $725 million due in 2016, and $1,250 million due in 2018.

RATING SENSITIVITIES

ED

Given the limited headroom in credit metrics for the current rating category, no positive rating action is anticipated in the near term.

Future developments that may, individually or collectively, lead to a negative rating action:

--Given the strong financial ties, a significantly weaker financial performance than currently projected by Fitch at CECONY;

--FFO adjusted leverage greater than 5.0x and adjusted debt/EBITDAR greater than 4.25x on a sustained basis.

CECONY

Given the limited headroom in credit metrics for the current rating category, no positive rating action is anticipated in the near term.

Future developments that may, individually or collectively, lead to a negative rating action:

--A significant deterioration in the New York regulatory compact illustrated by another less than favorable rate decision in CECONY's next rate proceeding;

--An adverse outcome associated with the investigation of the East Harlem gas explosion;

- A customer refund resulting from the NYPSC's prudence investigation of prior contracting practices that is materially higher than Fitch's current expectation. At June 30, 2014, CECONY had collected an estimated $1,531 million from customers subject to potential refund;

--FFO-adjusted leverage greater than 5.0x and adjusted debt/EBITDAR greater than 4.25x on a sustained basis.

ORU

No positive rating actions are anticipated in the near term.

Future developments that may, individually or collectively, lead to a negative rating action:

--A negative rating action at ED;

--Unfavorable rate outcomes in ORU's future rate proceedings in New York;

--FFO-adjusted leverage greater than 5.0x and adjusted debt/EBITDAR greater than 4.25x on a sustained basis.

Fitch has affirmed the following ratings with a Stable Outlook:

ED

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

CECONY

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Commercial paper at 'F2';

--Senior unsecured debt at 'A-'.

ORU

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2'.

--Commercial paper at 'F2';

--Senior unsecured debt at 'A-'.

RECO

--Long-term IDR at 'BBB+'.

NYSERDA

--Issues relating to CECONY projects at 'A-';

--Issues relating to ORU projects at 'A-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (Aug. 5, 2013);

--'Rating U.S. Utilities, Power and Gas Companies' (March 11, 2014);

--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 19, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=904634

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