Fitch Affirms Connecticut Natural Gas and Southern Connecticut Gas.

NEW YORK -- Fitch has affirmed the ratings of Connecticut Natural Gas Company (CNG) and Southern Connecticut Gas Company (SCG) (as shown below). The Rating Outlook for both these companies is Stable.

The affirmation of the ratings of CNG reflects the company's low business risk profile and strong credit metrics. CNG is a pure gas distribution company that benefits from full recovery of purchased gas costs. These costs are adjusted monthly to reflect the actual cost of gas and are reviewed semi-annually by the Connecticut Department of Public Utilities (DPUC) on an after-the-fact basis. Although CNG has been operating under a rate freeze since October 2001, the company has demonstrated a consistent ability to manage operating costs. The rate freeze period will expire at the end of September 2005.

Similar to the situation of its sister company CNG, the affirmation of SCG's ratings also reflects the company's its low business risk profile and credit metrics which are reasonable for the ratings category. In addition to a gas cost recovery clause that is adjusted monthly, SCG benefits from a weather normalization clause.

SCG recently applied to the DPUC to recover $20 million of costs in an exogenous costs proceeding. The largest portion of this application ($11.6 million) was related to accelerated recovery of hardship arrearages. Such arrearages are deferred for future recovery. SCG has a tracker that permits recovery of $3.9 million annually of hardship arrearages. However, the high cost of gas which has persisted over the last two years has resulted in this deferral balance growing. In denying SCG's application to increase the tracker amount, the DPUC pointed out the increase in deferrals was not an exogenous event (i.e. unanticipated and out of the company's control). Moreover, the DPUC stressed that the issue is one of timing and that SCG earns a return on that balance. While in general, a growing deferral balance is a source of concern, Fitch notes that the amount involved (less than $2.5 million per year) should not place a severe stress on SCG's cash flows. Moreover, Fitch also notes that SCG's current rate agreement expires at the end of September 2005 and the company will be free to seek an increase in the recovery amount in a rate proceeding thereafter.

Both CNG and SCG are wholly-owned subsidiaries of Energy East Corporation (Energy East), a utility holding company primarily involved in the delivery of electricity and natural gas. Energy East's regulated electricity operations involve the transmission, distribution, and generation of electricity in upstate New York and Maine. Its regulated gas operations involve transportation, storage, and distribution operations in upstate New York, Connecticut, Maine, and Massachusetts. The company serves 1.8 million electricity customers and 900,000 natural gas customers.

The following ratings are affirmed by Fitch:

Connecticut Natural Gas Company

-- Senior unsecured debt 'A-';

-- Medium term notes 'A-'.

Southern Connecticut Gas Company

-- First mortgage bonds 'A';

-- Medium-term notes 'A-'.