Fitch Upgr PSNH & NAEC; PSNH Raised To Investment Grade.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 4, 2000

Fitch has upgraded ratings of Public Service Co. of New Hampshire (PSNH) and North Atlantic Energy Corp. (NAEC) following the recent passage of enabling legislation for securitization and the New Hampshire Public Utilities Commission's (PUC) approval of the restructuring settlement agreement and financing order.

The PUC's final order resolves electric restructuring and rate related issues. The rating upgrade is based upon Fitch's view that the PUC orders will not materially change as a result of potential appeals.

The new ratings are as follows:

PSNH: -- outstanding secured pollution control bonds are raised to 'BBB-'

from 'BB';

-- preferred stock to 'BB+' from 'B+'.

NAEC: -- first mortgage bonds are upgraded to 'BB+' from 'BB-'.

With the upgrades, both PSNH and NAEC are removed from Rating Watch Positive status. PSNH's Rating Outlook is Positive, while NAEC's Rating Outlook is Stable. As a result of this action and NU's pending merger agreement with Consolidated Edison, Inc. ('A' senior unsecured rating), the ratings for NU and its other utility subsidiaries, Western Massachusetts Electric Co. and Connecticut Light & Power Co., are all under review and on Rating Watch Positive.

New Hampshire's enactment of state legislation SB472 on June 12, 2000 and the PUC approved restructuring settlement and securitization financing orders of Sept. 8, 2000, conclude the four-year battle over electric restructuring in the state and the treatment of PSNH's stranded costs. Pursuant to the legislation and the order, PSNH is eligible to recover the majority of its stranded costs, or approximately $900 million of the nearly $1.3 billion, as of June 30, 2000. Up to $600 million of the stranded costs are related to PSNH's long-term contract to purchase Seabrook nuclear power from its affiliate NAEC. PSNH is expected to securitize a significant part of this amount and use the proceeds to prepay and reduce its contractual payment to NAEC. In addition, PSNH can securitize another $130 million related to long-term purchased rate orders for a few small independent power producers. PSNH must also divest all its generation resources -- including the NAEC power supply contract -- and is required to apply any net gains toward reducing stranded costs.

Retail choice will not begin for PSNH customers until after the securitization bonds are issued. The transition service (standard offer) period will last up to 33 months from the retail competition start date. After that transition, PSNH is no longer obligated to procure power for its customers. However, during the standard offer period, generation and distribution rates are capped at 4.4-4.6 and 2.93 cents per kwh, respectively, and the fuel/purchased power adjustment mechanism is eliminated. As the provider-of-last-resort, PSNH will be exposed to some power supply pricing and volume risk during the transition service period. This risk is partially mitigated by the utility's ability to use its own power resources for the first nine months of the transition. However, thereafter its generating assets are expected to be sold, and PSNH could face commodity price risk for the final two years of the transition. PSNH must absorb the first $7 million of purchased power costs potentially in excess of the generation rate cap, and can defer the recovery of remaining costs as Part 3 stranded costs (estimated at $345 million as of June 30, 2000).

PSNH is mandated to provide customers a 16% rate reduction (approximately $120 million annually) at the start of retail access and a pretax writeoff of $367 million for unrecoverable stranded costs. PSNH's high stranded cost recovery, lower political and regulatory risk and reduced purchased power obligations are expected to more than offset the adverse effects of the revenue reduction. Credit protection measures, which have steadily improved since 1997, are projected to remain strong through 2004. Leverage will drop to 55% of total capitalization, from 61% at June 30, 2000, and EBITDA interest coverage should exceed 5.0 times (x) through 2004. Depending on the results of the asset sales and PSNH's management of the power supply commodity risk, the distribution utility's ratings could be upgraded again within the next two years.

The upgrade of NAEC's rating reflects opportunity that NAEC will have to reduce total debt outstanding substantially with the proceeds of a payment from PSNH (to be funded through the issuance of securitization bonds).

PSNH is an integrated electric utility and the largest electricity distributor in New Hampshire. The company is wholly owned by Northeast Utilities, Inc. NAEC is a special-purpose operating subsidiary of Northeast Utilities (NU), and owns a 35.98% interest in the Seabrook nuclear plant, which is sold in its entirety to PSNH (430 mw) under two life-of-unit, full-cost recovery contracts.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.