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MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY (MMWEC) BOND RATING SUSPENSION LIFTED; CREDIT POSITION NOW IMPROVED

    MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY (MMWEC) BOND
        RATING SUSPENSION LIFTED; CREDIT POSITION NOW IMPROVED
    NEW YORK, Jan. 20 /PRNewswire/-- With the apparent resolution of long-standing litigation relating to the validity of MMWEC's power sales agreements, Moody's is now reinstating and raising the rating on MMWEC's power supply revenue bonds to Baa1.  Its prior Baa rating was suspended in August 1988 due primarily to this litigation.  Despite MMWEC's litigious history, the rating recognizes court-affirmation of contract validity, now operational status of Seabrook Nuclear Station, and Moody's current evaluation of the MMWEC participants.  Additionally, a planned refunding is expected to generate significant savings, further diminishing the likelihood of future disharmony among MMWEC members.
    MMWEC's current credit position is now markedly different from its credit standing when the suspension occurred.  First, favorable court rulings regarding the Seabrook Nuclear Station (Project 6) contracts put to rest questions concerning bondholder security, a credit feature fundamental to the rating.  The Hudson and Peabody Light Departments had vigorously challenged the validity and step up provisions of the Project 6 power sales agreements in the Massachusetts courts on various legal grounds.  On Dec. 31, 1991, the United States Supreme Court clerk denied a petition for a writ of certiorari by these two participants.  The dismal of this action, based on a timing issue, apparently ends a protracted period of extensive litigation related to the critical issues of contract validity and the step-up provisions.  The U.S. Supreme Court dismissal follows previous decisions by the Massachusetts courts affirming the validity of such contracts.
    Second, costs related to the construction and completion of Seabrook Station have now been quantified diminishing previous concerns regarding the ability of participants to absorb the potentially onerous rate increases.  Rates associated with the high costs of Seabrook have been fully incorporated into participants rates.  The phase-in of debt service costs was completed in January 1989 and operational costs in June 1990.  The significant power provided by Seabrook has helped ensure current and future power needs.
    Third, the uncertainty surrounding the operational status of Seabrook Station in earlier years no longer exists.  The unit has been in commercial operation since June 1990 and to date, operating performance has been found acceptable.
    With take-or-pay contracts securing MMWEC's power supply revenue bonds, an important component of the rating is Moody's evaluation of the lighting departments of its participants.  Moody's reviews of these departments have shown that generally each has managed its obligations to MMWEC in an appropriate manner and that the financial standing of these light departments is overall satisfactory.  The ability of the light departments to increase electric rates without oversight or statutory limitations provides valuable revenue raising flexibility and is a credit strength.  Additionally, the general autonomy of all the departments insulates such systems from pressures to subsidize their respective municipality's general fund operations.
    Although participants' rates remain competitive regionally, the expected substantial savings from the planned refunding of most of MMWEC's Seabrook-related debt over the next few months will reduce the burden on ratepayers, further improving competitiveness.
    These positive credit developments which have occurred since Moody's suspended the MMWEC rating in August 1988, are mitigated in part by certain other credit issues.  While a major portion of Seabrook-related participant litigation has been resolved, other litigation still outstanding continues to pose uncertainty and highlights the dissension which has marked MMWEC's history.  Although it is anticipated that such disharmony will diminish with the positive effects of the refunding, MMWEC's past record and the nature of the remaining litigation is underscored in the rating.  Seabrook has only been operational for 18 months, and while favorable results have been reported to date, a measurable operational track record needs to be established.  In addition, in contrast to the growth years of the mid-1980s, the current recession has had an adverse impact on the local economies of most of the participants.  Especially vulnerable are those light departments which service large commercial and industrial sectors and the smaller, highly leveraged departments.
    This rating action applies to $1.355 billion non-insured power supply revenue bonds currently outstanding.
                       RATING HISTORY
    January 1992           Baa 1
    August 1988            Suspended
    April 1987             Baa
    April 1985             Suspended
    April 1984             Ba
    January 1984           Baa
    August 1979            A
    August 1976            A 1
    -0-            1/20/92
    /CONTACT:  Jeffrey F. Rizzo, 212-553-0354, Joan Dougherty, 212-553-7737, or Karl R. Jacob, 212-553-4833, all of Moody's/ CO:  Massachusetts Municipal Wholesale Electric Company ST:  Massachusetts IN:  UTI SU:  RTG FC-SM -- NY052 -- 1554 01/20/92 17:28 EST
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Date:Jan 20, 1992
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