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POTOMAC EDISON 'AA-' SENIOR DEBT AFFIRMED BY FITCH, TREND DECLINING -- FITCH FINANCIAL WIRE --

 NEW YORK, May 17 /PRNewswire/ -- Potomac Edison Co.'s `AA-' first mortgage bonds, `AA-' preferred stock, and `F-1+' commercial paper are affirmed. The credit trend is changed from stable to declining.
 The rating reflects the company's sound credit fundamentals, low cost structure, parent company (Allegheny Power System, Inc.) financial and operating support, and constructive regulatory treatment of Clean Air Act (CAA) capital costs. Rating maintenance assumes rate relief by 1995 adequate to return credit quality measures to levels appropriate for the rating. The declining trend reflects expected weakness in bondholder protection measures over the next 18 months.
 Maryland, West Virginia, and Virginia regulate 70.1 percent, 15.3 percent and 14.6 percent of the company's revenues, respectively. The company received a $9.3 million rate increase in Maryland in February, assuring stability in financial measures for this year. However, a significant increase in maintenance expense is expected in 1994, when four plants will be taken out of service to make modifications to burners that will lower nitrous oxide emissions in compliance with the CAA.
 As a result, pretax interest coverage excluding AFUDC and including subsidiary Allegheny Generating Co.'s (AGC) interest could weaken from 2.99 times (x) recorded at year-end 1992. Internal generation of construction expenditures was about 43 percent and total debt as a percent of capitalization was 48.3 percent during the same time frame. The company is expected to file for a rate increase in late 1994, when its Harrison plant scrubbers, currently under construction are in service. Assuming constructive rate relief, pretax interest coverage including AFUDC and AGC interest should approach 3.2x, and internal cash should fund about 75 percent of construction expenditures by 1995. With parent equity support, the company should maintain its conservative capital structure throughout the construction period.
 Allegheny Power is complying with 1990 CAA Phase 1 requirements by building three scrubbers at its mine-mouth Harrison plant for $726.6 million, including AFUDC. Potomac Edison's share is $233.6 million. The Harrison scrubbers should be operational by fourth-quarter 1994.
 -0- 5/17/93
 /CONTACT: Josephine Zeppieri of Fitch, 212-908-0575/
 (AYP)


CO: Potomac Edison Co. ST: Maryland IN: UTI SU: RTG

CK -- NY088 -- 9278 05/17/93 13:42 EDT
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Publication:PR Newswire
Date:May 17, 1993
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