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POTOMAC EDISON CO. $50 MILLION 8 PERCENT BONDS RATED 'AA-' BY FITCH -- FITCH FINANCIAL WIRE --

 POTOMAC EDISON CO. $50 MILLION 8 PERCENT BONDS RATED 'AA-' BY FITCH
 -- FITCH FINANCIAL WIRE --
 NEW YORK, Dec. 6 /PRNewswire/ -- The Potomac Edison Co.'s $50 million 8 percent first mortgage bonds due 2006 are rated 'AA-' by Fitch. The rating reflects the financial soundness and operating strength of the Potomac Edison's parent, the Allegheny Power System. The credit trend is uncertain based on the system's substantial exposure to compliance with the Clean Air Act (CAA) and uncertain regulatory treatment of CAA-related and other capital costs. Systemwide CAA cash estimates for compliance for Phase 1 are expected to total $673 million; Potomac Edison's share is $216 million. Spending for Potomac Edison's other capital projects during the same period is expected to be about $560 million. Without timely and constructive rate treatment of the aggregate outlays, measures of bondholder protection are likely to weaken.
 The system intends to meet CAA emission standards by installing scrubbers at its Harrison mine-mouth station by 1995. The company is seeking pre-approval of its compliance strategy and the cash recovery of CAA-related construction work in progress (CWIP) in rate base. The system expects a decision from regulators by year end and will not continue construction without regulatory support.
 Assuming supportive and timely rate treatment, internal cash should supply about half of Potomac's clean air and other capital expenditures over the next five years, compared to 67 percent in the most recent five-year period. Pretax interest coverage (including allowance for funds used during construction and subsidiary Allegheny Generating interest expense) should improve to the 3.2 time (x) - 3.5x range compared to 2.96x at Sept. 30. Total debt as a percent of capitalization should range between 47 percent-48 percent; this ratio was 48.4 percent at Sept. 30.
 The company is regulated by three state commissions (Maryland, West Virginia, and Virginia) and the Federal Energy Regulatory Commission (FERC). On Nov. 25, the Maryland Commission authorized a Phase I, $10.8 million increase (general cost of service increase includes $1 million for 1990 and 1991 CAA-related expenses). Recovery of an additional $5 million for 1992 CAA expenditures is deferred. The rate increase, including the deferred amount, represents 58 percent of the $27.1 million requested in April and is based on a 12.4 percent return on equity compared to the requested 13.5 percent. The commission deferred action on proposed costs for CAA compliance beyond 1991 to Maryland Phase II with a decision expected in late this year or early in 1992. A final decision from the West Virginia Commission on the company's CAA compliance plan and cost recovery is imminent. In Virginia, CAA-related expenditures will be evaluated annually.
 -0- 12/6/91
 /CONTACT: Josephine Zeppieri of Fitch, 212-908-0575/
 (AYP) CO: Potomac Edison Co. ST: New York IN: UTI SU: RTG


CK -- NY035 -- 0105 12/06/91 12:24 EST
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Publication:PR Newswire
Date:Dec 6, 1991
Words:475
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