Fitch Rates Public Service Co. of Colorado's $300MM Sr. Secured Notes 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'A+' rating to Public Service Company of Colorado's (PSCo) new 4.30% $300 million issuance of first mortgage bonds (FMBs) series No. 27 due March 15, 2044. The new FMBs will rank equally with PSCo's existing senior secured obligations.

Net proceeds will be used to redeem PSCo's 5.5% $275 million FMBs due April 1, 2014, and for general corporate purposes, including the repayment of commercial paper and the funding of its capital expenditure program.

KEY RATING DRIVERS

PSCo's ratings reflect the company's robust financial performance that results in credit metrics that are solid for the current rating category. For the fiscal year ended Dec. 31, 2013, EBITDA-based coverage and leverage ratios were 6.3x and 3.3x, respectively. Fitch forecasts credit metrics to remain near current levels over the 2014-2017 time horizon. Fitch's projections assume PSCo will continue to achieve balanced outcomes in future rate proceedings, including the ability to settle for multi-year plans.

PSCo operates under the final year of a three-year electric rate plan that provides regulatory predictability and cash flow visibility through 2014. The multi-year rate plan provided a total of $124 million of base rate increases, including a $25 million rate hike effective January 2014. Fitch expects PSCo to file for new electric rates sometime in 2014.

In December 2013, the Colorado Public Utility Commission (CPUC) granted PSCo a natural gas base rate increase of approximately $15.8 million effective Jan. 1, 2014. The rate order was based on a 9.72% ROE and a 56% common equity ratio. The rate outcome was in line with Fitch's prior expectations and will drive moderate earnings uplift in 2014. PSCO's gas business represents approximately 20% to 25% of total earnings.

Fitch expects capex to remain elevated throughout the forecast period. Management plans on spending approximately $4.21 billion over 2014-2018, which is higher than historical norms. Key drivers of capex over the forecast period are investments associated with the Clean Air Clean Jobs Act (CACJA), projects related to gas pipeline integrity, and enhancement of the distribution system.

PSCo expects to recover capex via rate cases, and recovery via a rider mechanism is also allowed by the CPUC. Estimated costs related to natural gas pipeline replacement projects amount to $735 million over the next five years, and PSCo can recover its costs through a natural gas pipeline integrity rider, which reduces the impact of regulatory lag on operating cash flows during the investment phase.

Fitch expects PSCo to finance capex in a manner that is consistent with its currently authorized capital structure, using a mix of internally generated cash flows, long-term debt issuances, and equity infusions from parent holding company Xcel Energy Inc. (XEL;'BBB+' IDR) of approximately $55 million over 2013-2014. Fitch forecasts PSCo's internally generated cash flows to fund close to 80% of capex requirements over the forecast period.

Fitch considers PSCo to have adequate liquidity to meet its short-term obligations. The company has access to a total of $700 million under a bank credit facility that expires in July 2017. At Dec. 31, 2013, PSCo had $714.7 million of available liquidity, including $693.6 million of unused facilities and $21.1 million of cash and cash equivalents. Further strengthening liquidity, PSCo participates in a money pool with its utility affiliates NSPM and SPS. PSCo's maximum borrowing limit under the money pool is $250 million, which was fully available at Dec. 31, 2013.

PSCo's long-term debt maturities are considered manageable with $275 million due in 2014 and $129.5 million due in 2017. Fitch expects PSCo to continue to enjoy ample access to the debt capital markets to fund capex and refinance long-term debt maturities as they become due.

The Stable Outlook reflects Fitch's expectations that the regulated utility will continue to achieve balanced rate outcomes in future rate proceedings, including the ability to settle for multi-year rate plans.

RATING SENSITIVITIES

Positive Rating Actions: Given the recent upgrade of PSCo's ratings, no positive rating actions are anticipated in the near term.

Negative Rating Actions: Unexpected unfavorable regulatory developments that hinder PSCo's ability to recover costs associated with its sizeable capital investments could have a negative effect on ratings.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);

--'Rating North American Utilities, Power, Gas, and Water Companies' (May 16, 2012).

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012)

Applicable Criteria and Related Research:

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Rating North American Utilities, Power, Gas, and Water Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822395

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Contacts

Fitch Ratings
Primary Analyst
Philippe Beard
Director
+1-212-908-0242
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Lindsay Minneman
Director
+1-212-908-0592
or
Committee Chairperson
Timothy Greening
Managing Director
+1-312-368-3205
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Philippe Beard
Director
+1-212-908-0242
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Lindsay Minneman
Director
+1-212-908-0592
or
Committee Chairperson
Timothy Greening
Managing Director
+1-312-368-3205
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com