Fitch Rates Northern States Power - Wisconsin's $100MM Sr. Secured Notes 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'A+' rating to Northern States Power - Wisconsin's (NSPW) new 3.30% $100 million issuance of first mortgage bonds due June 15, 2024. The Rating Outlook is Stable. The new notes will rank pari passu with NSPW's existing senior secured obligations. Net proceeds will be used to repay short-term debt borrowings and for general corporate purposes, including the funding of NSPW's capital expenditure program.

KEY RATING DRIVERS

NSPW's ratings reflect the constructive regulatory framework in Wisconsin with rate design mechanisms that are supportive of credit quality, and characterized by above-average authorized return on equity (ROE), forward looking test years, purchased gas adjustment clause and annual filings for fuel and purchased energy adjustments. In its last electric rate case, NSPW was granted a base rate increase, effective Jan. 1, 2014, of $19.5 million, approximately 57% of its revised rate request, with a 10.2% authorized ROE and a 52.54% common equity ratio.

NSPW has an electric case pending before the commission. The utility is seeking an electric base rate increase of $20.6 million based on a 10.2% ROE and a 52.54% common equity ratio, for new rates to be effective Jan. 1, 2015. The purpose of the rate request is to reflect changes in fuel and purchased power costs, and fixed production and transmission costs that flow through an interexchange agreement with affiliate Northern States Power - Minnesota. Fitch expects the rate outcome to be balanced and consistent with prior rate decisions.

NSPW has solid credit metrics for the current rating category. For the latest 12 months (LTM) ending March 31, 2014, funds from operations (FFO) fixed charge coverage and FFO lease-adjusted leverage stood at 5.6x and 3.3x, respectively. Fitch forecasts FFO fixed charge coverage and FFO lease-adjusted leverage to average 5.5x and 3.7x over 2014-2018. Part of the decline is driven by the expiration of bonus depreciation and other tax credits.

Fitch's main rating concern relates to the relatively sizeable capital spending program over the forecast period. NSPW plans on spending a total of $1.31 billion over 2014-2018, higher than historical norms. Capex is primarily earmarked for transmission spending, including NSPW's Wisconsin portion of the CapX2020 transmission project.

Fitch expects NSPW to fund capex in a manner that is consistent with its authorized regulatory capital structure (52.54% common equity ratio), with a mix of internally generated funds, long-term debt issuances, and parent equity infusions. Fitch views the parent support as credit positive for NSPW.

NSPW has adequate liquidity to meet its short-term obligations with access to a total of $150 million under a bank credit facility that expires in July 2017. At March 31, 2014, total available liquidity was $73 million, including $71 million of unused facilities and $2 million of cash on hand. There are no long-term debt maturities prior to 2018 when $150 million becomes due.

RATING SENSITIVITIES

Positive Rating Actions: Given the projected elevated capex, no positive rating actions are anticipated in the near term.

Negative Rating Actions: Although unlikely, a deterioration in the Wisconsin regulatory framework, including a less than balanced outcome in the pending rate case, could pressure the ratings.

FFO lease-adjusted leverage above 4x on a sustained basis could lead to negative rating actions.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Rating U.S. Utilities, Power and Gas Companies' (March 11, 2014).

Applicable Criteria and Related Research:

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834840

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Contacts

Fitch Ratings
Primary Analyst
Philippe Beard, +1-212-908-0242
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roshan Bains, +1-212-908-0211
Director
or
Committee Chairperson
Shalini Mahajan, +1-212-908-0351
Senior Director
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Philippe Beard, +1-212-908-0242
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roshan Bains, +1-212-908-0211
Director
or
Committee Chairperson
Shalini Mahajan, +1-212-908-0351
Senior Director
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com