Fitch Ratings has assigned an 'A' rating to NSTAR Electric Company's issuance of debentures.
The debentures rank pari passu with NSTAR Electric's other senior unsecured debt.
Net proceeds of the offering will be used to repay a portion of the outstanding short-term debt.
NSTAR Electric's current Long-Term Issuer Default Rating (IDR) is 'A-'. The Rating Outlook is Stable.
Key Rating Drivers
Low-Risk Business Profile: NSTAR Electric's ratings largely reflect the low business risk and stable cash flows of its regulated electric transmission and distribution operations. The company has no commodity exposure and a decoupling mechanism that eliminates the effect of weather and usage patterns on revenue. A significant and growing share of the rate base is derived from electric transmission investments regulated by FERC.
Balanced Regulatory Environment: Fitch considers the regulatory environment overseen by the Massachusetts Department of Public Utilities (DPU) to be relatively balanced, supporting NSTAR Electric's strong financial profile. NSTAR Electric operates under a five-year performance-based ratemaking (PBR) plan that runs through Dec. 31, 2027.
NSTAR Electric benefits from full revenue decoupling and several cost-recovery mechanisms, which enhance the stability and predictability of cash flows. The DPU permits recovery outside of general rate cases for pension and post-retirement benefits, energy efficiency program costs and the associated lost revenue and storm costs.
2022 Multiyear Rate Case Settlement: Fitch deems the outcome of NSTAR Electric's last rate case constructive and supportive of credit quality. DPU authorized a $64.3 million increase based on a ROE of 9.8%, with 53.21% equity capital and a five-year PBR plan commencing Jan. 1, 2023. Earnings over 10.8% are to be shared with ratepayers. The decision implements storm fund refinements and advanced metering infrastructure tariff, and is in alignment with the state's electrification policy. NSTAR Electric had requested an $87.6 million increase in base rates at a ROE of 10.50% with 53.8% equity capital.
Large Capex Plan: Fitch expects capex to remain elevated through the forecast plan, due in large part to significant investments in FERC-regulated regional transmission projects. Management forecasts transmission capex to total approximately $2.6 billion over 2024-2027. Improvements to NSTAR Electric's distribution system also will contribute to the large capex plan in the near term. Fitch expects capex will be funded in a manner consistent with the existing capital structure.
Improving Financial Metrics: NSTAR Electric's financial profile is well positioned within its rating level. Fitch calculates 2023 FFO leverage at 5.0x. Leverage was elevated primarily due to regulatory lag during the ramp up in capital spending. Fitch expects NSTAR Electric's FFO leverage to improve and average around 3.9x-4.0x through 2026, which is strong for the rating. Improvement in leverage is supported by deferred storm cost recovery and expected reduction in regulatory lag Ongoing investments in FERC-regulated transmission projects that receive timely cost recovery and above-average returns should enable the utility to maintain its financial strength.
Parent-Subsidiary Linkage: There is a parent subsidiary linkage between Eversource and its rated utility subsidiaries, including NSTAR Electric. Fitch determines Eversource's Standalone Credit Profile (SCP) based upon consolidated metrics. Fitch believes the utility subsidiaries have stronger SCPs than Eversource. As a result, the linkage between Eversource and the utility subsidiaries is assessed following weak parent/strong subsidiary factors. Emphasis is placed on the subsidiaries' status as regulated entities. Legal ring-fencing is porous, given the general protections afforded by economic regulation, and access and control are also porous.
Eversource centrally manages the treasury function for all of its utility subsidiaries and is the sole source of equity; however, subsidiaries issue their own long-term debt. Due to the aforementioned assessment, Fitch will limit the difference between Eversource and any of its higher-rated regulated subsidiaries to two notches.
Derivation Summary
NSTAR Electric compares adequately with peers at its 'A-' Long-Term IDR. NSTAR Electric operates in a balanced regulatory environment in Massachusetts and benefits from a significant amount of FERC-regulated electric transmission assets, which are relatively low-risk and provide stable and predictable cash flows. NSTAR Electric and peer companies The Connecticut Light and Power Company (CL&P ; A-/Stable) and Consolidated Edison Company of New York, Inc. (CECONY; BBB+/Stable) all have revenue decoupling, and CL&P has a significant amount of FERC-regulated electric transmission assets.
However, CL&P and CECONY operate in regulatory environments in Connecticut and New York that Fitch considers to be less constructive than in Massachusetts'. NSTAR Electric further benefits from a strong financial profile. Fitch expects NSTAR Electric's FFO leverage to average around 3.9x-4.0x through 2026.
Key Assumptions
Capex in line with company's guidance;
O&M expense is relatively flat;
Normal weather;
Transmission earnings reflect allowed ROE and capital structure;
Distribution earnings reflect annual increases under performance-based ratemaking mechanism.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade to parent Eversource's Long-Term IDR; NSTAR Electric's ratings upside is restricted by a maximum two-notch differential between the Long-Term IDRs of NSTAR Electric and Eversource;
FFO leverage expected to remain below 4.0x on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
A downgrade to parent Eversource's Long-Term IDR, given Fitch's maximum allowed two-notch differential between the Long-Term IDRs of the entities;
FFO leverage expected to exceed 4.5x on a sustained basis.
Liquidity and Debt Structure
Adequate Liquidity: Fitch considers liquidity for Eversource and each of its regulated utility subsidiaries adequate. Eversource has a $2.0 billion CP program used to provide its subsidiaries with intercompany loans. Eversource had $1.9 billion of CP borrowings outstanding at March 31, 2024, leaving $65 million of available borrowing capacity.
Eversource, CL&P, PSNH, NSTAR Gas, Yankee Gas Services Company (not rated), Eversource Gas Company of Massachusetts (EGMA; not rated) and Aquarion Water Company of Connecticut (not rated) participate in a joint $2.0 billion revolving credit facility (RCF) that terminates on Oct. 13, 2028. Under the RCF, CL&P has a $600 million borrowing sublimit; PSNH, NSTAR Gas, EGMA and Yankee Gas each have a $300 million sublimit; and Aquarion Water Company of Connecticut has a $100 million sublimit. The RCF serves to backstop Eversource's CP program. There were no RCF borrowings outstanding as of Sept. 30, 2023.
NSTAR Electric maintains its own $650 million CP program backstopped by an equal-sized RCF. NSTAR Electric's $650 million RCF is separate from the shared RCF of parent Eversource and the other utilities but also terminates on Oct. 13, 2028. As of March 31, 2024, there was $419 million outstanding, leaving $231 million of available borrowing capacity. Eversource and its utility subsidiaries require modest cash on hand and had $259 million of unrestricted cash as of March 31, 2024.
Issuer Profile
NSTAR Electric is a regulated electric T&D utility that serves approximately 1.47 million customers in Massachusetts.
Date of Relevant Committee
10 January 2024
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
EVERSOURCE ENERGY 
