Specifically, the distribution system investment charge (DSIC), used by the water companies in the state since 1997, is under the new law expanded to electric and gas utilities. Fitch estimates that eight public electric and gas utilities in Pennsylvania with a consolidated distribution rate base of approximately $10 billion will qualify to apply for the DSIC in 2013. Additionally, the bill also allows for a fully projected future test year.

Fitch believes these mechanisms will meaningfully reduce regulatory lag thus alleviate pressure on capital structure and credit metrics, and enhance accessibility to capital markets.

The greater rate assurance brought about by the legislation could be offset partially by reduction of authorized returns. Fitch expects the Pennsylvania Public Utility Commission to more closely scrutinize the rate of returns at the utilities as a way of enforcing investment prudency and cost control to protect consumer rights.

The full report 'Pennsylvania H.B. 1294 Supportive to Credit' is available at 'www.fitchratings.com.'

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

Applicable Criteria and Related Research: Pennsylvania H.B. 1294 Supportive to Credit http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682804

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