Fitch Lowers Pepco's Outlook To Negative

NEW YORK (AP) — Fitch Ratings on Thursday lowered its outlook on Pepco Holdings Inc. to "negative" from "stable," citing the impact of energy prices on the electricity and natural gas provider.

Fitch affirmed its "BBB" issuer default rating and debt ratings on Pepco.

The "stable" outlook was also affirmed for Pepco subsidiaries Potomac Electric Power Co., Delmarva Power and Light Co., and Atlantic City Electric Co.

Fitch withdrew ratings for Potomac Capital Investment Corp. since it has no public debt remains outstanding.

In a note to investors, analyst Shalini Mahajan wrote that the revision to Pepco's outlook reflects the unfavorable outlook for wholesale energy prices and their impact on Conectiv Energy Holdings, Pepco's merchant energy business.

Fitch said it expects that continued weakness in wholesale energy prices will adversely affect Conectiv's energy margins in 2009 and beyond. The impact will be somewhat mitigated by hedges in place for 2010 and 2011, Mahajan said.

Mahajan noted that Conectiv's performance in the first half of the year was hampered by a slump in power demand due to mild weather and weak economic conditions.

Shares of Pepco slipped 18 cents to close Thursday at $49.78.