OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to Duke Energy Ohio. Inc.'s (DEO) first mortgage bonds due June 15, 2046. The Rating Outlook is Stable. Net proceeds will be used to fund capital expenditures and for general corporate purposes.

KEY RATING DRIVERS

Strong Credit Profile: Credit quality measures are well positioned within the current rating level. Over the next three years, Fitch expects FFO fixed charge coverage, lease adjusted FFO leverage, and adjusted debt/EBITDAR (normalized for the impact of asset sales) to average approximately 5.0x, 4.0x and 3.6x, respectively, each of which is in line with the current ratings.

Electric Security Plan: A new three-year electric security plan (ESP) was approved by the Public Utility Commission of Ohio (PUCO) in April 2015 that continues the current electricity procurement and commodity cost recovery policies and certain distribution riders. The new ESP also establishes new riders to recover reliability investments and storm costs. A request to pass through gains or losses on its entitlement to Ohio Valley Electric Corp. (OVEC) capacity was denied. DEO will continue to sell its share of the OVEC output into day-ahead and forward markets and will retain all gains and losses on those sales. The ESP also continued a distribution decoupling rider (DDR). The DDR will remain in place until DEO files its next distribution base rate case, at which time the company plans to propose a straight fixed/variable rate design.

Decoupling Rider: The ESP also continued a distribution decoupling rider (DDR) that essentially removes volumetric risk. The DDR will remain in place until DEO files its next distribution base rate case at which time the company plans to propose a straight fixed variable rate design. Management has indicated it plans to file a base rate increase in 2016 with new rates to be effective in 2017.

Asset Dispositions/Recapitalization Plan: In 2015, DEO completed the sale of its non-regulated Midwest generation business (5,900 MW) to Dynegy for $2.8 billion. In anticipation of the asset divestiture management recapitalized DEO to maintain leverage and coverage ratios that are appropriate for the revised earnings power, lower business risk and current ratings.