Fitch Upgrades New York State Electric & Gas Corporation

Business Wire, Sept 21, 2004

NEW YORK -- Fitch has upgraded the ratings of New York State Electric & Gas Corporation (NYSEG). The Rating Outlook is Stable. A full description of the rating actions is set out below.

The ratings upgrade of NYSEG to 'BBB ' is supported by strong credit metrics consistent with or high for the 'BBB ' ratings category and the retirement of all of the company's secured debt and the discharge of its first mortgage bond indenture. For the 12 months ended June 30, 2004, NYSEG's ratio of debt to EBITDA adjusted for hybrids and operating leases was approximately 2.8 times (x), while EBITDA to interest was approximately 5.0x.

Offsetting the relatively strong credit ratios is the company's commodity price exposure pursuant a fixed price service option (FPO) available to its retail customers. Similar to the option that will be available to sister company Rochester Gas and Electric Corporation's (RGE) retail customers commencing in 2005, the FPO allows NYSEG's customers to receive a fixed rate for delivery and supply services. This exposes NYSEG to a potential mismatch between its supply obligations and its hedging of this obligation in two ways. First, because the enrollment period extends for the quarter immediately preceding the two calendar years of the service period, there is the possibility that the forward price for power will have shifted between when the customer elects the FPO option and when NYSEG can hedge its exposure. Second, management does not expect to hedge 100% of its anticipated FPO load out of a concern for being overhedged. This exposes the company loss of margin should power prices rise. However, this risk is not eliminated by hedging 100% of expected FPO load as the actual load will inevitably vary from expected load and the company will always have to buy or sell some power in the spot market to adjust for the variance.

NYSEG is a wholly owned utility subsidiary of Energy East Corporation. NYSEG is primarily engaged in purchasing and delivering electricity and natural gas in the central, eastern, and western parts of the State of New York.

Ratings actions are as follows:

New York State Electric & Gas Corporation

--Senior unsecured debt upgraded to 'BBB ' from 'BBB';

--Preferred/trust preferred securities upgraded to 'BBB' from 'BBB-';

--Short-term rating affirmed at 'F2'; Rating Outlook is Stable.