Fitch Affirms KeySpan Corp.'s IDR at 'A-'; Outlook Stable

Business Wire, August 17, 2007

NEW YORK -- Fitch Ratings has affirmed Issuer Default and senior unsecured debt ratings for KeySpan Corp. (KeySpan) and its subsidiaries Brooklyn Union Gas Company (Brooklyn Union) and KeySpan Gas East Corp., as listed below. The ratings are removed from Rating Watch Negative (RWN) status where they were placed on March 2, 2006, following the announcement that National Grid plc (National Grid; IDR 'BBB ' RWN by Fitch) through National Grid USA agreed to purchase KeySpan for $7.3 billion and the assumption of $4.5 billion of debt. The Rating Outlook is Stable.

KeySpan

--Issuer Default Rating (IDR) at 'A-';

--Senior unsecured debt at 'A-'.

Brooklyn Union

--Issuer Default Rating (IDR) at 'A';

--Senior unsecured debt at 'A '.

KeySpan Gas East Corp.

--Issuer Default Rating (IDR) at 'A-';

--Senior unsecured debt at 'A'.

On July 6, 2007, KeySpan, National Grid, Staff of the New York State Department of Public Service and other interested parties filed a 'Merger & Gas Revenue Requirement Joint Proposal' (Joint Proposal) which is scheduled to be put before the New York Public Service Commission (NYPSC) on August 22, 2007 for approval. A favorable NYPSC vote is anticipated and the merger is expected to follow shortly thereafter. The Joint Proposal addresses many key credit issues including post-merger structure, future operating conditions for National Grid's New York operations, and puts forth five-year rate plans for Brooklyn Union and KeySpan Gas East Corp. In addition, KeySpan, National Grid and the Long Island Power Authority (LIPA) have reached an agreement in principle to modify and extend the management services agreement and other related agreements between the parties and resolve other open operating and financial issues.

The rating affirmations and Stable Rating Outlooks are based on the following considerations: historical operating performance for KeySpan and its subsidiaries through the most recent quarterly period have been stable, with each of the companies generating credit measures consistent with their current ratings; National Grid's track record in maintaining the credit quality of its acquired U.S. utility operations has been favorable; the Joint Proposal goes a long way to resolve rate issues for Brooklyn Union and KeySpan Gas East Corp. for the next five years, balancing the interests of ratepayers and the utilities, although future operating results will partly depend on National Grid's success in generating merger synergies within its family of companies and the utilities' ability to earn incentive returns to be shared with ratepayers; under the Joint Proposal KeySpan is required to either divest its Ravenswood electric generating station or sell its output under a long-term contract, which would have the effect of reducing KeySpan's future earnings volatility and lowering its consolidated business risk; and the post-merger structure ring-fences the New York utilities and, to a lesser degree, KeySpan from the other activities of National Grid.

Fitch believes that a delay in approving the merger or even failure to consummate the merger should not result in a material change in KeySpan's or its subsidiaries' credit profiles. In this regard, there is an agreement in principle between a number of parties to the Joint Proposal that, absent a merger, could result in significant rate increases for Brooklyn Union and KeySpan Gas East Corp.

Even though National Grid has had eighteen months to develop and refine its post-merger operating strategies, a primary credit concern remains whether KeySpan, operating under shared services arrangements with the other National Grid companies, will be able to generate material synergies in a timely fashion. National Grid has indicated it expects to reduce its work force by 1,800 employees, mostly in the U.S., while at the same time agreeing to certain staffing upgrades and capital improvements under the Joint Proposal and its agreement in principle with LIPA. Meeting its operating commitments and efficiency targets will be challenging.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.