Moody’s upgrades BED’s credit rating

Recognizes Renewable, Reliable Power and Efficiency; Proactive Strategic Planning;
Improved Financial Metrics

Vermont Business Magazine Moody’s Investors Service on Monday upgraded the Burlington Electric Department’s credit rating to Baa1 from Baa2, citing BED’s renewable and reliable power supply, energy efficiency measures, and proactive strategic planning by BED management as important factors for the boost. The full report is below.

The Moody’s report notes:

· “The rating upgrade takes into consideration the improved financial record of Burlington Electric Department; competitive rates; the shift to a more diverse power supply mix; and the strengthening local economy.”

· “A positive factor in the rating is the proactive stance of management in its strategic planning regarding the evolving power industry. A focus on efficiency programs; renewable energy supply and positioning the utility organization through improved operations factor into our view about BED.”

· “The stable outlook reflects the improving trend of BED’s financial position that is reflected in the utility’s financial forecasts showing continued improvement in financial metrics.”

“This credit rating upgrade validates BED’s efforts to source renewable power, expand efficiency programs, and restructure the organization to succeed in the changing utility landscape,” said Mayor Miro Weinberger.“The upgrade – which will lower BED borrowing costs in the future – also demonstrates that the Administration and City Council’s focus on strong municipal finances is generating real financial savings for Burlington residents, institutions, and businesses, and underscores the importance of continuing these efforts. Congratulations to General Manager Neale Lunderville and the entire BED team for their string of recent successes.”

“Strong financial management is part of BED’s continued commitment to the customers we serve,” said Lunderville, BED General Manager. “As this upgrade demonstrates, Moody’s understands the importance of adapting to a changing energy market. Our ability to lead the green energy revolution depends on a solid financial foundation.”

“It takes a great team – from City Hall to frontline staff – to achieve an upgrade from Moody’s,” Lunderville added. “I want to offer special praise to Daryl Santerre, BED’s Chief Financial Officer, for his unwavering focus on lifting our credit rating, and to the Burlington Electric Commission for their continuous attention to improving our financials.”

The recent history of BED’s credit ratings and outlooks follows:

FULL REPORT

Rating Update: Moody's Investors Service Upgrades Burlington, Vermont Electric
Revenue Bonds to Baa1 from Baa2; Outlook Stable
Global Credit Research - 09 Nov 2015
Upgrade Recognizes Financial Position Improvement
BURLINGTON (CITY OF) VT ELECTRIC ENTERPRISE
Electric Distribution
VT
NEW YORK, November 09, 2015 --Moody's Investors Service has upgraded the rating on the outstanding $29.03
million Burlington, Vermont Electric System Revenue Bonds to Baa1 from Baa2. The outlook is stable. Burlington
also has $46.8 million General Obligation bonds issued for electric utility purposes (Baa2; positive). The city
issues approximately $3 million General Obligation bonds annually for electric purposes. The pledge of payment is
after the payment of debt service on the electric system revenue bonds.

SUMMARY RATING RATIONALE
The rating upgrade takes into consideration the improved financial record of Burlington Electric Department (BED); competitive rates; the shift to a more diverse power supply mix; and the strengthening local economy.
BED serves the City of Burlington, Vermont (Baa2 positive) which has a diverse local economy; stability is
provided by the institutional presence of a major university and medical center; and the city serves as a
commercial center for a large geographic area. The rating also considers BED's reliable and competitive power
supply which is less subject to market volatility and is significantly renewable; the utility's improving financial
record including expected strengthening forecasted metrics; and supportive rate regulation. While the BED is
subject to the state public service board regulation, new rates may be collected 45 days after the filing with the
state. The regulatory board must consider bond covenants and sufficiency of revenues to support voted bonded
authorizations. The rate setting record has been supportive and timely with full recovery of requested costs
recovered since 2004. The utility has a conservative General Fund transfer policy.

A positive factor in the rating is the proactive stance of management in its strategic planning regarding the evolving
power industry. A focus on efficiency programs; renewable energy supply and positioning the utility organization
through improved operations factor into our view about BED. Retail rates are also competitive. While the McNeil
Generation Station, a wood burning electric generation facility represents 43.9% of FY 2015 BED energy, the
carbon neutral-renewable energy source is well-maintained and has had a sound operating record. Vermont is
also exempt from the federal EPA Clean Power Plan (CPP) so compliance issues are not a factor.

BED's financial record has been improving with a focus on stronger financial metrics with adjusted debt service
coverage trending towards 1.50 times and forecasted coverage in the same range. The adjusted coverage
includes payment of General Obligation bond debt service. Combined electric revenue bond and General
Obligation bond debt service is level. FY 2015 financial results include adjusted debt service coverage of 1.71
times and days liquidity on hand of 94 days. BED's elimination of a material adverse clause from its line of credit
also was a positive factor. BED expects an erosion of net income in FY 2018 due to several factors but
management is taking reasonable mitigation measures to resolve. In addition, BED has had a sound record of rate
adjustments when appropriate. No additional rate adjustments are currently expected in next two fiscal years.

OUTLOOK
The stable outlook reflects the improving trend of BED's financial position that is reflected in the utility's financial
forecasts showing continued improvement in financial metrics.

STRENGTHS
*More diverse and cleaner mix of power supply resources than previously utilized mitigating industry challenges
such as market price disruptions and carbon regulation. Vermont is exempt from CPP.
*Sound financial management with forward-looking financial polices to maintain sound financial metrics
*Burlington has a diverse economy with colleges, a major hospital and the city is the economic center of region.
*Experienced management focused on industry transition including ensuring utility fixed cost recovery through rate
structure changes
*Strong reliability indicators for distribution system

CHALLENGES
*Like most municipal electric utilities transition to more distributive generation including roof top solar represents
new challenges
*McNeil wood fueled generation facility has dominant role but has had strong operating record and adequate fuel
supply
*No base rate increase since 2009
*While regulated on rate-setting by the state board, the rate setting record reflects full cost recovery and the ability
to increase rates within 45 days after filing with the state with later true-up.

WHAT COULD CHANGE THE RATING UP
*The rating could be upgraded once BED registered a longer trend of both debt service coverage and adjusted
days liquidity
*Continued and sustained improvement in the City of Burlington general financial record

WHAT COULD CHANGE THE RATING DOWN
*Deterioration in financial record of the city and utility
*Unsupportive regulatory board regarding cost recovery and the maintenance of sound utility financial metrics

RECENT DEVELOPMENTS
*The city's Burlington Telecom (BT) legal issues and enterprise risks are now in past and city is managing the
enterprise well. BED was not impacted.
*Elimination of the material adverse clause in the utility's line of credit was a positive factor

DETAILED RATING RATIONALE
Revenue Generating Base
The utility serves the City of Burlington, Vermont, the state's largest city and economic center. BED has a
monopoly in the service area. BED is regulated by the state public service board but it is not like an investorowned
utility oversight. The board has to take into consideration bond covenants and newly filed rates may be
collected 45 days after filing with the state subject to later true-up. No historic record of lag or inadequate recovery.
University of Vermont and regional medical center represent more than 20% of the customer base revenues. It is
unlikely the university or medical center would relocate, lessening the concentration risk as a consideration.

BED rates are competitive in all customer classes with residential rates being substantially below state average.
Burlington, Vermont is the economic center for the state; has had an expanding local economy with several
redevelopment and smart development projects; customer base is stable but demand has shrunk due to extensive
energy efficiency program.

BED's power supply mix is substantially renewable energy through both owned and purchased energy resources.
McNeil Plant, a wood-burning generation facility, represented 43.9% of power supply sources, operated well in FY
2015 with a 63.6% capacity factor.

GOVERNANCE AND MANAGEMENT
The utility is governed by the Mayor and 12-member city council. The mayor is elected every three years and
each member of the city council have two year terms. The current mayor was recently re-elected. The mayor and
city council appoint 5 representatives to serve 3 year terms on the advisory Board of the Electric Commissioners.
Most operating decisions are made by the BED and there is a degree of separation from the city such as an
independent auditor; limited General Fund transfers in the form of PILOTS; a line of credit independent from the
city.

Ultimately rate filings must be approved by the Mayor and City Council. Following local approval, the Vermont
Public Service Board (PSB) reviews the rates, the quality of services, and financial management of the utility.
Financial Operations and Position

BED has had an improving financial record with adjusted debt service coverage trending higher in the 1.5x range
between 2013-2015. BED operating efficiencies, average weather, and renewable energy credit sales have been
positive factors in the financial trend. Forecasts reflect adjusted debt service coverage improving in 2016-2018 but
several factors may lead to a net income deficit in 2018. BED has identified several mitigation measures to correct.
Those mitigation measures include pre-authorization of renewable energy credit sales; standard offer exemption
and promoting solar development behind the meter. Assumptions include no rate adjustments; average weather
conditions and impacts on sales from energy efficiency programs.

Liquidity
BED days liquidity on hand has been improving with FY 2015 liquidity days on hand at 94. The three year average
2013-2015 was 66 days. BED has a $5 million line-of-credit also available.
Debt Structure and Capital Improvement Plan

BED has a conservative debt structure with fixed rate debt, voted authorization to issue bonds which Vermont
Public Service Board has to incorporate in rate-setting, and level debt service. The debt service on the General
Obligation bonds issued by the City of Burlington is paid after the payment of debt service on the electric system
revenue bonds.

BED expects to spend about $10 million annually between 2016-2018 on capital improvements, which includes
new transmission investments. BED projects a new electric revenue bond issuance in 2017 ($7.5 million) and
2018 ($6 million) and about $3 million annually through city General Obligation financings.

Debt-Related Derivatives
None

Pension and OPEB
BED is covered by the City of Burlington pension and OPEB. The city participates in the Burlington Employee
Retirement System, a single-employer, defined benefit retirement plan. The city's annual required contribution
(ARC, net of BED and school department) for the plan was $5.4 million in fiscal 2014, or 10.8% of General Fund
expenditures. The city's 2013 adjusted net pension liability, under Moody's methodology for adjusting reported
pension data, is $162.7 million, or an above average 1.4 times General Fund revenues. Moody's uses the adjusted
net pension liability to improve comparability of reported pension liabilities. The adjustments are not intended to
replace the city's reported liability information, but to improve comparability with other rated entities.

The city contributed 86% of its annual Other Post Employment Benefit costs in 2014, representing $381,268. The
city's OPEB UAAL as of June 30, 2013 is $3.9 million. Fiscal 2014 total fixed costs including pension, OPEB and
debt service was $9.3 million or 18.3% of expenditures.

Methodology Scorecard Factors: US Public Power Electric Utilities: Burlington Electric
As indicated below, the grid indicated rating for Burlington Electric is A3. The rating assigned to the outstanding
electric revenue bonds is Baa1. The difference between the grid-indicated rating of A3 and the rating of Baa1
primarily reflects the financial metrics have not yet registered fully in the A category on a three-year basis and the
City of Burlington remains at Baa2-positive due to a history of governance issues.

The grid is a reference tool that can be used to approximate credit profiles in the public power electric utility sector
in most cases. However, the grid is a summary that does not include every rating consideration. Please see the
US Public Power Electric Utilities with Generation Ownership Exposure Methodology for more information about
the limitations inherent to grids.

Current Rating: Baa1
1.Cost Recovery Framework (25% weight)- (A)
2.Willingness to Recover Costs and Maintain Sound Financial Metrics- (25% weight) (Baa)
3.Management of Generation Risk-(10% weight) (A)
4.Rate Competitiveness- (10% weight) (A) (-2.3%)
5.Financial Strength:
Sub factor a) Adjusted Days Liquidity on Hand-(10% weight) (66 days)
Sub factor b) Debt Ratio-(10% weight) (55.5%)
Sub factor c) Fixed Obligation Charge Coverage (10% weight) (1.52x)
Notching Factor: None
Grid Indicated rating : A3

Key Facts
City of Burlington GO rating: Baa2 positive
Three-year average days liquidity, 2013-2015: 66 days
Median for top 30 City Utilities That Own Generation 2014 - 239 days
Three-year average adjusted debt service coverage, 2013-2015: 1.52 times
Median for top 30 City Utilities That Own Generation 2014 - 1.95

OBLIGOR PROFILE
The utility serves the City of Burlington, Vermont, the state's largest city and economic center. BED is a
department of the city government and has a monopoly in service area. BED is regulated by state public service
board but is not like an investor-owned utility oversight.

LEGAL SECURITY
The bonds are secured by the net revenues of the electric system. There is a 1.25 times rate covenant and the
debt service reserve requirement is equal to maximum annual debt service on the senior revenue bonds.
The department also has approximately $43 million of general obligation (GO) bonds that are expected to be repaid
from electric department operating revenues. The rate covenant on the consolidated debt outstanding is 1.00
times. Per the General Bond Resolution, the claim on the revenues of the department by the revenue bondholders
is prior to any claim of the GO bondholders.

USE OF PROCEEDS
N/A

PRINCIPAL METHODOLOGY
The principal methodology used in this rating was U.S. Public Power Electric Utilities with Generation Ownership
Exposure published in November 2011. Please see the Credit Policy page on www.moodys.com for a copy of this
methodology.

REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory
disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class
of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance
with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating
action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where
the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner
that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for
the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating
outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for
each credit rating.