Anaheim, California's Electric Second Lien Bonds Rated 'A+' By Fitch.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 28, 2004

Fitch Ratings assigned an 'A+' rating to Anaheim Public Financing Authority's (the authority) $128 million distribution system revenue bonds, series 2004 (City of Anaheim electric system distribution facilities) (second lien qualified obligations). In addition, Fitch affirmed the 'A+' rating on the $345.7 million of outstanding electric system surplus revenue bonds and the $32.77 million of outstanding city electric revenue bonds (Senior Lien). The Rating Outlook is Stable. The common rating on all of the authority's bonds takes into account slight differences in security provisions and Fitch's view that, given the authority's historically strong financial performance, there is no material difference between the agency's ability to service the different liens. Proceeds will pay for transmission and distribution system improvements. The bonds are expected to be priced the week of June 7th with Citigroup as manager.

Support for the rating comes from the authority's strong financial position, diverse power resources, and a solid management team that benefits from a good working relationship with the city. Recent positive developments include changes associated with the power cost rate stabilization account (PCRSA), providing management with greater control over the retail rate adjustment level. The PCRSA has a targeted account balance of about $50 million by 2006 (currently funded at about $25 million). Ultimately, the PCRSA adjustment provides management with a mechanism to recover power costs from customers when necessary and provides customers with greater rate stability. In addition, under the system's strategic plan cash flows expected from the PCRSA (which are not reflected on the income statement), will improve operating debt service coverage over the next few years to levels above management's target of 1.50 times (x) (over 1.75x including full recognition of current year PCRSA collections).

The rating also reflects, increased certainty regarding the systems power resource mix over the near term, narrowing power supply issues to peak power needs after 2006 and reducing the system's reliance on market purchases for power. Anaheim's pro forma energy mix in 2008, including their share of the Magnolia Power Project (MPP) and three proposed 57 mw gas fired peaking units, is projected to come from a balanced mix of fuels with natural gas accounting for about 25% of total energy requirements. This fuel mix is favorable when compared to the regions supply mix with gas pricing at the margin 40% to 45% of the time in 2003 and projected to increase to 70% over the next 5 years.

Other credit factors include a sound service area economy that is experiencing some favorable redevelopment, competitive retail rates that are expected to remain level to 2007, power costs that have decline to 6.7 cents per kwh in 2003 down from 8 cents in 1998, and steady growth in native load as well as a manageable capital expenditure plan.

Furthermore, the authority's financial position continues to show strength with 2003 financial results providing solid debt service coverage of about 1.85x (including cash flows from PCRSA deposits) strong liquidity with unrestricted cash covering about 200 days of operating expenses, and manageable overall leverage (including off balance sheet obligations) with debt to funds available for debt service of 7.2x.

The Authority has significant off-balance sheet obligations associated with long term contracts with joint power agencies (JPA), including the Intermountain Power Agency and Southern California Public Power Authority ('SCPPA'). With addition of SCPPA's Magnolia Project, Anaheim's off-balance sheet JPA debt is about $820 million. Taking these obligations into account, Anaheim's direct and off balance sheet debt service coverage remains solid at over 1.30x.

Credit concerns include the importance of tourism to the local economy coupled with a few large industrial customers, such as Disneyland Resort. Lastly, while the utility is meeting its future power supply needs with natural gas generation, the potential for increased fuel price volatility is somewhat mitigated by a manageable level of exposure (about 25% of energy) relative to the California market and efforts by management to hedge a reasonable portion of this exposure. Fitch believes that management is exploring prudent hedges including the possible purchase of gas reserves and other risk management practices.

The Anaheim Public Utilities Department is an integrated public power utility providing retail electric service to approximately 110,000 customers within the city limits (50 square miles).