Fitch: JEA Wtr & Swr's 2004C Sr and 2004B Subs 'AA'; Upgrades Subs to 'AA'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to JEA Water and Sewer System's (JEA W&S) $87 million water and sewer system refunding revenue bonds, 2004 series C, and $20 million of water and sewer system subordinated revenue bonds, 2004 series B. Fitch also affirmed the 'AA' rating on the outstanding senior lien bonds and upgraded the rating on the outstanding subordinated lien bonds to 'AA' from 'AA-'. All ratings are removed from Rating Watch Evolving, which they were placed on June 8, 2004 as part of Fitch's review of its notching policies. The Rating Outlook on all JEA W&S bonds is Stable. Proceeds from the 2004 series C senior bonds from the 2004 series B subordinated bonds will pay a portion of the costs of construction and acquisition of additions, extension, and improvements to JEA's combined water and sewer system. The bonds are expected to price the week of Sept. 6, 2004 with Citigroup as senior manager.

The upgrade of the subordinate bonds is a result of Fitch's belief that JEA W&S credit factors are consistent for a water and sewer utility in the 'AA' category and that its lien profile does not warrant any difference in ratings between the two liens.

Fitch's conclusion to rate the senior and subordinate liens similarly are a result of:

--JEA W&S' financial strength and overall strong credit profile;

--Minimal dilution expectations for subordinate debt;

--Diminutive legal distinction/protection between senior and subordinated liens (despite limited cross default provisions).

Fitch had placed JEA W&S' rating, together with those of 11 other credits with separate liens, on Rating Watch Evolving in June 2004 as part of a review of Fitch's guidelines regarding ratings applied to different liens of public power credits (notching). Fitch's review reflects changing conditions occurring across the industry and improving individual issuer risk factors. For additional information regarding Fitch's notching criteria, see the Fitch report, 'To Notch or Not to Notch,' dated June 8, 2004 available on the Fitch Ratings web site at 'www.fitchratings.com'.

JEA W&S' strong credit ratings take into account Fitch's constructive view of the water and wastewater sectors and management's successful efforts to improve operations, lower the cost structure, upgrade an aging infrastructure, and bring the utility into environmental compliance since the acquisition of the water and sewer system from the city in 1997. Fitch believes that JEA W&S has financially positioned itself well for the foreseeable future with no major system expansions needed for both the water and sewer systems over the next ten years. JEA's deliberate and aggressive business plan has positioned the W&S system well for the future with a system that is in good physical condition and has substantial water and treatment capacity reserve margins. With the help of programs such as Better Jacksonville and the new City of Jacksonville water and sewer expansion authority, JEA will continue to upgrade and expand its services, lower its unit costs, and solidify its financial position.

Additional support for the ratings are an excellent service area with a diverse and growing economic base, competitive rates, and historically sound performance with debt service coverage of 1.9 times (x) for the fiscal year ended Sept. 30, 2003 (2.05x for the 12 months ended March 31, 2004). Over the past few years, management stepped up the amount of planned capital expenditures as a result of the City of Jacksonville's push to accelerate some Better Jacksonville projects (a coordinating plan to repave the city streets and replace aging utility infrastructure). JEA's projected debt service coverage levels of 1.7x to 1.8x reflect stable operating expenses, manageable additions to total debt, and no major repairs or replacements anticipated in the near-term and the implementation of a new conservation rate in the October 2004.

While JEA's five-year capital improvement plan appears to be large (approximately $721 million through 2008), a majority of the expenditures are for system upgrades with 55% financed from debt. After taking into account debt retirements through 2008, net debt will increase by a manageable $287 million. The CIP includes system upgrades and replacements and additions that are expected to reduce future operating and maintenance costs, as well as increase water treatment capacity by about 14% over the next five years.

Additional credit strengths include a lack of customer concentration and a service area that exhibits strong annual sales growth of about 3.5% and favorable wealth indicators. The system also enjoys ample water supply, and both the water and sewer systems have treatment capacity sufficient to meet system needs until about 2015. Furthermore, the combined monthly bill compares well to regional utilities and is below that of its immediate neighbors.

The JEA water and sewer business serves approximately 249,000 and 185,000 water and sewer accounts, respectively. Revenues are approximately 54% residential, 38% commercial and industrial, 5% irrigation, and 3% governmental. The service area includes virtually all of the City of Jacksonville, with the exception of the beach communities, the Town of Baldwin, the U.S. naval facilities, and those areas served by other community and investor-owned water and sewer utilities.