Fitch Affirms Kansas City Board of Public Utilities Rev Bonds 'A+'; Stable Outlook.

NEW YORK -- Fitch Ratings affirms the 'A+' rating on the $340.2 million of outstanding Unified Government of Wyandotte County / Kansas City, Kansas utility system improvement revenue bonds (Kansas City Board of Public Utilities (KCBPU)). The Rating Outlook is Stable.

KCBPU's 'A+' rating takes into account recent management changes and the system's new 20-year master plan that includes capital expenditures such as a new baseload unit, as well as a future rate strategy that should ensure financial margins sufficient to generate debt service coverage of 2.0 times (x) or greater.

Underpinning the rating continues to be the system's historically solid financial performance, a low-cost coal-based power supply, and retail rates that are in line with those of regional competitors.

Additional support for the rating is provided by on-going improvements in KCBPU's service territory. Continuing a turnaround which began several years ago, new development (retail, commercial and residential) has spread from the western portion of Wyandotte County eastward towards Kansas City proper. In addition, unemployment in Wyandotte County has decreased (7.5% in December 2005) and population declines have flattened, leading to stable sales growth for the electric system (CAGR of 1.7% over the last five years).

Credit drivers include:

--Capital Improvement Plan: The electric system's large capital improvement program (over $592 million over the next five years), includes the construction of a new baseload plant. The scope of the program is mitigated by a drop off in existing debt service beginning in 2009, which will allow for the long-term financing of the new plant without a material increase in annual debt service from current levels.

--Financial Profile: KCBPU's financial performance over the last several years has weakened, including debt service coverage that has fallen from 2.06x in 2002 to 1.75x for the 12 months ended Nov. 30, 2005, and liquidity which has dropped from 131 days cash to 46 days cash over the same period. This concern is somewhat mitigated by the recovery of $9.5 million in deferred costs through the Energy Recovery Charge (ERC) this year, and management's initiation of a rate study over the next year. This study is expected to determine the appropriate rate levels for KCBPU to meet its business plan goals. These goals include target debt service coverage levels in the range of 2.09x - 2.30x, cash liquidity of about 60 days of operations, and more frequent adjustments to the ERC to stabilize the system's operating results.

--General Fund Transfer: The system has historically had a large transfer (between 10.8% and 11.8% over the last four years) to the Unified Government's general fund. This concern is tempered by its consistent level in recent years and the PILOT portion of the transfer (7.9% since Jan. 1, 2002) being charged to consumers as a separate line item on their bill. In essence, the PILOT is a cost pass through that does not impact KCBPU's financial margins. The remainder consists of free services provided to the Unified Government.

Future rating triggers for KCBPU to maintain an 'A+' rating include:

--The utility's ability to implement appropriate rate increases to achieve projected financial metrics;

--Management's execution of the new 20-year master plan, including efficient management of the system's power supply needs and resources prior to completion of the planned new baseload unit, and the successful development of the new plant; and

--Continued economic development and stability within the service territory.

Kansas City Board of Public Utilities (KCBPU) is a combined utility system serving approximately 69,000 electric and 55,000 water customers in Kansas City and the surrounding area of Wyandotte County. 2005 operating revenue was over $221 million, consisting of 84% electric and 16% water. Energy sales (by $ revenue) for 2005 (fiscal year (FY) ending Dec. 31, 2005) consisted of 27% residential, 35% commercial, 25% industrial and 13% other.

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.