Fitch Affirms Los Alamos Cnty (NM) Electric System Revs at 'A-'.

NEW YORK -- In the course of routine surveillance, Fitch Ratings affirms the 'A-' rating on Los Alamos, New Mexico's (the utility) $62 million electric system revenue bonds. The Outlook is Stable. The bonds are secured by net revenues of the combined utility system which consists of electric (69% of revenues), natural gas (17%), water (10%), and wastewater (4%) systems.

The 'A-' rating considers the extreme customer concentration in Los Alamos National Laboratory (LANL) as well as the utility's stable financial performance, adequate liquidity levels, and manageable capital needs.

LANL, a Department of Energy (DOE) technical and scientific laboratory as well as a steward of the nation's nuclear stockpile, accounts for over 70% of the utility's electric revenues and 50% of combined revenues. LANL and ancillary jobs are the main factor in the county's high income levels (200% of the state and 150% of the national average) and extremely low unemployment rate (2.4% in November 2008). The employment concentration and utility revenue concentration in LANL is somewhat mitigated by LANL's integral role in national security and research as well as strong contracts with the LANL that extend the life of the bond.

The utility and the DOE have an electric energy power coordination agreement in which they pool generation resources and supply each system's load from the combined pool. The county owns or has contracts for approximately 70 megawatts (mw) of generation and has transmission contracts to deliver the energy from those facilities to the Los Alamos service area. The DOE owns two approximately 20-mw generation units that are located on site at LANL, both of which are currently for emergency generation only. Additionally, the DOE has contracts with the federal Western Area Power Administration for up to 36-mw of hydroelectric capacity. In addition, the DOE owns and operates one of the two 115-kilovolt (KV) electric transmission lines that service the county.

The electric system expects to install a 3-mw 'low flow' turbine generator at their existing Abiquiu hydro-electric plant. The unit is budgeted at $8.5 million, which they plan to debt finance. The utility also plans to upgrade its existing distribution lines, which will not require additional debt, but will be funded out of the existing rate structure.

The gas system typically uses a laddered approach to purchase gas on the forward market for three-quarters of their supply, while purchasing the remaining portion on the spot market. The utility does not have the pass-through mechanism which is typical of gas systems. The lack of a pass-through is somewhat mitigated by sizeable reserves and a rate cushion maintained over the cost of purchased gas.

The water system provides service to LANL on a wholesale basis, while most of its customers are residential. The water system does not anticipate capital expenditures in 2009 other than the rebuilding of a reservoir dam that was damaged in 2000. The project will be funded with FEMA money and state grants.

The wastewater system does not service LANL, but rather retail customers within the county who are not served from the DOE wastewater system. In the last year, the county added a new wastewater treatment plant and retired an old one. The new plant requires more energy than the old one, but performance is in line with budget projections.

Financial performance for the joint utility system is in line with the financial metrics of an 'A-' Fitch rating. Debt service coverage remained in line with the rating category at 1.5 times annual debt service in 2006 and 2007 and days-cash has consistently been equal to 180 days.

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