Fitch Affirms Northern California Power Agency's Hydro & Geo Bonds At 'A-'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--March 5, 2003

Fitch Ratings affirms Northern California Power Agency's (NCPA) $501.8 million outstanding hydroelectric project bonds and $261.2 million outstanding geothermal project bonds 'A-' rating. The Rating Outlook is Stable.

NCPA is a joint power agency that provides 17 members, based in Northern California, with a portion of their energy requirements through a mix of hydroelectric, geothermal, and gas projects, as well as purchased power. While each project is separately financed and secured, NCPA's operation of the resources and the integration of the facilities into the member's power supply mix more closely resemble a utility system than separate project financings. This system-like quality lends greater stability and security to the credits. The historically solid financial performance of its members, NCPA's declining power costs as a result of improved operations at the geothermal facilities, reduced debt service, and low plant operating variable costs all contribute to the 'A-' rating. In addition, project revenues are secured by take-or-pay contracts with the participants that include 25% step-up provisions in case of default by any participant. NCPA bills are considered operating and maintenance expenses of each participant's utility system and, therefore, are senior to any debt at the participant level.

Credit concerns include hydro exposure to dry water years, participant retail rates that, while generally favorable compared with neighboring investor-owned utilities, are above regional averages, and the relatively small size of many of the participants along with service area wealth indexes that, with few exceptions, lag state and national levels. An additional concern is that beginning in 2005 PG&E energy support for an allocation from the Western Area Power Administration (WAPA) to NCPA will no longer be available requiring the agency and its members to procure additional resources. Historically, the WAPA allocation was very favorable to the agency and its members.

The five largest hydro and geothermal project participants include Silicon Valley Power, Palo Alto, Roseville, Lodi, and Alameda. Credit quality of most NCPA members fits into the 'A' category. The 243-megawatt (mw) hydroelectric project, is located on the North Fork Stanislaus and the Stanislaus Rivers, and licensed to the Calaveras County Water District through 2032. NCPA estimates the cost of hydro generation for 2003 at 5.1 cents per kwh. The two-plant, 163-mw geothermal project is located on federal land about 70 miles north of San Francisco. NCPA estimates the cost of geothermal generated power to be 6.7 cents per kwh for Plant 1and 7.0 cents per kwh for Plant 2 in 2003. The average cost of power, including non-NCPA sources, for members in fiscal 2002 was 5.0 cents per kwh. In 2002, WAPA accounted for 48% of power followed by owned generation with 29% (geo-14%, hydro-8%, STIG-5%, and CTs-1.7%) and contracts/purchases with 22% of NCPA's power pool supply.