Fitch Affirms Old Dominion Electric Coop Bonds at 'A'; Outlook Stable.

NEW YORK -- Fitch Ratings affirms the 'A' rating on Old Dominion Electric Cooperative Inc.'s (ODEC) outstanding $935 million of first mortgage bonds. The Rating Outlook is Stable.

The 'A' rating takes into account new developments such as the proposed creation of a new cooperative, New Dominion Electric Cooperative (New Dominion), disagreements with ODEC's largest member, rising fuel and purchase power prices, and the following credit strengths and risks.

ODEC's credit strengths include:

-- Long-term contracts with members;

-- Reliable power owned resources that provide nearly half of its members' energy requirements (purchase power accounts for other half);

-- Conservative hedging strategy for procuring energy and fuel;

-- Growing customer base and favorable demographics;

-- Removal of rate caps for two members in 2005.

Credit concerns include:

-- Cost volatility due to exposure to market power prices;

-- Rising fuel costs (coal and natural gas);

-- Member concentration (three largest members comprise 60% of ODEC's member revenues);

-- Potential disruption to ODEC's board as a result of ongoing dissent with largest member.

Financials results are deemed satisfactory. ODEC's financial profile includes 2004 debt service coverage of 1.7 times (x). ODEC has $17 million in cash reserves and also maintains $180 million of available lines of credit dedicated to working capital purposes plus a $50 million revolving credit agreement. In aggregate, this liquidity provides for approximately six months of operating expenses. As a result of its cost-based rates, past financings, and reduced scheduled principal amortization over the past four years, ODEC's debt service coverage has been stable but ODEC's equity-to-capitalization ratio declined to 22% in 2004 from 32% in 2000, which Fitch still considers good for a generation and transmission cooperative. Looking forward, ODEC will begin to amortize debt closer to historical levels ($22 million annually) for the next few years.

In 2004, ODEC and its members entered into a reorganization agreement to create New Dominion. The proposed reorganization would provide ODEC with the ability to enter into certain types of financial and power market arrangements and has resulted in disagreements between ODEC and its largest member.

Fitch believes the realization of the proposed reorganization (as currently proposed by ODEC) would not have negative credit implications. The flexibility ODEC seeks is not meaningfully different than what other not-for-profit wholesale power providers already have. Moreover, the creation of New Dominion should enhance ODEC's ability to meet the challenges of an increasingly complex and volatile fuel and wholesale electric market.

Fitch recognizes that the new structure would allow ODEC to incur potentially different forms and levels of risks. Nevertheless, these would be mitigated by several factors including the system's available liquidity, capital market access, its ability to fully recover costs through long-term contracts with member cooperatives, an experienced management staff, and a historical record of managing the system's risks. Fitch would also look for ODEC/New Dominion to modify its risk management policies and to maintain sufficient levels of liquidity to meet any new risk profile.

ODEC's proposed reorganization requires Federal Energy Regulatory Commission (FERC) approval on several issues. Earlier this year, ODEC's largest member, Northern Virginia Electric Cooperative (NOVEC), which represents 28% of ODEC's member revenues, filed an intervention with FERC requesting FERC delay its approval of ODEC's reorganization filings (related to the creation of New Dominion) until after NOVEC's desired contractual changes are addressed.

For several years, NOVEC has sought to amend its wholesale power contract with ODEC. NOVEC would like to change its existing full-requirement obligation with ODEC to a partial-requirement contract. NOVEC does not want to be and cannot be relieved of its obligation to pay its share of the costs of existing generating facilities, including the debt service on outstanding bonds.

FERC has scheduled a hearing for the fall, and initial rulings are scheduled for 2006. Fitch believes that continued disagreement between ODEC and NOVEC could become a negative credit factor for ODEC regardless of the organizational structure should it compromise the board's ability to effectively govern the utility. As of this time, this has not been a major credit concern.

Regarding rising fuel and purchase power costs, ODEC relies on purchase power and coal for over 70% of its power supply needs. In recent years, the cost of these commodities has increased dramatically. Mitigating this increase, ODEC raised its energy rates by approximately 20% with two rate increases in the past year. Further enhancing its ability to recover costs, ODEC's members in Delaware and Maryland will have their rate caps removed by mid-2005. ODEC's members in Virginia are subject to rate caps, but are allowed to adjust rates for changing purchase power and fuel costs.

ODEC is a not-for-profit generation and transmission cooperative providing electric service to 12 rural distribution members (ten members in Virginia, one in Maryland and one in Delaware). ODEC is one of the largest G&T cooperatives in the nation. In aggregate, the distribution members serve over 496,000 retail customers.