Fitch Affirms OrCal's Senior Secured Notes at 'BBB-'.

CHICAGO -- Fitch Ratings has affirmed the rating of OrCal Geothermal Inc.'s (OrCal) $165 million senior secured notes due 2020 at 'BBB-'. The rating is based on OrCal's long-term financial profile, which remains vulnerable to changes in Southern California Edison's (SCE) short-run avoided cost (SRAC) after 2012. OrCal is primarily dependent upon energy payments received from SCE under two power purchase agreements (PPAs). Energy payments are based on SRAC, which is calculated using a formula indexed to the price of natural gas.

OrCal will receive highly stable cash flows over the next five years due to the extension of the fixed price period through April 2012. The extension agreement, which was granted final approval by the California Public Utilities Commission in October 2006, fixes SRAC at 6.15 cents/kWh (kilowatt hour), escalating annually at 1%. Under a prior agreement, OrCal and SCE agreed to fix SRAC at 5.37 cents/ kWh through April 2007.

Though OrCal's credit quality is enhanced during the fixed price period, cash flows remain subject to price volatility over the long-term. Once the fixed price expires in April 2012, the energy price received under the PPAs will revert to the prevailing SRAC calculation. Fitch expects that debt service coverage ratios could fall to 1.5 times (x) in any given year under a realistic low price scenario.

Over the long term, OrCal will benefit from the stable cash flows provided by the newly-built Gould project, which sells output at a fixed price under an agreement with the Southern California Public Power Authority (SCPPA). Due to permitting delays, the Gould project was not completed until July 2006, approximately six months behind schedule. Because the Gould project was unavailable to sell energy during the delay, overall financial performance for 2006 fell slightly behind original projections. However, the Gould project has reached full capacity and output levels are currently in-line with expectations. Fitch will continue to monitor the performance of the Gould project, which will contribute 20% of cash available for debt service once the fixed price period expires.

OrCal is a special-purpose company created to acquire and own the Heber 1 and Heber 2 geothermal power facilities (the Heber projects) located in Imperial County, CA. The Heber projects sell electric energy and capacity to SCE under separate Standard Offer No. 4 PPAs expiring in 2015 and 2023. OrCal also owns the Gould project, which consists of a series of upgrades designed to enhance production and operating efficiency at the existing Heber projects. The output from the Gould project is sold at a fixed, escalating price to the SCPPA under a long-term PPA expiring in 2031. OrCal is an indirect, wholly-owned subsidiary of Ormat Technologies, Inc., a vertically integrated owner and developer of geothermal and other recovered energy projects.

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