Fitch Assigns Omaha Metropolitan Utilities District (NE) 'AA'; Stable Outlook.

NEW YORK -- Fitch Ratings assigns an 'AA' to the Metropolitan Utilities District's natural gas utility (MUD Gas). The Rating Outlook is Stable. MUD Gas' 'AA' rating is an implied revenue bond rating since MUD Gas does not have any outstanding capital market debt. The rating currently reflects the credit quality of MUD Gas' ability to meet its operating expenses (including purchases of natural gas) and its revenue pledge net of its operating expenses. The purpose of this rating is to provide MUD Gas a public rating necessary for its participation in an upcoming prepay natural gas transaction by Central Plains Energy Project (CPEP) (see below).

Metropolitan Utilities District (MUD) is a municipal utility that provides water and natural gas services to the Omaha, NE metropolitan area. The water and natural gas financials are separately secured. MUD Gas is one of the largest municipal gas utilities in the country serving approximately 205,000 customers with 2006 operating revenue of $281 million. The 'AA' rating takes into account the inherent low business risks associated with a municipal natural gas distribution system as well as other supportive credit factors as further described.

Underpinning the rating is MUD Gas' ability to set its own rates and its practice of consistently recovering its costs in a timely manner using a monthly adjustment mechanism in its rate structure. Fitch also views favorably MUD Gas' service territory that shows manageable growth and solid economic indicators, a diversified customer base that does not have any industry or single company concentration, and MUD Gas' competitive retail rates.

Credit concerns are manageable and involve the utility's inherent sensitivity to weather conditions and maintenance of adequate liquidity and operating margins to meet increased capital expenditures and continued volatility in natural gas prices. As a natural gas retail utility, MUD Gas' sales are dependent upon weather conditions (the colder the weather, the greater the demand for natural gas). Over the past several years, the Omaha metropolitan area has experienced warmer than average weather temperatures causing operating margins to be lower than prior forecasts. In response to less than expected margins in the past few years, MUD Gas increased its base rates in January 2007 by 3%. Management expects the rate increase to generate an additional $6 million-$7 million annually (increasing operating cash flow by approximately 20%).

Regarding liquidity, MUD Gas currently has approximately $6.4 million in cash reserves. While this is below average for the rating category, MUD Gas' liquidity is bolstered by a $30 million committed line of credit and a reverse repurchase arrangement that allows MUD Gas to borrow an additional $28 million. In aggregate, these arrangements give MUD Gas liquidity equal to over two months of operating expenses. Fitch believes this is sufficient liquidity for the current rating and MUD Gas' practice of recovering its costs.

MUD Gas has historically funded its capital projects with internally generated funds, resulting in no outstanding long-term debt for MUD Gas and a balance sheet with significant borrowing capacity. Going forward, management expects to continue with a pay-as-you-go strategy. MUD Gas forecasts an increase in capital expenditures over the next five years. The increase in capital expenditures results from upgrades to its system and continued MUD customer growth. MUD Gas' forecasts show sufficient internal cash flow to meet those capital costs. If warm weather or higher than expected costs negatively affect MUD Gas' forecasted financial margins, Fitch expects MUD Gas to adjust its rates to maintain its financial profile.

MUD procures natural gas from a diverse mix of suppliers. MUD Gas arranges for its natural gas supply to be transported to its service territory by Northern Natural Gas Pipeline Company (senior unsecured rating of 'A-' by Fitch) under a long-term contract. MUD Gas' supply arrangements are primarily less than one year with pricing based on a regional index.

Prepay Transaction: MUD Gas will procure approximately 15% of its annual natural gas needs through its participation in the upcoming CPEP Project No. 1 prepay transaction. Under this arrangement, MUD will lock-in a reliable long-term supply of natural gas with a strong counterparty at a discount to index price. Given the sound structuring characteristics of the CPEP transaction and the limited scope that the prepay volumes play in MUD Gas' overall need for natural gas, Fitch believes the prepay transaction complements MUD Gas' risk management practices. For additional detail regarding the CPEP prepay transaction, please see the CPEP press release expected to be released the week of Jan. 29, 2007 and available on Fitch's website at www.fitchratings.com.

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