Fitch Assigns Southwest Power Pool, Inc. IDR of 'A'; Outlook Stable.

NEW YORK -- Fitch has assigned an Issuer Default Rating (IDR) for the Southwest Power Pool, Inc. (SPP) of 'A'. A full list of ratings can be found below. The Rating Outlook is Stable.

The ratings for SPP reflect the company's regulated tariffs and contracts with member companies that result in steady and predictable cash flows. As a Regional Transmission Organization (RTO) and electric reliability organization, SPP benefits from supportive federal regulatory policy. SPP currently operates under a cost-of-service tariff accepted by the Federal Energy Regulatory Commission (FERC), which allows for the recovery of all costs associated with SPP's services, including scheduling transmission and energy supply, collection and disbursement of transmission and energy market revenues, as well as market monitoring activities. While SPP's Board of Directors has discretion to change the tariff rate annually and SPP is permitted to levy interim assessment fees for unexpected expenses, the amount of the tariff fee including assessments is capped by its FERC approved tariff. However, Fitch's rating is based on the expectation that FERC will raise SPP's tariff cap if necessary to recover operating and financial expenses as FERC historically has allowed adjustments to SPP and other RTO tariffs.

Rating concerns relate to the execution risk in implementing improvements to operating systems, as well as a limited operating history of its new spot energy balancing market. It should be noted that the same-day energy balancing market, which commenced in February 2007, has run smoothly to date. Also, as SPP membership is voluntary, the departure of a large member could adversely affect SPP as it would increase the remaining member's share of operating and capital expenses and thereby could result in additional departures from the system. However, this risk of departing members is mitigated by the requirement that the exiting member pay a fee equal to its share of SPP's outstanding debt and other committed expenses. Similarly, SPP's exposure to a market participant's payment default is limited by collateral requirements that would limit the size of any default as well as processes that mutualize the costs of a default among the market participants. Additionally, as the settlement agent within its regional electricity system, SPP is not obligated to remit funds to market participants for services except to the extent that it has received payments.

Fitch considers SPP's activities as low risk reflecting the nature of its business and predictability of cash flows. As a not-for-profit entity, SPP has higher financial leverage than is customary for investor-owned utilities. Fitch's analyses of RTOs such as SPP are based upon the reliability of cost recovery mechanisms and risk management practices rather than capitalization and other traditional credit metrics. SPP currently has substantial cash reserves and a bank credit facility providing exceptionally strong liquidity.

SPP is a non-stock, not-for-profit company that provides point-to-point and network integration transmission services in seven southwestern states. Additionally, SPP acts as a market monitor and coordinates planning for transmission additions and upgrades. In 2007, SPP commenced the operation of an hourly spot electric market within its footprint.

Fitch has assigned the following ratings to SPP with a Stable Rating Outlook:

-- Issuer Default Rating(IDR): 'A';

-- Senior Secured: 'A+"

-- Senior Unsecured: 'A';

-- Short Term Issuer Default Rating (IDR) 'F1'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.