Fitch Expects to Rate Nevada Power's $210MM Mortgage Notes 'BB+'.

NEW YORK -- Fitch Ratings expects to assign a 'BB+' rating to Nevada Power Co.'s (NPC) $210 million general and refunding mortgage notes, series M, due 2016. Net proceeds will be utilized to repay funds borrowed under its $500 million revolving credit facility to purchase a 75% interest in the Silverhawk power plant from Pinnacle West Capital Corp. The Rating Outlook is Stable. The notes are being offered in a private placement under Rule 144A of the Securities Act.

NPC's ratings and Stable Outlook reflect a more supportive regulatory environment in Nevada, an improving financial profile, adequate system liquidity and the absence of near-term maturities. Primary risks for NPC fixed income investors include exposure to the wholesale energy markets, high capital spending needs and relatively weak financial metrics. Positively, NPC recently settled pending litigation with creditors of Enron Corp. If approved by the Federal Energy Regulatory Commission (FERC), the settlement will resolve all pending litigation with Enron and require only a modest incremental cash payment. Additionally, the recent decision approving construction of a new gas-fired plant by its affiliate, Sierra Pacific Power Co. (SPPC) in northern Nevada, which included a higher incentive return on equity and construction-work-in-progress in rate base, highlights the continuation of constructive regulatory orders by the Public Utilities Commission of Nevada (PUCN).

The contentious regulatory environment in Nevada that contributed to NPC's financial distress in 2002-2003 has significantly improved over the last two years, in Fitch's view. Since early 2004, NPC has benefited from favorable deferred energy and general rate case rulings by the PUCN and greater coordination between company management and regulators on power and fuel supply procurement issues. Regulatory decisions will remain critical going forward as the utilities are expected to consistently file for recovery of capital investments and deferred energy costs. The Stable Outlook reflects the assumption that NPC will receive reasonable rate treatment in future rate filings.

Because output from NPC's own generation portfolio is considerably short of meeting its load requirements and substantial amounts of power must be purchased from the wholesale markets, high and volatile power and gas prices subject NPC to greater commodity price exposure relative to other utilities. To help manage seasonal working capital borrowings NPC recently increased capacity under its revolving credit facility to $500 million and extended its maturity until 2010.

To increase its generation portfolio and expand its transmission and distribution system to meet high-growth electric demand, NPC will need to incur significant capital investments over the next five years. These investments should spur significant earnings growth, but because these anticipated expenditures will exceed internally generated cash, NPC will rely on external financing.

Near-term credit metrics at NPC will remain relatively weak. This is, in part, due to debt associated with the purchase and construction of the Lenzie plant and the Silverhawk purchase as the company seeks to narrow its short generation position. However, these ratios have improved over the last several years and are expected to further strengthen over the intermediate-term as the company recovers its deferred energy costs and major capital investments.

A positive rating action could result from further improvement in credit metrics due to capital and deferred energy cost recovery, the continuation of constructive rate orders by the PUCN, further equity issuances or a significant reduction in system debt levels. A negative rating action could result from events restricting access to adequate liquidity, the disallowance of significant deferred energy costs or capital expenditures by regulators or over-reliance on debt financings for substantial construction expenditures.

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.