Fitch Notching Review of 14 Pub Power Credits; 8 Upgrades, 1 Downgrade; Outlook Stable.

NEW YORK -- Fitch Ratings has concluded its review of 14 credits that were placed on Evolving Rating Watch on June 6, 2004. At that time, these 14 credits had different ratings for separately secured liens (notching) or had ratings that could have been affected by this process. The review was part of an update to Fitch's guidelines regarding ratings applied to different liens of public power credits.

The review of the 14 credits resulted in eight upgrades and one downgrade. No rating actions were taken on five credits (see individual results below). In addition, all ratings are removed from Rating Watch Evolving. The Rating Outlook on the 14 credits is now Stable.

This review took into account Fitch's view of less electric industry risk and increased credit strength in the public power sector. The analysis also included an in-depth review of each utility's legal, financial, and dilution characteristics relative to its risk profile. As a result of this view and analysis, Fitch concluded there should be less rating differentiation among credit liens.

Senior/subordinate liens are not new financial structures for public power utilities. Prior to the early 1990s, public power credits used subordinate debt sparingly and usually only for relatively minimum amounts of variable-rate debt. During that period, Fitch's review of those structures did not generally differentiate ratings for separate liens, since there was little evidence that the risk to any part of the revenue stream was in question (i.e. it did not matter where one stood in the flow of funds, the level of risk was not materially different).

As the trend for wholesale and retail competition began to emerge in the mid-1990s and with the increased use of subordinate debt (generally to access less restrictive new covenants), Fitch saw greater potential exposure for expense and revenue volatility for public power credits.

With changes in legal protections in the mid to late 1990's and the prevailing uncertainty of the industry environment, Fitch believed that the order of payment and weaker security provisions (e.g. minimum debt-service coverage requirement, debt-service reserve fund requirement, or monthly debt-service payments to the trustee) could affect the creditworthiness of an issuer enough to justify notching ratings for different liens. As a result, Fitch began to apply different ratings to separate liens on more of Fitch's public power credits.

In the past few years, the electric utility industry has further evolved. Following the substantial volatility in the wholesale electricity markets from 2000-2001, certain key stabilizing factors emerged in the electric industry and changed Fitch's perspective on notching for public power credits. These factors include:

--Indefinitely sidelined electric deregulation initiatives;

--Increased financial strength;

--Maintenance of core business mission;

--Increased use of subordinate debt as the operating lien.

As a result, Fitch believes that public power utilities are better prepared to handle potential variations in their cash flows. While credit risk factors have been reshuffled (greater fuel volatility, regulatory certainty and financial strength), Fitch believes the net market and credit risk is reduced for subordinate liens in many ways similar to the pre-1995 period.

Although senior-lien debt is preferred by investors relative to subordinate-lien bonds, from Fitch's examination of various factors (including its default study and lien profile analysis), Fitch believes that in the current market environment, the intrinsic value of the issuer often supersedes the lien standing in the credit review.

For additional information, see the criteria report 'Notching Summary - Results of the 2004 Lien Profile Review for Public Power,' which will be released the week of Sept. 20, 2004, available on the Fitch Ratings web site at 'www.fitchratings.com'

Upgrades

Austin, TX Energy (1)

--Upgrade of separate lien to 'A+' from 'A';

(1) Austin Energy's separate lien is on parity with Austin Combined Utility System subordinate debt

Intermountain Power Agency (UT)

--Senior lien remains 'AA-';

--Upgrade of subordinate lien to 'AA-' from 'A+'.

M-S-R Public Power Agency (CA)

--Senior lien remains 'A+';

--Upgrade of subordinate lien to 'A+' from 'A'.

Municipal Electric Authority of Georgia- Project One (2)

--Senior lien remains 'A+';

--Upgrade of subordinate lien to 'A+' from 'A'.

Municipal Electric Authority of Georgia - General Resolution (2)

--Senior lien remains 'A+';

--Upgrade of subordinate lien to 'A+' from 'A'.

(2) See press release dated Aug. 19, 2004.

New York Power Authority

--Senior lien remains 'AA';

--Upgrade of subordinate lien to 'AA' from 'AA-'.

Platte River Power Authority (CO)

--Senior lien remains 'AA';

--Upgrade of subordinate lien to 'AA' from 'AA-'.

Downgrade

JEA Electric (FL)

--Downgrade of senior lien to 'AA' from 'AA+';

--Downgrade of St. John's River Power Park (SJRPP) senior lien to 'AA' from 'AA+'(3)

--Subordinate lien remains 'AA'.

(3) SJRPP's rating is tied to JEA's senior lien rating.

No rating action; Notching of Separate Liens Remains Appropriate

Brownsville Public Utility Board (TX)

--Senior lien remains 'A';

--Subordinate lien remains 'A-'.

Grant County PUD No. 2 (WA)(4)

--Hydro Project debt remains 'AA';

--Electric System debt remains 'AA-'.

(4) Grant's Hydro Project debt is structurally senior to Grant's Electric System revenue bonds.

No Rating Action; No Notching Remains Appropriate with Related Credits

Austin, TX Combined Utility System (5)

--Senior lien remains 'A+';

--Subordinate lien remains 'A+'.

Austin, TX Water and Wastewater System (5)

-- Separate lien remains 'A+'.

(5) Austin Water Utilities separate lien is on parity with Austin Combined Utility System subordinate debt.

Municipal Electric Authority of Georgia-Combustion Turbine/Combined Cycle Project (6) (7)

--Senior lien rating remains 'A+'

(6) See press release dated Aug. 19, 2004.

(7) Fitch views the credit support for MEAG's Combustion Turbine/Combined Cycle Project senior lien debt as similar to the support for the MEAG's General Resolution and Project One Bonds.