Fitch Rates Austin, Texas $129.2MM 2006A Electric Util Sys Rev Rfdg Bnds 'AA-'.

NEW YORK -- The City of Austin, TX's $129.2 million of electric utility system (Austin Energy) revenue refunding bonds, series 2006A are rated 'AA-' by Fitch. Fitch also affirms the 'AA-' ratings on the outstanding Austin Energy (AE) separate lien bonds, the outstanding Austin Combined Utility System (ACU) prior lien senior and subordinate bonds, and the outstanding Austin Water & Wastewater (AWU) separate lien bonds. The Rating Outlooks are all Stable. (For additional information on AE and ACU, please see the report dated May 23, 2006 available on the Fitch Ratings web site at www.fitchratings.com.)

Proceeds will be used to refund certain of the city's outstanding series 1996A combined utility system prior lien bonds and series 2001 electric utility system separate lien bonds in order to accomplish debt service savings. The bonds are expected to be insured and are scheduled to price the week of Oct. 16, 2006 with Merrill Lynch as the senior manager.

The 'AA-' rating is primarily reflective of:

--Continued strong financial performance of ACU, with debt service coverage near 2.0 times (x);

--A coal and nuclear based power supply that provides relative value to AE within ERCOT and is sufficient to meet forecasted energy requirements for the intermediate term;

--The very strong economic and demographic characteristics of the service territory (Fitch rates the city of Austin public improvement bonds and certificates of obligation 'AA+' with a Stable Outlook).

Additional support for the rating is provided by a well-diversified customer base, rates for both systems which are competitive for the region, improved cooperation between utility management and the city, and ownership of sufficient water rights secured through 2050 with an option to extend an additional 50 years.

Credit concerns appear manageable and include the ability of utility management and city council to continue to work together to implement necessary policies. Fitch believes continued coordination between management and city council is an essential component of the 'AA-' rating. One issue management and city council will face in the future is the potential implementation in 2009 of the first base rate increase since 1994. In addition, ACU has a $1.7 billion capital improvement program (CIP); it expects to fund a significant portion (35%-40%) of these expenditures through internally generated cash. Fitch also recognizes that AWU debt service coverage and liquidity levels have been below their historical averages over the last two years and expects to see improvements in both areas, so as to not make a negative impact on the combined system.

Debt service coverage for ACU was 1.89x in 2005. Liquidity at the combined utility system level is consistent with that of other 'AA-' systems with similar risk profiles. The transfer from the utility system to the city's general fund has remained at or below the targeted level of 9.1%, a policy which weathered a downturn in the economy earlier this decade. The stability of the general fund transfer during this period is viewed as an indication of the city's governance of the utilities as stand-alone enterprise funds, which Fitch views as a positive credit factor.

The 2006A bonds will be issued as parity electric utility system obligations under Austin's master ordinance which, since being adopted in 2000, allows AWU and AE to issue bonds separately. However, the prior lien ordinance (under which AWU and AE issued combined utility system bonds prior to adoption of the master ordinance) remains in effect as long as combined utility system bonds are outstanding. Therefore, while combined utility system bonds remain outstanding, the 'AA-' rating reflects the credit profile and the operating performance of both AE (78% of 2005 combined revenues) and AWU (22% of 2005 combined revenues) and the senior claim of the prior lien obligations.

ACU consists of AE and AWU and provides electric services to over 372,000 customers and treated water and wastewater services to approximately 190,000 and 174,000 customers, respectively. ACU serves both residential and commercial customers within a 450-square mile territory that includes the city of Austin (including state government facilities and the main campus of the University of Texas) and portions of Travis and Williamson Counties.

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.