Fitch Rates Indiana Municipal Power Agency's $44.5MM Revs 'A+'.

NEW YORK -- Fitch Ratings has assigned an 'A+' to Indiana Municipal Power Agency's (IMPA) $44.5 million of generation expansion project financing bonds, 2004 series A. The $409 million of outstanding senior parity debt is affirmed at 'A+'. The Rating Outlook is Stable. Proceeds from the debt issuance will provide funds to acquire 150 MW of peaking capacity from DTE Energy Company, located in Indianapolis IN, and to also cover bond issue costs and supplement IMPA's debt service reserve fund. The bonds are expected to price the week of Oct. 25, with Citigroup as lead underwriter.

The bonds will be issued under a new, less restrictive, resolution. Changes to the resolution include revisions to the additional bonds test, debt service reserve requirement, and permitted investments. Fitch reviewed the proposed changes, which will spring into affect once a majority of bond holders approve them and believe that the changes do not materially affect the rating and primarily bring IMPA's resolution more inline with current industry standards.

The 'A+' rating takes into account IMPA's plan to secure additional power supply over the next several years as certain power purchase agreements expire. IMPA's most favorable contract, with Cinergy's PSI Energy, Inc. (PSI), expires at the end of 2006. As these agreements terminate, IMPA plans to replace a large part of them with owned coal fired generation by 2010 (400 MW). This switch to 84% owned 16% purchased power in 2010 from a current mix of 53% owned 47% purchased will result in a major change in IMPA's cost structure. This move will result in a shift from a large portion of purchase power costs to increased debt service costs associated with the financing of the new generation. Management's strategy appears balanced, taking into account single unit outage risk by participating in three generation projects that have favorable fuel supply alternatives for the long term, and by maintaining a good mix of purchase power supply for operating flexibility. While IMPA's overall wholesale rates will increase slightly as a result of this change, Fitch expects that the system's rates should remain competitive with those of its neighboring utilities. For year-to-date 2004, IMPA's average rate to members was a competitive 3.98 cents per kilowatt-hour (including transmission of about .43 c/kwh). It should also be noted that Indiana is a low cost state.

IMPA's rating continues to reflect a mix of low-cost power resources, very competitive retail rates at the member system level, little exposure to fuel price volatility due to limited gas exposure, and an experienced management team. The rating also recognizes IMPA's predictable financial performance, and growing customer base, including the addition of eight new member systems in 2003. IMPA's financial results for 2003 posted debt service coverage consistent with historical levels at 1.19 times (x) (1.25x per the resolution), cash liquidity of about 150 days of operating expenses, and debt-to-FADS of about 11x. While concentration of industrial customers within certain member systems service territories should be noted, economic indicators within the state are stable and the members appear to have healthy financial profiles.

Indiana Municipal Power Agency (IMPA), a joint action agency, provides wholesale electricity to 40 members, pursuant to take-and-pay full requirements contracts that expire on April 1, 2032. The contracts include an unlimited step-up provision, which, in the event of one member defaulting, calls for all the other members to pick up the loss through their rates. The member utilities are located throughout the state and serve a combined population of about 280,000 people. IMPA and its members currently own 640 MW of generating power and expect to add another 550 MW through 2010 (including the above mentioned 150 MW of gas fired peaking generation and 400 MW of base load coal fired generation).