Fitch Rates JEA Water/Sewer's $35MM Sr Bonds & $15K Sub Bonds 'AA'.

NEW YORK -- Fitch has assigned an 'AA' rating to JEA Water and Sewer System's (JEA W&S) $35 million 2006 series A senior bonds and $15 million 2006 series A subordinate bonds. The 'AA' rating on the $1.43 billion of outstanding senior bonds and $350 million of outstanding subordinate bonds are affirmed by Fitch. The Rating Outlook is Stable. Proceeds from the debt issuance will fund additions and improvements to the W&S system. The bonds are expected to be competitively bid the week of May 1, 2006.

Support for JEA W&S' 'AA' rating is provided by the utility's economically strong service area, robust sales growth, and reliable long-term water supply that will be sufficient to meet system needs until about 2015. Operating performance of the water and sewer system is showing demonstrated improvement after a period when management focused on enhancing system efficiency, reducing infrastructure problems, and funding needed capital projects. In addition, JEA W&S' combined monthly bill compares well to those of other large regional utilities and is below those of its immediate neighbors.

While JEA has had to financially leverage the system to pay for operating improvements (adding over $1 billion in debt since the acquisition of W&S in 1997), at this point Fitch believes that operations have become more predictable and that the utility has positioned itself for reduced future capital needs. It should be noted, however, that the utility's added debt burden has caused financial leverage ratios to weaken in recent years. For fiscal year 2005, total W&S debt/funds available for debt service (FADS) was above average for the rating category at 13.3 times (x). W&S also held cash and unrestricted investments, which were equivalent to about 50 days of operating expenses or 150 days when including R&R funds; 220 days is typical for 'AA'-rated water systems. Debt service coverage (excluding interest on outstanding crossover bonds) has been satisfactory at 1.70x in 2005, down from 2.00x in 2003.

Maintenance of the Stable Rating Outlook reflects Fitch's expectation that JEA will bolster its cash position to more aggressively target its higher debt service levels going forward, which should also allow the system to fund 100% of future noncapacity related capital expenditures with cash from operations. The Outlook is supported by the recent shift in JEA's pricing philosophy, primarily the redesign of the utility's water and sewer rates, effective Oct. 1, 2005. Specifically, an 11.7% base rate increase initiated for fiscal year 2006, with additional 7% rate increases approved in fiscal years 2007 and 2008. Management forecasts that this will allow W&S to increase margins over the next few years, with reasonable debt service coverage levels projected in the 1.85x-2.00x range.

The JEA W&S business serves approximately 279,622 and 208,143 water and sewer accounts, respectively. Revenues are approximately 56% residential, 36% commercial and industrial, 5% irrigation, and 3% governmental. The service area includes virtually all of the City of Jacksonville, with the exception of the beach communities; the Town of Baldwin, the U.S. naval facilities, and those areas served by other community and investor-owned water and sewer utilities.

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.