Fitch Rates Kentucky Power Company's $125MM Notes 'BBB'.

Business Editors

Fitch Ratings has assigned a rating of 'BBB' to Kentucky Power Company's (KPCo) new $125 million senior note offering due June 1, 2007. The proceeds will be used to redeem or repurchase certain of its outstanding debt, to fund its construction program, to repay short-term indebtedness and for other corporate purposes. Fitch also affirmed KPCo's outstanding securities as follows: first mortgage bonds 'BBB+'; subordinated debt 'BBB-' and commercial paper 'F2'. The Rating Outlook is Stable.

The ratings are supported by consistent levels of cash flow, stable earnings and modest sales growth. KPCo also benefits from its participation in the American Electric Power Company (AEP) system power pool and from parent AEP's marketing and trading activities. The company is likely to remain an integrated, regulated electric utility since there are no pending legislative or regulatory initiatives to introduce retail competition in Kentucky. Although AEP has requested FERC approval of a corporate separation plan, it should have no structural or credit impact on KPCo. A base rate freeze through June 1, 2003 is a credit concern, but is mitigated, in part, by a fuel adjustment mechanism. An Environmental Compliance Cost (ECC) surcharge also remains in effect during the base rate freeze. The ECC offsets concern regarding rising environmental costs.

Capital expenditures are estimated at about $129 million in 2002 and $64 million in 2003 compared to $37 million in 2001. The higher expenditures are largely related to environmental compliance costs and should be recoverable through the ECC. After 2003, capital expenditures will again move to a lower level.

For the last twelve months (LTM) ended March 31, 2002, EBIT-to-interest coverage and EBITDA-to-interest coverage were 2.3 times (x) and 3.6x respectively. Leverage is roughly 62%. Fitch expects continued support from AEP and for credit protection measures to gradually strengthen.

KPCo engages in the generation, sale, purchase, transmission and distribution of electric power to approximately 173,000 customers in the far eastern portion of Kentucky around Pikeville and Ashland. KEPCo represents slightly less than 3% of the generating capacity of the AEP system. The key industry for KPCo continues to be coal mining along with a strong influence of chemicals, petroleum refining and steel.