Fitch Rates Kissimmee Utility Authority's (Florida) $66.7MM Revenue Bonds.

NEW YORK -- Fitch Ratings has assigned an 'A' rating to Kissimmee Utility Authority's (KUA) $66.7 million electric system subordinate refunding revenue bonds, series 2005. At this time, Fitch also affirms the 'A' rating on KUA's $194.5 million of outstanding senior and subordinate revenue bonds. The Rating Outlook is Stable. The series 2005 proceeds will refund series 1997 bonds ($31.7 million) and fix out a portion of KUA's series 2000 commercial paper ($35.0 million). The bonds are expected to price the week of Sept. 5 with JPMorgan as lead underwriter.

The 'A' rating continues to reflect KUA's sound financial performance, experienced management team, and steadily growing customer base. The service territory is mostly residential and small commercial, with the 10 largest customers representing about 13% of total energy sales. The rating also recognizes KUA's membership in the 15-member Florida Municipal Power Agency's (FMPA) All-Requirements Project (ARP), which it joined in October 2002. KUA dedicates its available resources to the ARP in excess of 12.1 megawatts of excluded nuclear resources. The ARP allows participants to pool their resources and utilize generation more efficiently, as well as mitigate some key risks associated with power supply management, such as fuel hedging, wholesale market risks, and single unit outage risks.

Debt service coverage has been stable in the 1.5 times (x) range over the past few years. Although low for an 'A' rated system, these results are largely offset by the system's sizable unrestricted cash balances, which were about $58 million in 2004, and represent a robust 192 days of operating expenses. Furthermore, while KUA was greatly affected by Hurricanes Charley, Frances, and Jeanne in 2004, KUA's financial health was not materially affected, despite having to restore power to a significant portion of its customers at that time. Of the approximately $9.7 million total cost to KUA of the 2004 hurricanes, FEMA is reimbursing the utility for all effective costs net of lost power sales. Following these events, KUA expects to build its hurricane contingency fund to $15 million in 2005, up from the $12 million it previously maintained for this purpose.

Credit concerns center on KUA's slightly above-average cost of power and certain power supply risks associated with the ARP project. Like most electric systems in Florida, the ARP is realizing increased exposure to natural gas price volatility, and KUA has had to raise its all-in electric rates accordingly in recent years. In addition, while KUA's service territory economy is less dependent on tourism then other Osceola County communities, this is still a factor. The City of Kissimmee's wealth indicators are also slightly below average for the region.

KUA provides electric services to approximately 58,000 customers and is located in Central Florida about 18 miles south of Orlando, Fla. and seven miles east of Walt Disney World. Approximately 48% of the system's customers are located within the City of Kissimmee, with the remainder located outside the city limits. Peak load for 2004 was 285 MW. The utility also provides dial-up and commercial internet services to 1,733 customers.

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