Fitch Rates Modesto Irrigation District's $92MM COPs 'A+'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--April 25, 2003

Modesto Irrigation District's (MID or the district) $92 million series 2003A (junior lien) certificates of participation (COPs) are rated 'A+' by Fitch. Additionally, outstanding debt is affirmed as follows: $105 million senior lien project revenue bonds (Woodland and Geysers generating stations) at 'A+'; $210 million junior lien certificates of participation at 'A+'; and domestic water revenue bonds at 'A'. The Rating Outlook is Stable. The outstanding series 1992 Woodland generation station revenue bonds, series 1996A Geysers refunding revenue bonds and the domestic water revenue bonds were originally issued by the Modesto Irrigation District Financing Authority (MIDFA). Via leasing agreements, the district is the ultimate obligor on the MIDFA-issued debt.

The 2003A transaction is structured as a lease financing between the district and the Electric Infrastructure Leasing Corporation, pursuant to a lease agreement dated May 1, 2003. The 2003A certificates represent the certificate holders' proportionate interest in rental payments, which include debt service, to be paid by the district to the corporation. The 2003A rental payments are secured by net revenues of the electric system, subordinate to the district's senior lien revenue bonds and prior lien (off-balance sheet) contractual obligations with joint action agencies. Proceeds from the 2003A certificates will finance capital improvements for the electric transmission and distribution system and refund the outstanding $32.8 million 1996 COPs. The certificates are scheduled to price the week of May 5, with Bear, Stearns & Co. as lead underwriter.

MID's credit rating reflects a fiscally conservative, yet proactive management team, regionally competitive rates, a strong financial position, and diversified power supply position. Total debt service coverage (senior and junior lien) has been solid at 1.4 times (x) - 2.3x on the district's electric system debt since 1997. Despite the volatility in purchased power costs resulting from the CA energy crisis in 2000-2001, the district still maintains substantial cash reserves, currently at $165 million or roughly 96% of annual operating expenses. The district's owned generating resources are modest (10% of total energy), with an additional ownership of 25% (San Juan Unit No. 4) through a joint power agency, and purchased power accounting for the majority of energy requirements at 65% for 2003. Power supply strategy going forward is to firm up 80% of capacity requirements, as opposed to 50% historically, to limit spot market exposure, particularly during periods of extreme price volatility.

Credit concerns include the increasing commodity exposure to natural gas prices, rising projected retail rates and significant off-balance sheet obligations with two joint power agencies (JPA) totaling $366 million. Given the near-term expected completion of the gas-fired Woodland Generating unit and the proposed construction of the Northwest gas-fired peaking units in 2004, natural gas will become the dominant fuel source, from a capacity perspective, by 2005. While MID intends to hedge up to 50% of its total natural gas exposure by 2004, only 23% of total gas exposure is currently hedged.

The district's retail rates are currently 20%-40% below PG&E's and comparable with respect to other munis in the area, but the projected annual rise in rates may narrow their rate advantage going forward, particularly once PG&E's bankruptcy proceedings are completed. Offsetting the above concern is that MID's most vulnerable larger loads are frequently under contracts of 1-5 years in duration. Additionally, while total leverage is rising going forward, primarily for major capital expenditures, the projected continued strength in unrestricted cash reserves and strengthening credit protection measures help to mitigate that risk.

MID is an integrated electric system providing electric service to over 100,000 customers, mostly residential and commercial users, in rural central CA (90 miles east of San Francisco). Industrial users accounted for a relatively moderate 22% of operating revenues in 2002. The largest user, E&J Gallo wines, accounts for 7.5% of operating revenues, and is under a long term contract with MID through 2004. The service area is agricultural based with an energy sales growth averaging 2% per year since 1998. The district also provides water for irrigation use to approximately 3,400 users in Stanislaus County.