Fitch Rates NYPA's Proposed Sale of $430MM Senior Revenue Bonds 'AA'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to the New York Power Authority's (NYPA) proposed $195 million series 2005A and $235 million series 2005B senior lien revenue bonds. The rating represents the underlying rating, as the 2005 fixed-rate bonds are expected to be insured by one of the nationally recognized 'AAA' rated bond insurers. The 2005A bonds are being issued to refund series 2000A bonds related to the Long Island Sound Cable transmission project. Pricing of the 2005A bonds is pending the outcome of the Long Island Power Authority's review of its potential privatization. Morgan Stanley is the lead underwriter for the 2005A bonds. The 2005B bonds will refund a portion of outstanding commercial paper with fixed-rate bonds. Pricing of the 2005B bonds, with a final maturity of 2015, has not yet been scheduled due to uneconomic market conditions. Citigroup is the lead manager on the 2005B bonds.

In addition, Fitch affirms NYPA's outstanding ratings as follows:

--$1.6 billion senior revenue bonds at 'AA';

--$80 million subordinate auction rate securities (series 3 and 4) at 'AA', reflecting the uninsured rating;

--$680 million traditional and extendible municipal commercial paper program at 'F1+'.

The Rating Outlook is Stable.

NYPA's high-quality rating reflects the wholesale utility's strong financial and operational performance, low-cost power resources (primarily hydroelectric), competitive rates, and considerable generation debt retirement (over $1 billion since 1994). NYPA has used its solid operating cash flow plus annual payments from Entergy (related to sale of Indian Point 3 and FitzPatrick nuclear units to Entergy in 2000) to accelerate debt retirements, particularly generation debt associated with its higher cost and less competitive facilities. Consequently, NYPA's leverage is relatively low for its rating category, with total debt-to-funds available for debt service at less than 6.0 times (x) for 2004.

For the past five years, NYPA's total debt service coverage (senior and subordinate debt) has ranged from 1.5x-2.6x, solid for the 'AA' rating category. Despite higher than average use of variable-rate debt (bonds and commercial paper) at 40% of total debt outstanding, NYPA mitigates the interest rate risk via various financial hedges (swaps, caps, and collars) along with available cash and lines of credit to provide adequate support and liquidity. Actual variable interest rate exposure is less than 11% for fiscal year 2004.

Additionally, NYPA recently renegotiated new contracts with most of its largest users in southeast New York ('SENY' customers). The new contracts, in effect as of Jan. 1, 2006, are favorable in that they include a fuel/purchased power adjustment mechanism which is adjusted annually. Given the run-up in fossil fuel prices this past year, the new SENY contracts will allow NYPA to pass through a larger portion of the fuel increases to the customers utilizing that power, rather than having NYPA absorb those higher costs.

Credit concerns include the current limited ability to pass-through higher fuel costs, the potential for state political intervention, the need to federally re-license the Niagara hydroelectric generating facility in 2007, and natural gas commodity exposure. The higher fuel costs will be less burdensome in the upcoming year with the implementation of the new SENY power sales contracts. The re-licensing of the Niagara project is a concern; however, NYPA recently submitted the filing to the Federal Energy Regulatory Commission with the support of many of the interested parties to the project's re-licensing. State political pressure is an ongoing concern and in recent years manifests itself in the form of $50-$70 million in annual 'voluntary contributions' to the state general fund, pursuant to legislation enacted in 2002 in regard to NYPA's Power for Jobs program. While the current contributions are manageable (roughly 3% of operating revenues), the cap is likely to rise going forward.

NYPA's gas commodity exposure stems from ownership of 11 small natural gas-fired peaking units around New York City and Long Island and the addition of the new generation unit (500 MW) at the Poletti site in 2006. To manage the gas commodity exposure, NYPA plans to hedge at least 50% of the new Poletti unit's gas needs via long-term supply arrangements and/or financial hedges. Additionally, the new contracts with SENY customers will allow NYPA to share the fuel cost exposure to a greater degree in the future.

The New York Power Authority is the largest nonfederal public power producer in the U.S. NYPA serves customers throughout New York, primarily via contracted wholesale power sales to municipal, rural electric and investor-owned utilities, industrial users, public corporations, and out-of-state customers.

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.