Fitch Rates Nebraska Power Dist Revs 2005 Series C 'A+'.

NEW YORK -- Fitch Ratings assigns an 'A+' to Nebraska Public Power District's (NPPD) $92 million general revenue bonds, 2005 series C. The Rating Outlook is Stable. Bond proceeds will fund NPPD's share of the costs of construction of a coal-fired generating unit being constructed by Omaha Public Power District. The 2005C bonds are scheduled to price the week of Oct. 10, 2005, with Bear Stearns as senior manager.

NPPD's rating is reflective of the utility's low-cost generating resources. In 2004, NPPD's energy sales derived primarily from a stable mix of coal- (61%) and nuclear- (24%) fueled generation. NPPD's coal-based generation comes from Gerald Gentleman Station and Sheldon Station, both of which continue to be among the lowest cost steam electric plants in the country, fueled by low sulfur and highly abundant coal from the Powder River Basin.

Further supporting the rating is a solid and stable financial profile. 2004 results show debt-service coverage of 1.2 times (x). This coverage includes a $16.7 million lease payment, which is technically subordinate to debt service. Adjusting for that factor increases debt service coverage to 1.3x. In addition, interim financials through Aug. 31, 2005, show similar coverage levels and approximately $155 million of cash reserves (or four months of operating expenses). Although this level is less than last year's ($200 million) and NPPD expects to continue to draw down its cash to approximately $130 million by next year, Fitch believes current and forecasted liquidity is sufficient for NPPD given its stable operating environment and nongas-based power supply portfolio. NPPD's financial profile is also supported by $80 million in available capacity in its commercial paper program and a fully funded debt-service reserve fund of $83 million. Fitch also recognizes the cash flow benefits of NPPD's new wholesale and retail rate structure that adjusts for changing costs and that allows for the buildup of cash for funding future capital expenditures.

Credit concerns include the operational performance of NPPD's Cooper Nuclear Station (CNS). For much of its history, CNS has had operational and regulatory compliance issues. Fitch recognizes that NPPD has achieved a consistent trend of improvements at CNS and completed the necessary compliance remediation steps in 2005 required by the Nuclear Regulatory Commission. Given its prominence in its power supply and the tight cost structure of its off-system sale contracts of CNS power, Fitch believes continued cost containment, operational consistency, and regulatory compliance is an essential component of NPPD's credit profile.

In addition, Fitch is also monitoring certain developing factors such as potential environmental compliance costs for its coal-based generating units (estimated to cost $500 million-600 million that may be required after 2010). While these costs would add significant debt to NPPD's capital structure, this risk is partially mitigated by NPPD's financial flexibility in its debt amortization schedule, especially post 2015, and compliance requirements that could affect NPPD would most likely also affect other regional coal-based suppliers.

In addition, Fitch also takes note of new water flow regulation priorities and a continued regional drought that could have an impact on NPPD's generating units. New water flow regulation priorities of the Missouri River (managed by the U.S. Corpse of Engineers), which is the source of cooling water for CNS, could force reduced generation levels at CNS in certain seasons and most likely in higher replacement power costs for NPPD. Fitch believes NPPD's existing financial strength, cost competitiveness, and contractual arrangements to recover costs from its customers partially mitigate the financial risk of higher cost replacement power if permitted water is not sufficient for CNS to be operated at full capacity. In 2005, CNS did not have any operational disruption due to water flow.

With regard to the regional drought, over the past six years, the water supply in Lake McCounaghy has reduced to about one-third capacity. This lake and natural flows from the Platte River are the sources of cooling water at the Sutherland Reservoir for GGS. To mitigate any impact of low water supply to the Sutherland Reservoir, this past year, NPPD developed several ground wells to maintain the lake's current levels until upstream water supplies return to more normal levels. Management believes these alternative water sources should provide sufficient water for GGS for the near term.

NPPD is a public corporation that serves most of rural Nebraska on a retail and wholesale basis. In 2004, NPPD's revenues consisted of 44% wholesale, 28% retail, and 28% off-system contracted sales.

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