Fitch Rates Omaha Public Power District 'AA'; Outlook Stable.

NEW YORK -- Fitch assigns an initial 'AA' rating to Omaha Public Power District (OPPD). The Rating Outlook is Stable. The 'AA' rating is an implied revenue bond rating that pertains to the system's planned issuance of mandated project bonds in 2007. The proposed mandated project bonds (to be rated by Fitch's structured finance group) will be secured by a mandatory, non-by-passable charge to OPPD's customers. The purpose of this type of debt is to finance mandated projects (such as environmental related projects), at the lowest possible cost. While Fitch does not presently rate OPPD's outstanding electric system revenue bonds, the rating takes into account OPPD's overall debt burden, capital improvement plan, and current financial position and also incorporates the system's planned debt issuances over the next several years. A full report on OPPD is expected to be published shortly.

OPPD, a political subdivision of Nebraska, provides electric service in Omaha and the adjacent territory comprising all of Douglas, Sarpy, and Washington Counties, and portions of neighboring counties. In total the district serves a broad base of 48 cities and villages at retail and five municipalities at wholesale with a total population of 719,000. OPPD's customer mix is favorable, with sales comprised of 43% residential, 36% commercial, 18 % industrial, and 3% other.

Historically, OPPD's strong credit has been supported by predictable and solid financial performance, a diverse mix of low cost generating resources, competitive rates, little need for rate increases, and experienced management. The utility was generally predictable, with no large capital needs, strong financial margins and cash liquidity. Today OPPD's credit profile continues to be comparable to that of the highest quality public power systems rated by Fitch. However, the story is changing, as the utility focuses on a significant capital expenditure program.

OPPD has been preparing for the growth of its system and is in the midst of a large and complex capital improvement plan (totaling about $2 billion from 2005 through 2010) that will provide the utility with needed additional generating resources, transmission access, and environmental upgrades. Major components of this plan are the construction of a new 663mw coal fired generating unit at the Nebraska City Plant (Nebraska City 2, NC2), and major upgrades for the Fort Calhoun Nuclear Station. OPPD will take 50% of the NC2 output with other municipal utilities taking the remainder. In addition, OPPD recently received approvals to extend the operating life of Fort Calhoun through 2033. These projects are currently proceeding on time and under budget. Funding is expected to come from a balanced mix of 55% debt and 45% cash funding. As a result of OPPD's increasing debt and fixed costs, the board has pre-approved scheduled retail rate increases over the next several years, to provide investors with the type of financial support they have seen previously. It should be noted that given OPPD's current rate advantage, after the implementation of rate increases approximating 9% (3% each year from 2006 to 2008), average system rates will remain among the lowest in the region at about 6.20 cents per kwh in 2010, compared to 5.72 cents per kwh in 2005.

Other factors that support the 'AA' rating include the systems favorable service area with stable growth and no customer concentration, and a cost structure that benefits from a power resource mix consisting of 65% (mw) coal and nuclear based generation. Additionally, OPPD's strong financial performance allowed them to set aside $90 million of additional cash reserves in anticipation of their current capital plan. A good portion of these reserves will be used to help pay debt service during OPPD's construction period and as the system transitions to a rate structure that covers OPPD's new cost of service by 2010. OPPD's strategy is to stair step rate increases annually through 2009 to provide future operating margins at levels that are in line with historical performance.

Credit concerns appear manageable and center on OPPD's large capital plan, and increasing fixed costs and revenue requirements, as outlined above. Even so, Fitch believes that OPPD's business strategy and financial projections are reasonable and retail rates should remain competitive. While operating coverage is expected to decline during the transition period to a low of 1.60x in 2007, once OPPD's capital plan is complete and all rate increases are implemented, all-in debt service coverage is expected to return to the 1.8 to 2.0x range. As part of Fitch's analysis, we reviewed management's financial projections, stressing them for individual and multiple credit events, and believe that OPPD's financial targets are attainable and supportive of the 'AA' rating. Fitch will continue to monitor the progress of OPPD's capital plan going forward.

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