Fitch Rates Tri-State G&T's Sr Secured/Unsecured Obligs 'A/A-'; Revises Outlook to Negative.

NEW YORK -- Fitch Ratings has affirmed Tri-State Generation and Transmission Association, Inc.'s (Tri-State) secured and unsecured obligations' ratings at 'A' and 'A-', respectively. The Rating Outlook is revised to Negative from Stable reflecting increased concerns regarding Tri-State's substantial future capital program. Additionally, Fitch rates Tri-State's proposed $500 million unsecured revolving credit facility 'A-'. The 5-year revolving credit facility will be used to provide interim financing for preconstruction and construction costs related to Tri-State's large capital program.

The unsecured rating also applies to Tri-State's off-balance sheet debt financing, where it is the lessee and obligor, via an operating lease that was used for the construction of a third generating unit at the Springerville facility in Arizona. The $760 million of pass-through certificates was issued by two trusts in 2003 on behalf of Tri-State and are rated 'A-' by Fitch. The secured rating reflects an underlying rating and applies to $139.4 million in pollution control revenue bonds (issued by Moffat County, CO and City of Gallup, NM).

Tri-State's credit strengths stem from its currently competitive wholesale rate (5.1 cents per kwh (kilowatt hour) for 2006 including transmission), solid financial position, a fiscally prudent Board and management team, and a growing customer base across four states. In addition, Tri-State's 44 member distribution systems provide electric service to a diversified retail customer base. Additionally, the members' power supply contracts extend to 2040, demonstrating their commitment and support for Tri-State as their long-term power supplier.

Financial performance has steadily improved since the merger with Plains Electric Generation and Transmission Cooperative in 2000. Tri-State ended fiscal 2005 (Dec. 31) with equity to total capitalization of 17.7% and debt service coverage of 1.28 times (x) - both measures slightly better than the peer medians in the 'A' rating category. Liquidity has also improved, with over $113 million in cash and $150 million in unused bank lines of credit equal to approximately 178 days liquidity at Dec. 31, 2005.

Credit concerns center on Tri-State's substantial future capital needs, considerable upward rate pressure, and member system load growth concentrated in the volatile energy sector. Tri-State's members have experienced significant sales and load growth for the past five years, averaging approximately 4% per year since 2000. This is projected to accelerate to over 6% per year for the next five years. As a result, Tri-State has had to increasingly purchase power from the costlier and more volatile spot energy markets. Tri-State has added several small natural gas-fired peaking units in the past few years and a baseload coal-fired generating unit at the Springerville facility in Arizona to accommodate the members' load growth and displace the costlier short-term market power purchases.

However, load growth has not abated and Tri-State is clearly in need of additional baseload resources to meet future power demand and to offset the increasing electricity market purchases. Toward this end, in August 2005, Tri-State's Board of Directors approved a comprehensive resource development plan, to bolster the cooperative's power generating and delivery systems for the future. The plan incorporates up to 2,000 MW (megawatts) of new coal-based generation and up to 1,000 miles of new transmission lines over the next 15 years. The estimated cost for these capital projects is $3.5 billion-$5.0 billion through 2020 - a sizeable capital program as compared to Tri-State's current asset base of $2.1 billion.

In addition to the magnitude of the comprehensive power supply plan, Fitch's Negative Outlook reflects the potential for Tri-State's rate competitiveness to lessen given the upward rate pressure and the concentration of the anticipated higher load growth in the more volatile energy related businesses (i.e. oil and natural gas exploration/processing/transportation). Higher wholesale rate pressure is a concern given that members' retail rates, in the states of WY and NM, are subject to their respective state's regulatory commissions. However, it should be noted that these members have historically been able to adequately pass-through Tri-State's wholesale rate increases.

Looked upon favorably is that the comprehensive power plan has a very long horizon and that Tri-State will have opportunities to amend the ultimate construction plans depending on members' actual load growth. Over the next 18-24 months, Fitch will be monitoring the scope of the power supply plan, Tri-State's relative rate position, and its members' load growth. Assuming Tri-State's rate competitiveness remains in place, that projected capital program costs do not materially rise (as the EPC contract is finalized and project permits are attained), Board and member support for the capital plan is sustained, and the load growth materializes as projected, a revision back to a Stable Outlook is probable.

Tri-State is a taxable, not-for-profit wholesale electric generation and transmission cooperative providing service to 44 member distribution systems in four states: CO, NE, NM, and WY. As of Dec. 31, 2005, Tri-State's power supply mix on an energy basis is predominantly coal-fired generation, accounting for 68% of total power resources. The remaining 32% was purchased, of which, 26% was purchased under long-term contracts (with WAPA and Basin Electric Cooperative). The member systems serve a population of over 1 million primarily residential, agricultural and small commercial users.

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