Fitch Rates Walnut Energy Center Auth $216MM Rev Bonds 'A+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 18, 2004

The Walnut Energy Center Authority's (WECA) $156 million 2004 series A (fixed rate), $30 million 2004 series B (auction rate), and $30 million (federally taxable auction rate) revenue bonds are rated 'A+' by Fitch Ratings. The Rating Outlook is Stable. The bonds are expected to be insured by AMBAC Assurance, whose insurer financial strength is rated 'AAA' by Fitch. Bond proceeds will fund the construction of the Walnut Energy Center project, a 250 MW, natural gas fired, baseload generation facility. The 2004 bonds, with a final maturity of Jan. 1, 2034, are expected to price on March 30, 2004, with Citigroup and Lehman Brothers as lead underwriters.

WECA is a joint powers authority established in December 2003 to finance the construction of the Walnut Energy Center generation project. WECA was formed via the execution of a Joints Power Agreement between Turlock (TID) and Merced Irrigation Districts. WECA's project output will be sold in its entirety to TID, pursuant to a long-term, take-or-pay purchase power agreement with TID (rated 'A+' by Fitch). TID's purchase power obligation to WECA is unconditional and is paid as an operating expense of TID - ahead of its own direct debt service.

WECA's other credit strengths include the projected very efficient Walnut Energy Center plant (heat rate of 7,600 per mmBTU), and the plant's forecasted competitive all-in cost of power of 4.1 cents per kwh. The generation facility is scheduled to commence operations December 2005. The project's output is essentially sold at cost to TID, and all fuel, operating and debt service costs are borne by TID.

Credit concerns include the construction risk associated with building the generation plant, 'merchant-like' exposure on a large portion of the project's energy sales, single asset operating risk, and revenue concentration in a single purchaser, albeit a highly rated purchaser (TID).

TID's 'A+' credit quality stems from its competitive retail rates, historically sound financial performance, healthy cash reserves, and a diversified power supply. Debt service coverage on all debt (senior and subordinate) has ranged from 1.58 times (x) to 2.90x for the past five years. TID increased base rates an average of 9.38% in 2003, the first rate increase in a decade. TID's customer base is well diversified, with industrial load accounting for less than 30% of retail revenues in 2003. Wholesale sales account for roughly 20% of total TID revenues, the majority of which are sales to Merced Irrigation District.

TID's credit risks center on the increasing natural gas commodity exposure (related to the Walnut Energy Center plant), a considerable surplus energy position projected for 2006 with the completion of the plant, and below average service area characteristics. TID's natural gas supply requirements will almost quadruple with the addition of the Walnut Energy Center project. TID's plans to firm up, at relatively fixed prices, approximately 80% of the natural gas requirements for its native load, which helps mitigate exposure to commodity price volatility.

With the addition of the Walnut Energy Center project in 2006, TID will have approximately 50% surplus energy. TID opted for a relatively large generation unit to support the district's plan to establish its own (power) control area, replace purchased power contracts that will be terminating, and reduce overall reliance on purchased power. While TID has conservatively estimated modest margins for its wholesale sales, TID's surplus energy position is likely to remain throughout most of the life of the plant. TID does plan to maintain $100 million in unrestricted reserves to provide added liquidity and financial flexibility. The cash reserves are roughly equivalent to one year's operating expenses for 2003 and a key factor supporting TID's rating.

Prospectively, incorporating conservative load growth, modest margins on wholesale sales, reasonable natural gas and electricity price forecasts, and no retail rate increases, TID's total debt service coverage is projected to remain in excess of 1.60x throughout the forecast period (2003-2013). Even in the unlikely scenario, that TID was not able to sell any surplus energy into the market, TID's revenue requirement would need to increase an estimated 11%-13% (as per R.W. Beck - TID's consultant engineer) -- a manageable rate increase given TID's competitive rate position.