Fitch Rates Wisconsin Public Power Inc.'s Ser 2005 A & B 'A+'.

NEW YORK -- Fitch Ratings assigns a rating of 'A+' to Wisconsin Public Power Inc. (WPPI) $141 million and $94 million power supply system revenue bonds, series 2005 A and series 2005 B. The Rating Outlook is Stable. The series 2005 A will be fixed rate bonds and the 2005 B bonds will be auction rate notes. WPPI expects to enter into a floating-to-fixed interest rate swap to synthetically create a fixed-rate obligation on the 2005 B bonds. Proceeds will fund a portion of the cost of WPPI's (8.33%) share of the cost of the Elm Road Generating Station (ERGS). The plant will be constructed by an unregulated affiliate of Wisconsin Energy Corporation (WEC). The 2005 A and B bonds are scheduled to price the week of Oct. 17, 2005 with JP Morgan as senior manager.

WPPI's credit strength derives from its members' continued support and obligations to pay WPPI's costs through contracts that extend through the life of the bonds (2037) and its low cost power resources. Further supporting the rating are WPPI members' low retail rates relative to regional IOUs, stable financial profile and a progressive senior management. Fitch believes WPPI's senior management has adeptly positioned WPPI to maintain a competitive power supply for the intermediate term and has taken meaningful steps to partially mitigate higher costs from transmission congestion.

In 2004, WPPI met its energy requirements through a power supply portfolio which includes ownership of generation (11%) as well as purchase power arrangements (78%) and economy purchases (11%). Most of WPPI's purchase power arrangements are cost-based intermediate or long-term arrangements that should provide WPPI with competitively priced energy. As part of its generation strategy to meet its members' growing energy needs, replace expiring contracts and increase its owned generation resources (to meet 50% of its members needs) WPPI is participating in ERGS. ERGS consists of two 615 mw coal fired units that are expected to be operational in 2009 and 2010. WPPI is also exploring future projects which may include exercising its option for 50 mw of WEC's next coal fired unit.

Fitch views WPPI's financial results as satisfactory. WPPI's financial profile includes debt service coverage (excluding use of rate stabilization funds) that has ranged from 1.0 times (x) -1.7x over the past three years. For the future, management expects to maintain a minimum debt service coverage ratio between 1.25x -1.45x. WPPI's liquidity position includes $55 million of cash reserves which is equal to three months of operating expenses. Further supporting its liquidity position is a $10 million line of credit available for working capital and a fully funded debt service reserve fund of $8 million (which will increase to $16 million following this financing). Fitch believes WPPI's current and forecasted liquidity is sufficient for WPPI given its stable operating environment and power supply portfolio.

WPPI's primary credit risks involve ERGS' project manager obtaining the remaining permits and regulatory approvals necessary for the successful and timely completion of ERGS, and the risk that WPPI could face financial pressure if it did not implement planned rate increases to meet its higher debt service and projected cost increases from its power purchase contracts. In addition, Fitch is also concerned with the effect on WPPI's wholesale rates from higher transmission costs if the region's current transmission expansion plans are not successful, especially given the existing regional transmission constraints and the cost allocation currently in place in the regional wholesale market (MISO). Fitch takes comfort from the regulatory approved congestion protection in place in the region for importing energy from certain areas and WPPI's grandfathered transmission contracts which allow most of WPPI's transmission needs not to be at risk for congestion pricing.

Also reflected in the rating are the potential risk of regulatory oversight of member rates and some commercial and industrial concentration at the member level. While WPPI's Board of Directors sets its own rates, WPPI's members' rates must be approved by the Public Service Commission of Wisconsin (PSCW), which is unlike most municipal retail systems which set their own rates. This risk is mitigated by the members' favorable historical record with cost recovery from the PSCW and that members rates include a purchase power adjustment clause that allows the members to pass changes in power costs without regulatory approval.

With regard to member customer composition, Fitch also recognizes that the members' customer base consists of an above average commercial and industrial concentration that make up over 70% of WPPI members energy sales. Mitigating this risk is members' competitive rates, long-term contracts with most of its large customers, historically stable energy sales to commercial and industrial customers, and the lack of support for retail competition in Wisconsin.

WPPI sells wholesale power to 40 members under separate all requirement power sales agreements. The members provide electricity to a population of approximately 250,000 and have a customer base comprised of residential (24%), commercial (35%) and industrial (41%) sales.

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.