Fitch Ratings Affirms CGE's Ratings At 'A/A-'.

Business Editors

CHICAGO--(BUSINESS WIRE)--Sept. 26, 2002

Fitch Ratings has affirmed the international local and foreign currency ratings of Compania General de Electricidad (CGE) at 'A' and 'A-', respectively. CGE's foreign currency rating remains constrained by Chile's 'A-' foreign currency sovereign rating. The national scale rating of CGE has also been maintained at 'AA+(chl)'.

The ratings reflect the inherent strengths of CGE's electricity and natural gas distribution businesses in Chile, and also incorporates the impact of Argentine volatility on its operating results and cash flow. Although the company participates in other minor businesses, operating income (based on percentage ownership of investments) is derived primarily from the electricity (76%) and gas (20%) sectors.

The company's exposure to the Argentine environment is important to note; however, CGE does not need to rely on dividend payments from its investments in Argentina to adequately meet its financial debt obligations at the consolidated entity as actual dividends from Argentina represented less than 10% of total cash flow in 2001. CGE's investments in Argentina have been less affected than other market participants by recent events in the country, most notably the devaluation of the peso and 'pesofication' and freezing of regulated tariffs. CGE's subsidiaries borrowed mostly in argendolares (loans funded in the local market but granted in U.S. dollars), which have been converted to pesos at 1-to-1 rate, reducing their debt levels in US dollar terms. Currently, market participants are negotiating new terms of their concession agreements in the hope of recovering some of the lost value. Fitch does not believe that the negotiations will result in meaningful increases in tariffs until after the presidential elections scheduled for March 2003.

In Chile, CGE benefits from strong and growing service territories for both electricity and natural gas, though long term electricity demand growth is now projected to be approximately 6% annually, down from closer to 8% historically. CGE's last tariff reset was in November 2000, with an overall neutral effect, as reductions on the distribution tariffs were offset by tariff increases associated with the company's subtransmission assets. The next distribution tariff reset is scheduled for 2004.

CGE's investment in and exposure to the retail and wholesale LPG and natural gas distribution markets in Chile represent the company's greatest near- to medium-term business opportunities and challenges. The gas business should provide revenue growth opportunities as consumers switch over to natural gas from LPG and as Gasco expands its sales of LPG geographically to target new customers. However, the financial consolidation of Metrogas with Gasco, and thus with CGE, since 2000 has been the primary source of pressure on CGE's consolidated credit quality reflecting the higher debt levels to acquire Metrogas and the capital intensive nature of the buildout of the distribution pipelines. The majority of investment has been completed.

Through June 2002, CGE reported consolidated EBITDA-to-interest of 3.4 times (x), comparable to 3.3x reported at year-end 2001, but below June 2001 results of 3.7x. The reduction year over year reflects a slight decline in EBITDA and minor increase in interest expenses due to increased debt at Gasco. The company's core electricity distribution business in Chile continues to operate well with combined EBTIDA-to-interest of 3.9x, while the Chilean gas business has shown a combined coverage ratio of 2.8x, illustrating the affect of the gas business on overall results. In Argentina CGE's three electric distribution companies reported sharp declines in operating income reflecting the devaluation of the Argentine peso. The company is not expecting to receive any cash out of Argentina, nor are they anticipating contributing additional funds.

The company has total debt of approximately Ch$700 billion, up from Ch$686 billion at year-end 2001. Total debt-to-capital remained flat at 55%, while total debt-to-EBITDA rose to 4.7x from 4.4x. Most of CGE's individual debt continues to be peso-denominated. The company's upcoming UF-denominated debt issuance will be used to refinance upcoming maturities, which are adequately supported by Chilean cash flow.

Going forward, improving efficiency and continued electricity and gas demand growth are expected to help CGE's profitability increase. In addition, CGE's leverage and profitability are expected to improve as a result of improvements at Gasco and other subsidiaries, as well as lower consolidated debt. Interest coverage measures, excluding Argentine cash flows, are expected to improve over the next 12 months to a level consistent with the 'A' rating category. Continued weak credit measures at Gasco could pressure CGE's local currency credit rating.

CGE distributes and transmits electricity to consumers in Chile. Through subsidiaries and affiliates, CGE distributes liquid gas in Chile and natural gas in Chile and Argentina, distributes electricity in Argentina, conducts real estate transactions and produces computing systems and software. CGE's Chilean electricity companies include CGE, Empresa Electrica Emec S.A. (EMEC), Compania Nacional de Fuerza Electrica S.A. (Conafe), Empresa Electrica de Magallanes S.A. (Edelmag) and Sociedad Electrica Pirque S.A. (Pirque). In Argentina, the company participates in the sector through ESJ (San Juan), Edet (Tucuman), and Ejesa (Jujuy). Through affiliates, the company also has interests in other industries including telecommunications and cement production. In January 2001, PP&L increased its ownership position in CGE to 7.4% through a purchase option the company had with Grupo Claro, giving PP&L a seat on the board of directors.