Fitch Ratings Affirms Silicon Valley Power's Subordinated Bonds At 'A-'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Feb. 10, 2003

Fitch Ratings affirms Silicon Valley Power's (SVP) $86.1 million subordinated electric revenue bonds 'A-' rating. The Rating Outlook is Stable.

SVP's rating is supported by historically solid financial performance, with direct debt service coverage exceeding 2.0 times (x), an aggressive debt reduction plan (31% since 1997), competitive retail electric rates (system average of 7.8 cents per kwh for 2002), and a well qualified, proactive management team. The utility benefits from a very healthy unrestricted cash balance of $433 million, as of Dec. 31, 2002. The cash reserves are equivalent to over 800 days of operating cash, and thereby provide ample liquidity and financial flexibility. In response to planned competition, SVP froze rates in 1996 and significantly reduced net power costs, which helped fund the substantial cash reserves. Additional credit strengths include a reasonable prospective power supply strategy, a good working relationship with the city, and the suspension of retail access in California that alleviates the potential threat of load loss for the near future.

Credit concerns include the $611.4 million in off balance sheet obligations owed to various joint power agencies (JPAs), the decline in retail industrial sales due to conservation and an economic slowdown, and a high percentage (87%) of revenue contributed by the industrial class. The heavy industrial load reflects the high tech economic base located in Santa Clara and is a credit concern given the economic and revenue concentration. However, the industrial revenue concentration is partially mitigated by the long-term service contracts SVP maintains with 13 of its largest customers, representing approximately 37% of retail revenues. An improvement in the local high tech sector economy, with a return of industrial sales to more stable levels, would be a positive rating trigger for SVP's credit rating.

Silicon Valley Power is an integrated public power utility that provides service to approximately 48,000 customers in Santa Clara, CA. In 2002, approximately 51% of retail load requirements were supplied via purchased power contracts, followed by JPA take- or- pay contracts at 45%, and owned generation at 4%. SVP's power supply cost was 5.9 cents per kWh delivered in 2002, which is competitive with its immediate neighbors and other utilities in California, but slightly above the national average. In 2005, SVP plans to increase local generation resources with a 147 mega watt combined cycle power plant which will reduce deliveries of purchased power from the Western Area Power Authority.