Fitch Rts Kissimmee, FL $78MM Electric Sys Refunding Bonds `A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 30, 2001

Fitch assigns an 'A' rating to the Kissimmee Utility Authority's(KUA) proposed $78 million revenue refunding bonds, series 2001.

In addition, Fitch affirmed the 'A' rating on KUA's outstanding $215 million of electric improvement bonds. The Rating Outlook is Stable. Proceeds will refund the city's outstanding electric system improvement and refunding revenue bonds, series 1991 and a portion of series 1993, as well as a portion of the electric system refunding revenue bonds, series 1993A. The bonds are expected to price on or around September 14, with JP Morgan as lead underwriter.

KUA is a fully integrated electric system that supplies energy to a service territory of about 48,000 customers. Approximately 47% of the system's customers are located within the city limits, while 53% are located outside.

The solid rating takes into account management's sound business strategy to be a competitive, self-sufficient, and reliable electric utility. To this end, KUA entered into a 50/50 partnership with the Florida Municipal Power Agency (FMPA) to build a third unit (250-mw natural gas fired combined cycle generating unit) at the Cane Island plant. The new generation will satisfy KUA's capacity needs for the next few years, further diversify its generating resources, and essentially eliminate the need for spot market power purchases. Despite minor construction delays, the unit is expected to remain within budget and will be on-line by October 2001, originally scheduled. Additional support comes from KUA's favorable and growing customer base consisting mostly of residential and commercial accounts, and Florida's go-slow approach to deregulation.

Credit risks include currently above market retail rates, some construction risk with the new unit, and KUA's exposure to natural gas fuel price volatility (40% of its generation mix). Another area of concern centers on KUA's service territory economy, which is dependent on tourism. Although the City of Kissimmee has realized economic growth due to its proximity to the Walt Disney World complex and the development of theme parks in the area, the local economy may be somewhat vulnerable to a prolonged economic downturn.

While senior lien debt service coverage levels have been lower than historic levels at 1.77 times (x) in 2000, Fitch believes that KUA's financial performance will improve going forward. Once the new generation unit is operational, KUA should realize power cost savings resulting from lower spot market purchases as stated above, and its ability to generate additional revenues via off-system sales. KUA's financial performance will also benefit from declining natural gas market prices, management's plan to hedge a portion of its natural gas fuel costs thus limiting its exposure to fuel price volatility, and the completion of a 5% rate increase. The rate increase is the result of additional fixed costs associated with the new generating unit, and the loss of surcharge revenues from customers residing outside of the city. The rate increase was implemented over a period of three years, with the final phase occurring in October 2001. Consequently, the above improvements should allow KUA to reduce rates to a more competitive 8 cents per kilowatt-hour (kWh) from 10.1 cents per kWh.