Fitch U.S. Public Power Surveillance: Municipal Gas Authority of Georgia Affirmed at 'A+'.

NEW YORK -- In the course of routine surveillance, Fitch affirms the 'A+' rating on the Municipal Gas Authority of Georgia's (the Authority) approximately $110 million outstanding Gas Revenue Portfolio III bonds. The Rating Outlook is Stable.

While each project is supported by their respective project participants, the 'A+' rating on the project reflects the credit quality of the Authority's diverse membership, favorable court validated take-or-pay contracts, diverse gas supply and experienced management team that has delivered consistent discounts to its members. Credit concerns include the overall lower wealth indicators of several members and concentration of industrial customers (58% of total throughput).

The Authority is a joint action agency set up to manage wholesale gas supply for its 76 members and nine partial requirement partners. The top 10 members comprise 54% of total throughput; the largest of these is Warner Robins, GA, which is equal to approximately 10% of sales. The Authority's supply has diversified in the last five years to include prepay gas agreements from several different suppliers through the special purpose vehicle (SPV) Main Street as well as natural gas reserves acquired directly by the Authority and also through a joint action agency, Public Gas Partners (PGP).

Although, one of the Authority's prepay supply contracts, Main Street 2008A with Lehman Brothers Commodities Services (LBCS), has been terminated due to Persistent Delivery Default, eliminating the supply and promised discount, the Authority's contract is take-and-pay and does not require them to pay for gas unless it is delivered. In addition, this contract accounted for only 4% of the Authority's requirements and has been covered through market purchases. Furthermore, the Authority's other prepay transactions continue to provide reliable supply at a fixed discount off the monthly index price of gas.

The Authority has acquired interests in Natural Gas Reserves; two projects are financed on its own balance sheet and two were purchased through PGP. The reserves and corresponding hedges have resulted in solid annual rebates for the Authority's membership. The Authority charges its membership monthly index gas prices and rebates part of the discount back to its members at the end of the year. Fitch views this management practice as a credit positive granting the Authority financial flexibility and ensuring sufficient revenues to pay operating expenses and debt service.

The Authorities members serve 254,000 customers located primarily in Georgia but also Alabama, Florida, and Pennsylvania. The member customer base, determined by throughput is composed of 58% industrial, 23% residential, 12% commercial and 7% electric generation.

In the course of routine surveillance, Fitch affirms the 'A+' rating on the Municipal Gas Authority of Georgia's (the Authority) approximately $110 million outstanding Gas Revenue Portfolio III bonds. The Rating Outlook is Stable.

While each project is supported by their respective project participants, the 'A+' rating on the project reflects the credit quality of the Authority's diverse membership, favorable court validated take-or-pay contracts, diverse gas supply and experienced management team that has delivered consistent discounts to its members. Credit concerns include the overall lower wealth indicators of several members and concentration of industrial customers (58% of total throughput).

The Authority is a joint action agency set up to manage wholesale gas supply for its 76 members and nine partial requirement partners. The top 10 members comprise 54% of total throughput; the largest of these is Warner Robins, GA, which is equal to approximately 10% of sales. The Authority's supply has diversified in the last five years to include prepay gas agreements from several different suppliers through the special purpose vehicle (SPV) Main Street as well as natural gas reserves acquired directly by the Authority and also through a joint action agency, Public Gas Partners (PGP).

Although, one of the Authority's prepay supply contracts, Main Street 2008A with Lehman Brothers Commodities Services (LBCS), has been terminated due to Persistent Delivery Default, eliminating the supply and promised discount, the Authority's contract is take-and-pay and does not require them to pay for gas unless it is delivered. In addition, this contract accounted for only 4% of the Authority's requirements and has been covered through market purchases. Furthermore, the Authority's other prepay transactions continue to provide reliable supply at a fixed discount off the monthly index price of gas.

The Authority has acquired interests in Natural Gas Reserves; two projects are financed on its own balance sheet and two were purchased through PGP. The reserves and corresponding hedges have resulted in solid annual rebates for the Authority's membership. The Authority charges its membership monthly index gas prices and rebates part of the discount back to its members at the end of the year. Fitch views this management practice as a credit positive granting the Authority financial flexibility and ensuring sufficient revenues to pay operating expenses and debt service.

The Authorities members serve 254,000 customers located primarily in Georgia but also Alabama, Florida, and Pennsylvania. The member customer base, determined by throughput is composed of 58% industrial, 23% residential, 12% commercial and 7% electric generation.

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