Fitch Upgrades Central Iowa Power Cooperative to 'A-'; Outlook Stable.

NEW YORK -- Fitch Ratings upgrades Central Iowa Power Cooperative's (CIPCO) rating to 'A-'. The Rating Outlook is Stable. A full Credit Update report will be available next week on the Fitch Ratings web site at 'www.fitchratings.com'.

The rating upgrade reflects the improvement and stability in CIPCO's financial performance, management's implementation of financial policies designed to maintain financial ratios at levels more commensurate with those of 'A-' rated systems, and the elimination of risks associated with supplying power to the IPSCO Steel plant.

Fitch believes management has taken appropriate and prudent steps to improve CIPCO's overall financial performance. The implementation of a new margin policy in 2003 whereby CIPCO sets rates to produce an operating margin of 3%, exclusive of investment income; a revised, more conservative investment policy, which utilizes a less aggressive investment strategy; and a more consistent usage of an energy adjustment clause have been the primary drivers of more predictable and higher debt service coverage levels (1.29 times (x) in 2005) and overall financial performance. This has resulted in a healthy balance sheet, including the availability of 203 days of operating liquidity. Management will continue to assess the need for additional policy adjustments as needed.

CIPCO's recent negotiated termination of its 10-year contract to provide 150 MW of power (mostly interruptible) to IPSCO Steel, a mini-steel mill, is viewed positively by Fitch. CIPCO benefits by reducing its concentration of revenue (14% of 2005 total) and single customer risk, as well as its exposure to purchase power.

Further credit support is provided by CIPCO's diverse power supply (primarily coal and nuclear) and minimal purchased power exposure going forward, a strong Operating & Transmission Agreement with Alliant that extends through 2035 and has been very beneficial to CIPCO, and strong member support demonstrated by the recent 10-year extension (to 2045) of take-and-pay all-requirements power supply contracts with all 12 of its Rural Electric Cooperative members.

Credit concerns center on member retail rates that are slightly higher than others in the region, potential capital expenditures associated with future environmental compliance, and the need to implement financial policy changes to address projected debt service coverage levels, which are forecasted to dip to approximately 1.00x in 2009 and 2010. Future required capital expenditures associated with environmental compliance could put additional upward pressure on CIPCO's wholesale rates. Management is currently assessing policy changes such as the implementation of a 1.20x-1.25x debt service coverage target to address the projected lower coverage in 2009 and 2010. Transmission congestion in Iowa and the continuing development and understanding of the MISO market also will be credit factors to monitor going forward.

An additional credit factor is the re-licensing of the Duane Arnold Energy Center (DAEC) nuclear plant. The license renewal would enable CIPCO to release approximately $28 million from a decommissioning reserve fund. These funds would then become unrestricted and could be used to fund future capital projects or for any other purpose, including being retained as equity. Fitch does not view Nuclear Regulatory Commission (NRC) approval of license renewal for DAEC (29.7% of CIPCO energy production in 2005 and a higher percentage in the future with the reduction in the amount of purchased power for IPSCO) as a credit concern, given the plant's solid operating performance and strong public support.

Central Iowa Power Cooperative is a generation and transmission cooperative providing power under long-term contracts to 12 rural Iowa electric cooperatives, as well as to 14 municipal systems that are part of the South Iowa Municipal Electric Cooperative Association (SIMECA). A five-year extension (to 2013) of the SIMECA agreement is currently being discussed. CIPCO's members (including SIMECA's municipal systems) serve over 125,000 meters with a diversified customer load mix (64% residential, 14% commercial and 22% industrial).

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