S&P Rates Seattle,WA/Seattle Muni Light & Power Revs.

NEW YORK--(BUSINESS WIRE)-- Standard & Poor's CreditWire 10/9/98 - Standard & Poor's today assigned its double-'A' rating to Seattle, Wash.'s $90 million municipal light and power revenue bonds series 1998B dated Oct. 1, 1998 due June 1, 2024, issued for Seattle Municipal Light and Power.

The bonds are scheduled to sell Oct. 14, 1998.

At the same time, Standard & Poor's affirmed its double-'A' rating on the city's $645.97 million revenue bonds, issued for Seattle Municipal Light and Power.

Standard & Poor's also affirmed its double-'A' rating on Boise-Kuna Irrigation District, Idaho's $99 million utility revenue bonds (Lucky Peak Hydroelectric Project) series 1991, issued for Seattle Municipal Light and Power.

The rating reflects the following strengths:

-- Continued city council commitment to strong financial margins and competitiveness;

-- Ongoing competitive rates attributable to hydroelectric resources;

-- A favorable business profile of "3", based on Standard & Poor's 10-point scale with "1" being the highest; and -- The sound economic environment (Seattle rated double-'A'-plus) in which the utility operates.

Some rating concerns include potential volatility in hydroelectric output, which could result in financial and rate pressure, and an increased dependence on spot market sales and purchases. These concerns are mitigated somewhat by historic strong management practices.

The series 1998B bonds are secured by net system revenues, and proceeds will be used for capital projects. Seattle is also obligated to pay ownership and operating costs of the Lucky Peak Hydroelectric Project, through 2038, whether or not the plant is operating.

Seattle has low production costs associated with its hydroelectric-owned and purchase power contracts. However, this resource also has some risk; 1998 was a drier-than-expected water year resulting in higher-than-expected purchased power costs. Purchased power costs were 1.58 cents per kWh in 1998 before the benefit of wholesale market sales compared to 1.24 cents in 1997.

Despite planned increased activity in the wholesale energy markets -- for both purchases and sales -- expected production costs, assuming a normal water year, average a still competitive 1.48 cents per kWh through fiscal 2003, and 1.12 cents after the benefit of wholesale market sales. While this added flexibility enables Seattle to manage its resources with greater control, managing the wholesale market place will continue to be a challenge.

Management continues to be proactive. Seattle entered into an 18-month contract to serve all Nordstrom, Inc. facilities in California beginning in April 1998, and has contracted to supply the Association of Bay Area Governments, located in Northern California, 10 average MW of energy from May through December 1998. Seattle also offers a market-based rate to its largest customers, although there has not been significant interest due to power market volatility and Seattle's general rate competitiveness.

With higher purchase power costs, senior lien debt service coverage in 1998, at 1.69x, was below the 1.80x target level. However, fiscal 1999 is expected to be a normal water year, and coverage at targeted levels is anticipated. Coverage is calculated prior to the payment of taxes to the city. In prior years, the  Seattle city council has shown a willingness to implement a rate surcharge, if necessary. A new mayor and three new council members were elected in November 1997; the commitment to sound financial performance is not expected to change.

The six-year, $860 million capital plan is large, but addresses long-term system performance and reliability. About 22% is dedicated to generation-related projects, 8.4% to transmission, 41% to distribution, 14.5% general plant, and 13.6% to conservation. Debt will finance about 69% of capital expenditures, including the series 1998B bonds, which is higher than previous projections. However, Seattle's general competitiveness is not expected to diminish due to continued operational efficiencies and expected future benefits of off-system power sales.

OUTLOOK: STABLE

While the concentration in hydroelectric resources could result in financial and rate pressure, Standard & Poor's expects the utility will continue to maintain its sound financial margins and strong financial policies. Additionally, costs associated with the large capital program, which emphasizes system reliability, should not diminish competitiveness. --CreditWire