S&P Rts Tenaska Washington Partners Mortg Bnds BBB.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 3/5/98--Standard & Poor's today assigned its triple-'B' rating to Tenaska Washington Partners L.P.'s (Partnership) $189 million first mortgage bonds due 2011.

The bonds will refinance the Partnership's Ferndale Cogeneration Project, a 245-MW gas-fired combined-cycle power plant located on the coast of Washington State. -0-

     The rating on the bonds incorporates the following risks:

--   The capital structure is highly leveraged at over 100% (i.e., no
     equity commitment).

--   Under the terms of the Trust Indenture, the equity distribution
     hurdle can drop from a debt service coverage ratio of 1.20 to
     1.15 if the partners need to use distributable funds to pay
     partners' income tax obligations generated by the Partnership.

--   An imprudence ruling issued by the Washington Utility &
     Transportation Commission in 1994 may lead to future regulatory
     pressures to change the rate structure under the Power Purchase
     Agreement (PPA). However, the imprudence ruling only resulted in
     1.2% disallowance of the contract payments. Furthermore, Puget
     Sound Energy Inc.'s (Puget; triple-'B'-plus/Stable) recent gas
     contract buyout, which lowered the pricing under the PPA between
     15% and 20% over its remaining term, has partially relieved the
     regulatory issues first raised by the 1994 ruling.

     However, the following strengths adequately mitigate above risks
at the triple-'B' level:

--   The project's PPA with Puget expressly preserves the rate
     structure for the project's cash flows even if the project loses
     its Qualifying Facility (QF) status.

--   If Puget defaults on its fuel supply obligations and subsequently
     causes the project to curtail electrical output, the PPA requires
     Puget to pay the Partnership the same level of net payments as if
     the fuel supply default never occurred.

--   Cash flow from the project is adequate for debt payments. The
     forecasted annual debt service coverage ratios average 1.95 with
     a minimum of 1.68 over the life of the bond issuance.

--   The project uses proven technologies, including two GE Frame 7EA
     combustion turbines and one GE steam turbine and generator.

--   Since commercial operation began in April of 1994, the facility
     has performed well with availabilities above 97% and an average
     heat rate of 8,400 Btu/KWh.

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The Partnership is owned by Tenaska Washington I L.P. (under common ownership with Tenaska Inc.), EMPECO IV Inc., (an indirect wholly owned subsidiary of The Montana Power Co.; single-'A'-minus senior secured debt rating, outlook stable), IPG Ferndale Inc. (an indirect subsidiary of Illinova Corp.; triple-'B'-minus/Positive), and KUCC Ferndale Corp. (an indirect wholly owned subsidiary of KU Energy Corp.).

The Partnership was formed in 1992 for the purpose of designing, financing, constructing, owning, and operating the Ferndale Cogeneration Project, a 245-MW gas-fired combined-cycle generation facility located near Ferndale, Wash. The project leases the site from the Tosco Refining Co. (Tosco), which is also the project's steam offtaker.

The Partnership's 17-year PPA with Puget generates substantially all of the project revenue. Under the PPA, Puget must take and pay for all energy produced by the project except during the month of May, when no energy is produced. Puget pays the Partnership a fixed-price all-energy payment (no capacity payments) and a fuel-cost payment related to cost of fuel supplied to the project. The PPA does not contain a regulatory out or regulatory disallowance clause and expressly preserves the rate structure for the project cash flows if the project loses its QF status. However, if the project loses its QF status, the contractual arrangement cannot prevent the FERC from reviewing the rate structure. Puget may displace the project's power production if it can find a cheaper alternative, but Puget is required to fully restore project economics and share half of the incremental savings with the Partnership during periods of displacement.

In January 1998, Puget bought out the project's original fixed-price fuel supply contract, and entered into a market-priced replacement contract with the Partnership. Since then, Puget has been the principal gas supplier to the project. The contract buyout reduced Puget's cost of power purchased under the PPA between 15% and 20% over the remaining term of the PPA. Concurrent with the buyout, Puget and the Partnership amended the PPA to shift the fuel price risk and fuel supply risk to Puget.

OUTLOOK: STABLE

The project's proven technology, strong economics, and excellent operational performance allow Standard & Poor's to conclude that the bond rating is stable. However, dependence on Puget and minimal upside potential will limit rating upgrades, Standard & Poor's said. -- CreditWire

CONTACT: Standard & Poor's Rating Services

Tobias Hsieh, New York (1) 212-208 -8227

Peter Rigby, New York (1) 212-208-8241

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