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Fitch Rates Nebraska Public Power District's 2008 Series B Revs 'A+'.

NEW YORK -- Fitch Ratings assigns an 'A+' rating to Nebraska Public Power District's (NPPD) $325 million general revenue bonds 2008 series B. In addition, Fitch has affirmed NPPD'S $1.51 billion of outstanding general revenue bonds at 'A+'. The Rating Outlook is Stable. Proceeds from this transaction will be used to finance the remaining costs of the Electric Transmission Reliability Project, generation and transmission capital additions, the District's share of the construction cost of a coal fired project, refund outstanding Series A notes, and fund the debt service reserve. The bonds are expected to sell the week of September 8, 2008.

Underlying support for the 'A+' rating comes from NPPD's sufficient, low-cost and well balanced mix of generating resources, stable finances and total requirements wholesale power sales contracts. In 2007, energy was derived primarily from a mix of coal 57%, nuclear 24%, and purchased power 11%. To meet future base-load needs, NPPD is taking a 23.67% share (approximately 157 megawatt) interest in Nebraska City 2, a 663 MW coal fired unit being constructed by Omaha Public Power District (rated 'AA' by Fitch) that is expected to become operational in May 2009. The total plant cost is estimated at $716 million (excluding transmission), while NPPD's share is $181 million.

NPPD's financials compare favorably with wholesale systems in the 'A+' rating category. For the most recently audited fiscal year ending December 31, 2007, Fitch calculates debt service coverage of approximately 1.3 times (x), with 234 days of liquidity. Debt service coverage is 1.71x when determined in accordance with the General Revenue Bond Resolution. NPPD's liquidity is currently bolstered by a $150 million tax exempt commercial paper (CP) program ($66.4 million unissued) and $100 million taxable CP program ($65.8 million unissued). Both of these programs are supported by a $250 million line of credit.

Financials were negatively impacted in December 2006 and the first quarter of 2007 by winter storm damage which required repair and replacement to the transmission lines as well as the purchase of replacement power. Even with these unplanned expenses, fiscal 2007 ended with a surplus, due in part to a draw on the rate stabilization fund and planned rate increase. In addition, approximately 50% of the total costs associated with the storms were reimbursed by FEMA (approximately $54 million).

Credit concerns continue to include the operational performance of Cooper Nuclear Station (CNS), the impact of future environmental compliance costs on NPPD's coal units, and other capital needs. NPPD is reviewing various alternative plans for coal facility upgrades but, to date, no specific course of action has been determined. Given the uncertainty surrounding green house gas emissions, Fitch will monitor the potential for substantial future debt issuance, in line with other coal facilities.

Regarding CNS, Fitch recognizes that NPPD has achieved a consistent trend of improvements at the facility following years of compliance and operational issues. In 2007, the facility operated at its historic high, 100.6% of capacity. Fitch continues to believe that CNS operational consistency and regulatory compliance are essential components of NPPD's credit profile. As a result of recent regulatory findings, CNS was lowered on the NRC's scale of nuclear plants, and thus requires greater inspection and oversight. NPPD anticipates that required improvements will be made in a timely manner and expects to have CNS move back to a higher category in the NRC scale. However, any further deterioration in the plant's operations or regulatory compliance could have a negative impact on the rating.

NPPD is a public corporation that serves most of rural Nebraska on a retail and wholesale basis. The district serves about 88,590 retail customers. The overall average revenue per kwh from retail customers in 2007 was 6.2 cents - with the average of 3.83 cents for industrial customers, 6.88 cents for commercial users and 9.16 cents for residential customers. The revenue per kWh in 2007 from municipal wholesale customers was 4.08 cents and 3.88 cents from public power districts and cooperatives. In 2007, NPPD's revenues consisted of 26% retail sales, 42% wholesale sales and 32% nonfirm and other sales and revenues.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Date:Aug 26, 2008
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