Fitch Rates Kansas City Board of Public Utilities' $116MM Revs 'A+'

Business Wire, Nov 2, 2004

NEW YORK -- Fitch Ratings assigns an 'A ' rating to the Unified Government of Wyandotte County/Kansas City, Kansas $166.6 million of utility system improvement revenue bonds, series 2004-B (Kansas City Board of Public Utilities' (KCBPU)). The 'A ' rating was also affirmed on KCBPU's outstanding $226.8 million of utility system revenue bonds. The Rating Outlook is Stable. Bond proceeds will be used to install a cooling tower and a combustion turbine generator at the Nearman Creek Station as well as for various other improvements to the utility system. The rating on the 2004 bonds reflects the underlying rating as the bonds are expected to be insured by Ambac, a monoline bond insurer rated 'AAA' by Fitch. The bonds are expected to price the week of Nov. 15 with UBS as lead underwriter.

KCBPU's service area is currently undergoing a shift from a declining population to a growing area where load growth needs to be planned for going forward. Management is in the process of implementing a master plan that spans the next 20 years of infrastructure needs. The first step of this plan is to add an additional 79MW combustion turbine for peaking capacity funded with a portion of this debt issuance. Looking to the future, KCBPU also plans to add a coal fired base-load unit in 2012 to meet increased demand and to retire older less efficient generating units. To finance these infrastructure needs, KCBPU will need to add considerable debt to the electric utility, whereas debt issuance over the last several years has been mostly for the water system. In addition, management plans to implement rate increases over the next three years totaling 7% to maintain its debt service coverage target of between 1.6 times (x) and 2.1x. Fitch will monitor KCBPU's financial strength, and cost competitiveness as it manages through this transition period.

Historically, KCBPU's 'A ' rating reflected the utility's solid financial performance, low-cost generation facilities, and competitive retail rates. Debt service coverage for 2003 was 2.04x. Equity is 54% of capitalization and for 2003, and the utility's liquidity is healthy with cash available to cover 117 days of operating expenses for 2003. Other strengths include KCBPU's low cost coal fired facilities and improving service territory demographics. For example, the service area has benefited from several new attractions in the western part of KCBPU's service territory, including a NASCAR speedway, the Village West Tourism District and a new Ballpark for the Kansas City T-Bones have reinvigorated the historically sluggish local economy and added new jobs to the area.

Other credit concerns include KCBPU's high level of contributions to the Unified Government of Wyandotte County/Kansas City's (Unified Government) general fund, some industrial concentration, and below average wealth indicators. While KCBPU's transfers to the Unified Government's general fund are high (15% of gross revenues including free services), the payment-in-lieu-of-taxes portion of this is billed as a separate line item on individual utility bills, partially offsetting this risk. The PILOT is currently defined as 7.9% of revenues, but can be raised by

the city council to as much as 15% of utility revenues. Additionally, high concentration is a concern with the top 10 customers accounting for 20% of revenues.

Kansas City Board of Public Utilities (KCBPU) is a combined utility system with approximately 65,466 electric and 52,161 water customer serving the Kansas City and surrounding Wyandotte County area. 2003 revenues were $200 million consisting of 86% electric and 16% water. Electric sales are 35% commercial, 28% residential, 23% industrial and 14% other.