Amendment - Fitch Rates Lower Colorado River Authority Contract Revs 'A+'

Business Wire, Dec 5, 2006

SAN FRANCISCO -- (This is an amendment to the release of Nov. 3, 2006; it contains an updated par amount.)

Fitch assigns an 'A ' rating to Lower Colorado River Authority's (LCRA) $133.585 million transmission contract refunding revenue bonds, series 2006A issued on behalf of the LCRA Transmission Services Corporation (TSCorp). The Rating Outlook is Stable. Fitch also upgrades the rating to 'A from 'A' on $800.3 million of TSCorp's outstanding contract revenue bonds. Proceeds of the series 2006A bonds will refinance a portion of TSCorp's outstanding tax-exempt commercial paper. The bonds are expected to price on Nov. 16, 2006 with Bear Stearns as the senior manager.

The upgrade reflects TSCorp's consistent financial performance since its inception in 2002, management's ability to achieve its projected financial results and capital spending targets, and a proven rate methodology developed during TSCorp's previous two rate cases with the Texas Public Utility Commission (PUC). The rating additionally reflects the essentiality of the service TSCorp provides and the limited business risk involved with regulated transmission assets. TSCorp's business model focuses on developing transmission projects across Texas currently recommended by the Electric Reliability Council of Texas (ERCOT) that have or will receive a certificate of convenience and necessity (CCN) from the PUC prior to construction. TSCorp's revenue stream is provided by monthly payments from the distribution service providers within ERCOT, which covers approximately 85% of Texas. The rate received by TSCorp is established by the PUC and provides 1.5 times (x) coverage of any transmission related debt, both at LCRA and TSCorp.

TSCorp's relationship with the PUC and the PUC's ongoing regulatory support for cost recovery are primary credit drivers of this rating. TSCorp must seek regulatory approval for any rate changes. Given the large scale of capital additions planned, timely cost recovery is extremely important. TSCorp can seek approval for rate increases through either a full rate case or a more abbreviated interim capital addition (ICA) update, which is generally limited to debt service costs. TSCorp completed its last full rate case in 2005. Although the rate case was challenged by various parties, ultimately the PUC determined that TSCorp's return methodology of 1.5x debt service coverage was reasonable and that LCRA's cost allocations and overall control of TSCorp are reasonable. Based on the outcome of the previous two successful rate cases, Fitch believes that there is clear/proven framework and rate methodology for TSCorp's future rate cases.

TSCorp is a Lower Colorado River Authority transmission system affiliate and non-profit corporation. Fitch views TSCorp as being ultimately controlled and operated by LCRA (which is rated 'A ' by Fitch, with a Stable Outlook). The rating is affected by the rating of LCRA given the overlap in management and financial ties between the two entities. It is important to note that, while viewed unlikely, LCRA has the ability to issue debt secured by TSCorp's contractual commitment to LCRA, which are senior to payments made to TSCorp bondholders. TSCorp was formed to separate LCRA's transmission business from electric generation, as required under the Texas electricity restructuring legislation (Senate Bill 7), and allow LCRA to provide transmission services throughout Texas.

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.