Fitch Affirms Intermountain Power Agency Pwr Supply Rev Bnds at 'AA-'

Business Wire, March 24, 2006

NEW YORK -- Intermountain Power Agency's (IPA) $1.2 billion senior lien power supply revenue bonds and $62.8 million series 2004A subordinate power supply revenue bonds are affirmed at 'AA-' by Fitch. The ratings reflect the underlying rating as the bonds are predominantly insured by 'AAA' rated bond insurers. In addition, Fitch is also assigning an underlying 'AA-' long term rating to IPA's proposed $352.8 million series 2006 A and B subordinate power supply revenue bonds. The 2006 bonds, which will be issued as variable-rate demand bonds, are expected to be insured by FGIC (rated 'AAA' by Fitch). The Rating Outlook is Stable. The proposed bonds will refund series 1996 A, B, C, and D senior lien bonds. The 2006 bonds are scheduled to price the week of April 3, 2006, with Goldman, Sachs & Co., Morgan Stanley & Co., and UBS Investment Bank as initial remarketing agents.

IPA's strong credit ratings are supported by a competitive wholesale cost of power, consistently above-average plant performance, stable financial performance, and highly rated long-term power purchasers. The vast majority (96%) of IPA power sales and revenues (pursuant to initial and excess power sales agreements) are attributable to six California municipal power purchasers: LADWP (Los Angeles Department of Water and Power) and the city electric departments of Anaheim, Pasadena, Glendale, Riverside and Burbank. LADWP, Pasadena Water and Power, and Riverside Public Utilities account for over 72% of IPA's revenues and are all rated 'AA-' by Fitch; the remaining three California purchasers are rated 'A '. IPA's rating also benefits from take-or-pay power sales agreements with its power purchasers, which extend to 2027, three years beyond the latest maturity of IPA's debt.

Plant performance of IPA's coal-fired, baseload generating facility (1,800 megawatts (MW)) has consistently exceeded industry norms for similar sized coal units. Production costs have declined via operating efficiencies, minor upgrades to the generating units increasing plant output, and accelerated debt paydown. IPA's cost of power production has fallen to a regionally competitive 4.1 cents per kilowatt hour (kwh) currently, from 6.5 cents per kwh in 1998. Additionally, IPA's excess billings to customers in prior years helped build up cash reserves and provide added financial flexibility. Cash reserves total approximately $453 million, which is the equivalent of 245 days operating cash, solid for the rating category. On a projected basis, with considerably hedged fuel supply, cash funded capital expenditures, and level-to-declining debt service, IPA's financial performance should remain solid.

Credit risks appear manageable and include single-project operating risk and recently rising coal supply costs. The risk of material operating problems at the IPP generating station is mitigated by the coal project's consistently strong operating performance, which exceeds industry standards, solid take-or-pay purchased power obligations, and the likely ability of the 'A /AA-' rated California purchasers to manage the cost of replacement power. With respect to IPA's delivered cost of power, the 4.7 cents per kwh (generation plus transmission) is very competitive particularly given that IPA's power is largely sold into California, where the energy market is primarily driven by natural gas prices. The increase in fuel costs in 2005 reflects production problems at the Utah mines that provide coal to IPA. While the Utah mines' coal supply is not likely to return to pre-2005 levels in the near future, the replacement fuel cost for IPA and its participants is projected to be manageable and averaged an incremental 3-4 mills per kwh on IPA's wholesale cost of power.

IPA was organized by 23 Utah municipalities to finance, construct, and operate the state-of-the-art, two-unit, 1,800 MW coal-fired Intermountain Power Project. IPP, operational in 1987, provides power to 36 Utah and California participant/purchasers via long-term contracts through 2027.

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