Fitch Rates Indiana Municipal Power Agency's 2007A & 2007B Bonds 'A+'; Outlook Stable

Business Wire, Sept 10, 2007

NEW YORK -- Fitch has assigned an 'A ' rating to Indiana Municipal Power Agency's (IMPA) $402 million power supply system revenue bonds, series 2007A, and $32.6 million series 2007B bonds. Fitch also affirmed the 'A ' rating on IMPA's $586 million of outstanding power supply system revenue bonds. The bonds, which will be insured, are scheduled to price Sept. 20, with Citi as senior manager. The Rating Outlook is Stable.

Proceeds from the series 2007A bonds will fund IMPA's ownership share of a new 1,600 megawatt (mw) super-critical mine-mouth coal-fired generating facility, coal reserves and equipment (Prairie State Energy Campus), and interest during construction. The plant is located approximately 40 miles southeast of St. Louis and will operate as a base-load facility with adjacent coal reserves sufficient to meet the long-term needs of the facility. Ownership interest is quite diverse, with a solid list of utility and energy participants.

Support for the rating is derived from IMPA's balanced and prudent resource plan, solid mix of low-cost power resources, and very competitive wholesale and retail rates, with IMPA's wholesale rate at about 4.70 cents/kwh (kilowatt hour) wholesale as of Dec. 31, 2006. Retail rates have been about 12% below the average for Indiana investor-owned utilities, even as Indiana as a whole is a very low-cost state. Fitch also recognizes and views favorably IMPA's management policies and practices, which enhance IMPA's ability to manage its market risks and capital planning process.

IMPA is in the process of replacing several expiring purchase power contracts with new, base-load, owned generation. This is a strategy that is increasingly prevalent among public power utilities in the Midwest, with several agencies negotiating ownership interests in new base-load coal-fired resources to be commercially operable starting in the 2007-2011 timeframe.

Fitch believes IMPA's resource plan should assure an economic and stable power supply for the foreseeable future. In general, IMPA's strategy takes into account single-unit outage risk, with participation in multiple projects that utilize a diverse fuel supply (including a mix of both eastern- and western-sourced coal). Management also expects to utilize mid-term (two- to three-year) purchase power contracts to further optimize operating flexibility and help as the 300 mw total new coal-fired capacity comes on line in the 2010-2012 timeframe. It is IMPA's desire to create an energy portfolio that will be roughly 90% to 95% cost based by 2013. Because reasonably priced associated debt service replaces the cost of long-term purchases, IMPA's wholesale rates are expected to stay fairly level through 2015 and should remain competitive with those of its neighboring utilities.

Additional bondholder security is provided by IMPA's rate setting mechanisms. As a cost-plus wholesale system, IMPA passes through all fuel and operating costs to its member systems, with wholesale rates set to maintain 1.125 times (x) debt service coverage (IMPA covenants 1.1x). In 2006, debt coverage level was roughly 1.30x, with equity to total capitalization at 18%. Cash on hand remains adequate for the rating category, targeted at 60 to 90 days of operations.

IMPA's primary credit concerns center on construction risks associated with TC 2 and the new Prairie State project. TC 2 is currently 13 months into construction and is on schedule. The new facilities will employ state of the art emission control technology and are designed to comply with all emissions regulations and permit conditions, including the recently enacted federal mercury regulations. While concentration of industrial customers within certain member system service territories should also be noted, economic indicators within the state are reasonable. The six largest members, which account for more than 50% of total revenues, each have healthy financial positions and growing service territories.

IMPA is a joint-action agency that provides wholesale electricity to 51 members and one customer, pursuant to take-and-pay full-requirements contracts that mostly expire on April 1, 2042. The member utilities are located throughout the state of Indiana and serve a combined population of about 320,000 people.

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