Fitch Rates Northern Calif Power Agency 'A'; Affirms Outstanding Geo and Hydroelectric Project Bonds

SAN FRANCISCO--(BUSINESS WIRE)--

Fitch Ratings assigns an 'A' rating to the approximately $89 million Hydroelectric Project No. 1 Refunding Series 20011A and 20011B bonds.

The bonds will refund outstanding 1998 series bonds for savings. The pricing, subject to market conditions, is expected to occur in December 2011.

Fitch also affirms the rating on the outstanding NCPA debt as follows:

--$450.0 million hydroelectric project no. 1 revenue bonds at 'A';

--$35.6 million geothermal project revenue bonds at 'A'.

The Rating Outlook is Positive.

SECURITY:

Bonds are secured by unconditional payments made by the retail electric systems that are participants in each project. The responsibility of the project participants is for their percentage share of the project (joint but not several), although the obligation is subject to a 25% step-up obligation by the non-defaulting participants in the event there is a participant default.

KEY RATING DRIVERS:

PARTICIPANT CREDIT QUALITY: The ratings on the hydroelectric and geothermal projects reflect the credit profiles of the largest member systems in each project. Bondholders are secured by an absolute and unconditional take-or-pay obligation contained in project agreements that extend for the life of the bonds. Payments are made as operating expenses of each participant's retail electric system.

STEP-UP PROVISION: Each project includes an indenture requirement of a 25% step-up provision that protects against a default by the smallest members in each project.

Competitive Power: The geothermal and hydroelectric projects provide members with competitively priced, carbon-free energy, which is increasingly valuable in California's energy market.

California's Regulatory Framework: Utilities in the state, including NCPA's members, face cost pressure due to the need by some members for additional generation and costs related to California's renewable and greenhouse gas regulatory standards.

JOINT ACTION AGENCY SUPPORT: NCPA provides its membership with a broad array of services that include a power pool, legislative and regulatory efforts, financial planning, and modeling assistance for its smallest members. Fitch Ratings views these system-like qualities as providing greater stability and security to the ratings.

WHAT COULD TRIGGER A RATING ACTION

CHANGES IN PARTICIPANT CREDIT: The rating is largely contingent on the rating of the largest participants. Any changes to the ratings of the largest project participants could impact the ratings. The Positive Outlook on the Geothermal and Hydroelectric Project bonds reflects the collective ratings and Outlooks of the participants, including Silicon Valley Power (rated 'A' with a Positive Outlook by Fitch).

CREDIT PROFILE

Full Service Agency

NCPA is a joint-power agency that serves a population of 750,000 through its 15 members and two associate members in Northern California. NCPA has a mix of hydroelectric, geothermal, and gas projects, as well as purchased power.

In addition to generation, NCPA provides marketing, legislative/regulatory, and administrative ancillary services to its members. NCPA is governed by a commission made up of one commissioner from each of the members (typically one council or board member). The NCPA Commission has exhibited continuity and active participation in the ongoing industry issues facing California, both of which are viewed as positive credit factors.

Unconditional Take-or-Pay Obligations

NCPA has project agreements with its members that are participants in each respective project. The project agreements extend through the life of the debt related to each project and require unconditional payments sufficient to pay operations and debt service on the bonds from the project participants to be made, regardless of project operation. The obligation to pay is unconditional and the agreements include a 25% step-up provision for each project.

Payments are made from each participant's retail electric system and each participant agrees to set electric rates sufficient to meet the payments to NCPA. The unconditional nature of the contracts links the rating on the bonds to the underlying credit quality of the project participants, giving consideration to the requirement of a 25% step-up in the event of a participant default.

Geothermal Project

The geothermal project is located on federal land about 70 miles north of San Francisco. Geothermal project operations have been excellent, with availability factors above 95% in the last five years. The average cost per kWh of the project in fiscal 2011 was 3.3 cents per kWh, which is a very competitive cost for baseload renewable energy within California. The cost structure reflects the amortization of most of the debt associated with the project in fiscal 2010. Debt remaining on the project is approximately $35 million of debt issued in 2009 to fund certain capital improvements to improve efficiency of the units and install small solar generation projects.

Hydroelectric Project

The hydroelectric project is located on the North Fork Stanislaus and the Stanislaus Rivers (located near Murphys, CA), and is licensed to the Calaveras County Water District through 2032. Under contract, NCPA operates and receives power from the project through 2032. The facility has a net capability of 252 MW. The project provides a unique resource in its ability to meet peak from a carbon-neutral resource. Project operations have been strong, with availability factors over 95% in all of the past five years. The project's operating costs are minimal. The largest costs are in the fixed debt service payments ($28.5 million, or 73%, of total costs in fiscal 2011).

Adequate Financial Performance

As a joint-action agency, NCPA is designed to run at or near the break-even point financially. NCPA bills members for actual costs, and therefore, there is very little excess cash flow generated. This is consistent with other power joint-action agencies. Fitch looks through to the credit quality, financial strength, and liquidity of the underlying members. Debt service coverage, on a consolidated basis across all of NCPA's projects, in fiscal 2010 was 1.15x. Coverage at each individual project was over 1.0x on a stand-alone basis. Fitch's rating is based on NCPA debt service coverage that is slightly above 1.0x on an ongoing cash flow basis.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 20, 2011);

--'Public Power Rating Guidelines' (March 28, 2011);

--'U.S. Public Power Peer Study' (June 20, 2011).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=613065

U.S. Public Power Peer Study ￢ﾀﾔ June 2011

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=636311

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.