Market Overview

Fitch Rates Snohomish Cnty WA PUD NO. 1's $58.3MM 2012 Elec Sys Bonds 'AA-'; Outlook Stable

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NEW YORK--(BUSINESS WIRE)--

Fitch Ratings assigns an 'AA-' rating to Snohomish County Public Utility District No. 1, WA's (the district) $58.3 million electric system revenue refunding bonds, series 2012. Bond proceeds will be used to refund the districts series 2004 electric system bonds.

In addition, Fitch affirms the ratings on the following district bonds:

--$367 million electric system bonds at 'AA-';

--$230.4 million generation system bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by electric system revenues after payment of operating expenses of the electric system and costs associated with its generation system.

KEY RATING DRIVERS

STRONG FINANCIAL PRACTICES: The district has established and adhered to financial policies designed to achieve debt service coverage (DSC) of at least 2.0x, maintain significant financial reserves and adjust rates in a timely manner. For 2011, Fitch calculated electric system senior bond DSC was 3.14x.

SUBSTANTIAL CASH AND INVESTMENTS: The board of commissioners established a comprehensive reserve policy in 2007 to provide a financial cushion, which can be used to fund capital projects, meet operation and maintenance expenses, and address hydro and wholesale power market risks. As of Dec. 31, 2011, cash and temporary investments totaled $396.3 million, with a rate stabilization account adding another $115 million.

FUNDAMENTALLY SOUND GENERATION: A mix of low-cost, long-term block/slice contracts with the Bonneville Power Administration (BPA) provides over 85% of the district's long-term power requirements. BPA contracts, supplemented by renewable resources, new generation and conservation, enable Snohomish to be well positioned to meet state mandates and future growth requirements.

SOLID SERVICE AREA: The district's customer base is sufficiently diverse and is anchored by the Boeing Company, which is the county's largest employer. Concentration risk exists, but the aircraft company's dominant position in the global aircraft market and strong local socio-economic factors, provide a counter balance to this concern.

PROJECT TERMINATION SETTLEMENT: The district reached agreement regarding the termination of a cogeneration project with Kimberly-Clark Corporation, a large industrial customer in 2011. The financial impact was not significant.

CREDIT PROFILE

The district is the largest public utility district and the second-largest municipally owned utility in the Pacific Northwest region in terms of customers and energy sold. The district's retail system provided electric service within the county to 322,228 electric customers as of Dec. 31, 2011. The county is located 30 miles north of Seattle and includes the city of Everett, home to the Boeing manufacturing facility and a U.S. naval station, which are two of the district's largest customers.

The district benefits from low-cost wholesale power contracts with BPA, the largest power provider in the Northwest. In 2011, BPA provided 85% of the district's long-term energy resources. Snohomish's average power supply cost for 2012 is budgeted at $36.82 per megawatt-hour (MWh), roughly in line with 2011's power cost. The district's current and committed resources, combined with new conservation achievements, are expected to meet forecast customer loads through 2020.

FINANCIAL PERFORMANCE EXEMPLARY

Fitch believes the district uses conservative assumptions in its financial modeling. In its financial forecast, the district assumes water years based on 'blend' conditions (midpoint between average and critical), reasonable market prices, low investment rates, and a slowly recovering economy. Given the sizeable amount of financial reserves, interest rates can have an important effect on earned income. Wind generation is based on resource history. This scenario usually leads to results that exceed the district's forecasts and budgets.

Financial results, which will vary due to the district's high reliance on hydroelectric-based resources, have remained strong in recent years. Senior-lien DSC totaled 3.14x in 2011 and 2.07x in 2010. The district's base forecast for operating results for the period 2012?2014 produces DSC approximating 2.5x.

The district's cash position exceeds the amount of reserves suggested in the utility's financial policies. At Dec. 31, 2011, the electric system had $396.3 million in cash and temporary investments, in addition to $127.6 million in special funds, available also as a rate stabilization account, for a total of $471.5 million. The district expects to maintain sizeable future reserves, but at levels below recent figures

For additional information, please see Fitch's report on the district, dated Oct. 28, 2011, and available at 'www.fitchratings.com'.

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 and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', June 12, 2012;

--'U.S. Public Power Rating Criteria', Jan. 11, 2012.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=665815

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Fitch Ratings
Primary Analyst
Alan Spen
Senior Director
+1-212-908-0594
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Michael Murad
Associate Director
+1-212-908-0757
or
Committee Chairperson
Dennis Pidherny
Senior Director
+1-212-908-0738
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
elizabeth.fogerty@fitchratings.com

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