October 24, 2008

Fitch Upgrades Muscatine Power & Water (Iowa) to ‘A+'; Outlook Stable

Fitch Ratings upgrades to 'A+' from 'A-' Muscatine Power & Water's (MPW) outstanding electric system revenue bonds. The Rating Outlook is Stable.

The rating is supported by the electric utility's low-cost coal-fired generation, very competitive rates, and strong financial position with improved system liquidity (over 300 days of operations) as well as its accelerated debt pay-down and future financial flexibility. Favorably, MPW's rapid retirement of its electric revenue bonds (fully amortize by Jan. 1, 2012) positions the system well to address future power supply requirements including renewable energy portfolio standards, and the potential cost impact of evolving green-house-gas regulations. The rating also takes into account MPW's ability to successfully market excess power at attractive prices, combined with a historically stable economic base with steady sales growth to native load customers.

A key credit concern is MPW's retail customer base, with larger industrial customers accounting for about 58% of native system revenues in 2007. Offsetting this concern is MPW's low cost of generation that should allow the system to sell excess generation into the wholesale market even in a low priced market environment. Other mitigants include MPW's solid cash-flow, ample liquidity, and ability to raise rates and remain competitive within the region. Additionally, monitoring of the separately secured communications utility is warranted given the financial interrelationship of the two systems.

Credit Drivers: The loss of a major customer or contract, in addition to a shift in the system's cost structure that materially reduces the system's financial flexibility.

MPW provides electric, water and communications services to the city of Muscatine, Iowa, which has a population of about 22,600 people. It is the largest municipal electric utility in Iowa in terms of sales and generation. The electric revenue bonds are secured solely by revenues of the electric system which serves about 11,000 customers, has a generating capacity of 293.5 megawatts and operating revenues of around $78 million. The electric system has provided significant funding for a startup communications system, with the loan expected to be repaid over a 30-year period, beginning in 2015.

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