2008-11-11 04:13:01 -

- Fitch Ratings has assigned an 'A+' rating to the Lower Colorado River Authority's (LCRA) transmission contract revenue bonds, series 2008A (issued on behalf of the LCRA Transmission Services Corporation; TSCorp). The bonds are expected to be issued in an amount up to $100 million. Proceeds will be used to refund outstanding commercial paper and fund new construction of transmission assets. The bonds are expected to price on Dec. 3, 2008, depending on market conditions. Fitch also affirmed the 'A+' rating on TSCorp's outstanding contract revenue bonds. The Rating Outlook is Stable.

The rating reflects the pledged revenues of the transmission business line, which are distinct from LCRA's other revenues. The rating reflects a regulated business (with rates approved

by the Public Utility Commission of Texas; PUCT) and revenues that are collected from retail electric providers across the entire Electric Reliability Council of Texas (ERCOT) region, or 75% of the state of Texas. TSCorp has demonstrated consistent financial performance since its inception in 2002, with debt service coverage of 1.51 times (x) in the fiscal year ended 2008 and regulatory approval of a capital recovery methodology that should result in projected debt service coverage remaining in the range of 1.5x. TSCorp's relationship with the PUCT and the PUCT's ongoing regulatory support for cost recovery are primary credit drivers of this rating. TSCorp must seek regulatory approval for any rate changes. Given the large ongoing scale of capital additions planned, timely cost recovery is extremely important.

TSCorp is a Lower Colorado River Authority transmission system affiliate and non-profit corporation. Fitch views TSCorp as being ultimately controlled and operated by LCRA (which is rated 'A+' by Fitch, with a Stable Outlook). The rating is affected by the rating of LCRA given the overlap in management and financial ties between the two entities. It is important to note that, while viewed as unlikely, LCRA has the ability to issue debt secured by TSCorp's contractual commitment to LCRA, which is senior to payments made to TSCorp bondholders. Current contractual commitment payments to LCRA are made at 1.0x debt service. However, LCRA also has the ability to increase the contractual commitment payments to 1.25x.

TSCorp's business model has focused on developing transmission projects across Texas currently recommended by ERCOT that have or will receive a certificate of convenience and necessity (CCN) from the PUCT prior to construction. TSCorp currently has $928 million in capital projects in its five-year capital plan. Projections include approximately $300 million in spending for projects within the newly created Competitive Renewable Energy Zones (CREZs) in the state. In August 2008, the PUCT designated five areas in west Texas as CREZs, as directed by the legislature, in order to facilitate transmission construction to these areas where substantial new investment in wind generation is occurring. The PUCT has identified $4.9 billion in transmission projects to be built in this area. The PUC has not awarded any construction contracts yet so the $300 million in TSCorp's capital plan are only estimates at this time and would only occur if an award from the PUCT is received. It is expected that capital recovery permitted on a regulatory basis of 1.5x debt service would be consistent with these projects as with any other transmission construction.

TSCorp was formed to separate LCRA's transmission business from electric generation, as required under the Texas electricity restructuring legislation (Senate Bill 7), and allow LCRA to provide transmission services throughout Texas. TSCorp's revenue stream is provided by monthly payments from the distribution service providers within ERCOT. The rate received by TSCorp is established by the PUC and provides 1.5x coverage of any transmission related debt, both at LCRA and TSCorp.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

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