2008-08-16 00:33:02 -

- Fitch Ratings has assigned an underlying 'A+' rating on $148,065,000 Municipal Electric Authority of Georgia (MEAG), project one subordinated bonds, series 2008B. These bonds are being issued as variable-rate securities, with a letter of credit provided by Dexia. At the same time, Fitch has affirmed the 'A+' ratings on MEAG's outstanding project one debt, project one subordinated debt, general

resolution debt, general resolution subordinated debt, combined cycle debt and telecommunications project debt. The Rating Outlook remains Stable.

Bond proceeds will be used to refund amounts outstanding under a revolving credit agreement that was entered into in March 2008 in order to refund outstanding 2005B and 2005C bonds. The bonds are expected to sell Aug. 20, 2008.

MEAG's ratings are supported by a pledge of revenues from its court-validated, take-or-pay contracts with each of the respective projects that extend through the life of the bonds. Additional support comes from MEAG's reliable coal and nuclear based power supply. In 2007, MEAG derived approximately 43% and 42% of its delivered energy from coal and nuclear based resources, respectively. Due to the relative price stability of these fuels, MEAG's wholesale rates have been fairly constant in recent years. Fitch also notes that MEAG's participants continue to have steady and manageable load growth, which is projected to increase at a rate of 2% annually. Power resource plans are in place and MEAG's management is moving forward with them in order to meet this increasing demand. (For more details, see below.)

Financial performance over the past several years has been predictable, with MEAG achieving combined (junior and senior lien) debt service coverage ranging from 1 times (x) - 1.4x, which is adequate for a wholesale system in the 'A+' rating category. Historically, Fitch has looked very favorably on MEAG's strong liquidity and cash resources, especially given the stability of its cost structure and billing process which ensures timely cost recovery. MEAG's cash reserves are substantial and as of June 26, 2008 include approximately $759 million of funds in the Municipal Competitive Trust (MCT). This fund was originally established to help mitigate risks associated with the high fixed costs of its nuclear generation plants and potential retail competition, which never materialized.

MEAG has received 100% member approval to begin to drawdown from the restricted portions of the trust, which represents $640 million of the trust. The cities which have approved the trust amendment will begin receiving credits annually from 2009 through 2018. Members will receive the benefits of the MCT relief as a credit to their monthly wholesale power billings from MEAG Power. Going forward, Fitch will be monitoring MEAG's liquidity position, especially in light of the fund drawdown. In addition, Fitch views favorably MEAG's amortization of its existing generation related debt. Fitch believes MEAG's amortization schedule, along with its current cash reserves, good management and solid economic base, provide it with debt capacity for its future capital improvement plans and ability to maintain its competitive position and financial profile going forward.

Primary credit concerns for MEAG include the impact of increasing coal and natural gas fuel prices going forward, and the potential compliance costs associated with existing and future environmental regulations for the coal generating units. Historically, the relatively high fixed costs associated with its Vogtle nuclear units was a concern; however, through the funding of the MCT and the building up of the reserve, MEAG has lessened this concern. In addition, the sharp increase in costs for newer base-load plants has improved the competitiveness of MEAG's nuclear holdings. A key credit driver will be the expansion of the Vogtle nuclear plant, in which MEAG has decided to maintain its 22.7% share of the expansion facility.

Capital Improvement Plan: MEAG is presently looking at various financing structures for funding the estimated $3.1 billion cost of its 500-megawatt (MW) share of the Vogtle plant expansion. MEAG has determined that a significant portion of the power will be sold under long-term take-or-pay contracts for the initial 20-year period of operation, until such time as MEAG participants' growth needs match those of this excess power. One contract, for approximately 206 MW, has been entered into with JEA (rated 'AA-' by Fitch) as the power purchaser, and the other contract is with PowerSouth Energy Cooperative (rated 'BBB+'), for approximately 125 MW. These contracts require JEA and PowerSouth to assume all of the construction risk relating to their respective interests for the initial 20 years of the project.

MEAG is currently working on the transaction specifics and expects to enter the bond market sometime during the second quarter of 2009. The project has yet to receive regulatory approval from the Georgia Public Service Commission; however, should there be onerous conditions attached to the project MEAG has the ability to withdraw.

As a result of the recent disruption in the short-term bond market, MEAG's management is closely monitoring debt restructuring opportunities, and expects that other outstanding series of variable rate bonds will either change modes or be fixed out in the near future.

MEAG is a joint action agency supplying wholesale power to 49 municipal distribution systems in Georgia through separately secured projects. In aggregate, the participants' revenues are derived from residential customers at 30%, commercial customers at 41% and industrial customers at 27%. MEAG and other leading Georgia utilities benefit from a jointly owned integrated transmission system within the state that is used on a common basis by all owner systems.

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.

Fitch Ratings, New York
Karl Pfeil, III, 212-908-0516
Joanne Ferrigan, 212-908-0399
Cindy Stoller, 212-908-0526 (Media Relations)