Fitch Rates South Texas Electric Cooperative 'A-'

NEW YORK--(Business Wire)--
Fitch Ratings assigns a long-term issuer rating of 'A-' to the
South Texas Electric Cooperative (STEC). The Rating Outlook on is
Stable. This is Fitch's initial rating of STEC.

Supporting the 'A-' rating for STEC are financial metrics that are
in line with comparable utility systems in the rating category,
competitive wholesale rates and all-requirements power sales contracts
with STEC's eight members. STEC is supported by the solid credit
profile and diversity of its member systems, which include Karnes,
Wharton County, Victoria, Jackson, San Patricio, Nueces, Magic Valley
and Medina electric cooperatives. Overall, the members' service
territory is projected to increase 4.7% annually and grew at 5.3%
historically. Magic Valley, one of the newest members, accounting for
approximately 47% of STEC's customers, is projected to experience the
greatest amount of growth at 6.6% annually (9% historically).

The rapid growth that STEC's members are experiencing is a primary
reason for the acquisition of major new generation. As such, the
rating also takes into consideration that financial metrics will face
pressure as STEC implements a $1.2 billion capital plan. Under the
capital plan, STEC would diversify its fuel portfolio by developing
coal and wind generation to reduce dependence on natural gas. STEC is
partnering with International Power to develop Coleto Creek 2, a 700
mega watt (mw) coal-fired plant of which, STEC will own 343 mw, or
49%. The financial impact of potential CO2 regulation may put further
pressure on STEC's financial profile in the out years.

Looking forward, Fitch will monitor the following key credit
drivers that could affect the rating:

--Construction risks and ultimate costs associated with the
completion of the coal-fired generator, Coleto Creek 2;

--Management's ability to sustain financial metrics in line with
the current rating, as STEC expects to add $1 billion to its $312
million of outstanding debt;

--Environmental considerations.

Formed in 1944, South Texas Electric Cooperative is a generation
and transmission wholesale provider to eight distribution
cooperatives. These cooperatives provide service to over 150,000
customers in 42 counties and are located in the outlying areas of San
Antonio, Houston, Corpus Christi, and the Rio Grande Valley, Texas.

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
Yvette M. Dennis, 212-908-0668
Alan Spen, 212-908-0594
or
Media Relations:
Cindy Stoller, 212-908-0526

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