Fitch Affirms Alameda Municipal Power (formerly Alameda Power & Telecom) at 'A-'; Outlook Positive

SAN FRANCISCO--(Business Wire)--
Fitch Ratings affirms its 'A-' underlying rating for Alameda Municipal Power's
(AMP, formerly known as Alameda Power & Telecom) outstanding electric revenue
certificates of participation, in the amount of $39.045 million. The
certificates are secured by a net revenue pledge of the electric system. Fitch
also revises the Rating Outlook to Positive from Stable.

The improved Rating Outlook reflects the sale of the telecommunications business
in November 2008 and the resulting expected positive cash flow impact to the
electric fund in that the electric fund had historically subsidized the
telecommunications fund operations. The Positive Outlook also reflects Fitch's
expectation that AMP will adjust its revenues and/or expenditures to address
known increases in its cost structure that will occur beginning in fiscal 2011.
A potential rating upgrade will depend, in part, on the level of financial
margin provided to bondholders as a result of the new revenue and cost
structure. Fitch assumes that future debt service coverage will be in excess of
AMP's legally required rate covenant of 1.1 times (x).

The 'A-' rating reflects a power supply that is predominantly generated by
renewable resources (60%), placing AMP in a advantageous position in California,
participation in the Northern California Power Agency (NCPA) power pool that
allows AMP to balance its power supply and load through sales to other NCPA
members, and a healthy financial position with 420 days operating cash and
historical debt service coverage that has consistently been over 3.2x, or over
2.2x following the general fund transfer. Projected debt service could be lower
than historical levels, depending on the level of rate increases adopted in
fiscal 2010. Customer growth has been minimal and the system peak and load
requirements have been stable following the closure of the Alameda Naval Air
Station nearly 10 years ago, which represented a large load reduction at that
time.

In November 2008, AMP sold its telecommunications business (direct cable and
internet service) which the city started in 2001. The city determined that the
additional investments needed in the system were substantial and although the
telecommunications business produced positive cashflow to support its operations
for the first time in 2008, it was not sufficient to begin supporting the debt
that was coming due in a bullet maturity in 2009. The sale resulted in a loss to
the electric fund of the $43 million interfund advance that had been used to
support the telecommunications business since inception. However, the sale
prevents future financial support that would have likely been provided by the
electric fund. Ongoing litigation regarding the sale has the potential to result
in certain legal and settlement costs that would likely be funded by the
electric system. This potential cost exposure is mitigated by AMP's strong
liquidity position.

AMP's power supply is diversified and is well in excess of the city's adopted
40% renewable target with approximately 60% coming from renewable resources in
2008. NCPA's geothermal project (rated 'A' by Fitch) provides the largest
component of AMP's power supply at 39%. Peak demand has remained around 70
megawatts (MW) over the last 10 years, reflecting very little growth, which
relieves the utility of the pressure to identify new generation resources until
2014 when an existing long-term contract for winter capacity expires. Power
supply costs will increase between $2 million-$3 million in fiscal 2011 (around
10%). AMP had used a portion of the series 2000 bond proceeds to offset the high
cost of generation assets that had the potential to become stranded costs under
the states anticipated deregulated market back in 2000.

Approximately $3 million of proceeds were used annually to offset AMP's power
supply costs from NCPA. The last offset will occur in fiscal 2010. In addition,
bond principal begins to amortize in fiscal 2011, increasing debt service costs
to AMP by around $900,000. As a result of its increasing cost structure, AMP may
raise rates in fiscal 2011.

The City of Alameda is an island located in the San Francisco Bay between the
City of San Francisco and the City of Oakland. AMP provides retail electric
service to around 34,000 customers. The city has a population of around 75,000.
The city is built-out and growth is limited, with the exception of some
industrial space that was vacated with the Alameda Naval Air Station closed 10
years ago. Some of the property has been redeveloped, now known as Alameda
Point.

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
Kathy Masterson, 415-732-5622 (San Francisco)
Joanne Ferrigan, 212-908-0399 (New York)
Cindy Stoller, 212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

Copyright Business Wire 2009