Fitch Upgrades PowerSouth Energy Cooperative's Debt to 'A-'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has upgraded the underlying rating on PowerSouth Energy
Cooperative's (PowerSouth) outstanding bonds to 'A-'. The Rating Outlook is
Stable.

The rating upgrade to 'A-' from 'BBB+' reflects PowerSouth's improved financial
performance over the last few years (and current financial performance in line
with budget) as a result of management's increased cash flow, liquidity, and
equity targets; the members' support of past and future planned rate increases
to recover costs on a timely basis and to meet the utility's higher financial
targets; and greater clarity associated with the utility's power resource plan
with a good mix of owned and purchased power as well as a diversification of
fuel sources.

Additional support is provided by PowerSouth's (formerly known as Alabama
Electric Cooperative Inc.) status as an all-requirements provider of power and
energy to its 20 members, through contracts extending through 2050. The customer
base is primarily residential, with interruptible contracts for the largest
industrial users. While there are still sizable future debt plans associated
with power needs, the magnitude has been downsized over the last year and timing
of PowerSouth's financial commitments are more manageable and supportive of the
'A-' rating level.

Future credit drivers for maintenance of the Stable Outlook include Fitch's
expectation that PowerSouth will continue to implement timely rate increases to
assure bondholder protection is maintained at targeted levels. These targets
include increasing equity by $193 million to 22.74% of capitalization by 2016
(with approximately $50 million raised to date), increasing liquidity cash
levels to approximately 173 days of operating costs and maintaining cash flow
sufficient to provide debt service coverage of about 1.25x annually.

The slower economy is expected to reduce growth pressures on the PowerSouth
system and could weaken the financial health of certain distribution customers,
which collectively tend to show below-average economic indicators. Growth in
kilowatt hour (kwh) sales is currently estimated at a high 2.61% annually
through 2013 (in line with historical levels). However, given the staggered
addition of power resources over the next 10 years and that annual market
purchases are required to meet the system's reserve requirement, reduced growth
rates or flat sales growth over the next couple years should not pose a material
credit risk.

PowerSouth's energy fuel mix is composed mostly of coal (68%) and natural gas
(29%) in 2008 and is expected to change to about 48% coal, 22% nuclear, and 26%
natural gas by 2017. As with all systems with fossil fuel generation
(particularly coal fired generation) there are risks associated with the
potential cost impacts associated with greenhouse gas regulation. Fitch will
monitor this issue and its impact on PowerSouth's financial profile relative to
neighboring utilities and its peer group going forward.

PowerSouth is a not-for-profit generation and transmission (G&T) cooperative
that provides wholesale electric service to 16 retail electric distribution
cooperative member systems and four municipal electric system members in Alabama
and the panhandle of Florida. More than one million people are served by
PowerSouth, with about 80% of energy sales coming from its Alabama members, in
central and south Alabama, and the remainder derived from its northwest Florida
systems. PowerSouth members' service areas include 39 Alabama counties and 10
Florida counties, covering 37,000 square miles. The members provided retail
electric distribution services to about 408,000 residential (64% of
megawatt-hour sales), commercial (18%) and industrial meters (18%).

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
Joanne Ferrigan, +1-212-908-0399
Karl Pfeil, III, +1-212-908-0516
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

Copyright Business Wire 2009