Fitch Affirms Tri-State Generation & Transmission, CO's Revs at 'A'; Unsecured Certificates at 'A-'

Tue Mar 9, 2010 5:20pm EST

* Reuters is not responsible for the content in this press release.

NEW YORK--(Business Wire)--
Fitch Ratings affirms the following Tri-State Generation & Transmission
Association, CO's (Tri-State) debt obligations, as part of its continuous
surveillance effort: 

--$39.5 million Gallup County, NM pollution control revenue bonds (fixed-rate),
affirmed at 'A'; 

--$708.4 million pass-through certificates (Springerville Project), series 2003
A & B, affirmed at 'A-'; 

--$219 million secured revolving credit facility, affirmed at 'A'. 

The Rating Outlook is Stable. 

SECURITY: 

--The pollution control bonds are secured by the payment obligation of Tri-State
pursuant to the Financing Agreement, dated as of July 1, 2005 with the City of
Gallup, New Mexico. Tri-State's obligation to pay debt service on the pollution
control bonds is secured by a master first mortgage indenture, deed of trust and
security agreement placed on all property of Tri-State (as amended, restated and
supplemented effective July 12, 2005). The bonds are not secured by the general
credit or taxing power of the city. 

--The rating on the pass-through certificates is based upon the underlying
senior unsecured rating of Tri-State, pursuant to a 34-year operating lease
entered into in 2003, which entitles Tri-State to lease 100% of Springerville
Unit #3, a 418 MW coal fired generating unit located in Arizona. Under the lease
agreement, Tri-State is obligated to make rental payments (which include the
debt service component) to the owner of the Springerville Unit. Given the
operating lease structure, and the fact that Tri-State's rental payments are
paid as an operating expense of Tri-State, payment of the pass through
certificates is secured by the electric system revenues of Tri-State and the
collateral pledge of the single generating unit (solely a Springerville #3
collateral pledge). 

RATING RATIONALE: 

--Tri-State has shown continued improvement in its financial performance and in
meeting its previously established financial goals, with debt service coverage
(1.22 times [x]), days operating cash (107) and equity capitalization (20%) at
or above 'A' rating category medians. 

--Tri-State benefits from having all-requirements contracts with 42 of its 44
members that were extended to 2050 - well beyond current final debt maturities
in 2039. 

--Tri-State benefits from serving distribution members across four states with
diverse economies, geographies, climate, and load shapes. Tri-State's load
factor is extremely efficient at close to 70%. 

--A credit concern is the rising average member wholesale rate (includes
generation and transmission cost), currently at 6.5 cents per kilowatt-hour
(kWh) for 2009. While the wholesale rate remains competitive for the Rocky
Mountain region, members' delivered retail rates are relatively high for the
region. 

--Tri-State has a notable, though scaled down, five-year capital expenditure
program (approximately $2.5 billion), which accounts for a majority of pressure
on rates in the future. Positively, the capital program is heavily
transmission-weighted as opposed to new generation. 

--The economic recession has slowed the rate of sales growth for Tri-State's
members, which has favorably pushed out to 2016 the need for additional baseload
generation. 

KEY RATING DRIVERS: 

--Tri-State's ability to cost effectively manage its load growth and associated
large capital program. 

--The Board's willingness to continue to pass through rate increases to maintain
the stronger financial goals established for Tri-State during this period of
substantial capital expenditures and weakened state of the national economy. 

--Tri-State has identified carbon emission and climate change legislation as a
major risk and has reviewed the potential cost of a tax on emissions and the
impact on rates. While not unique to Tri-State, its dependence on fossil fuels
is significant and could result in increased costs in the long term. Fitch will
monitor the potential impact of carbon reduction legislation on Tri-State's
financial and credit profile as policies and regulations are formulated and
enacted. 

--While still in its early stages, an unfavorable ruling on the lawsuit brought
by five members contesting the application of the postage stamp rate could
negatively impact Tri-State as it could set a precedent for challenging the
cooperative's structure and the contracts in place. 

CREDIT SUMMARY: 

Over the past few years, Tri-State has scaled back its dependence on coal-fired
new generating resources in its power supply plan and has developed a more
reasonable, balanced 10-year power supply strategy, incorporating more long-term
purchases, greater renewable resources and energy efficiency initiatives.
Overall, the plan is comparable to other utilities in the region. The reduced
capital plan has resulted in the need for smaller wholesale rate adjustments
than previously forecast. 

The original power supply plan (2006) had included construction of at least two,
700-MW each, coal fired generating plants at the Holcomb generating station in
Kansas, at an estimated cost of about $3.5 billion. Tri-State's plan to build
additional coal units at Holcomb has been a challenge. Faced with regulatory and
environmental backlash against the addition of new coal-fired generation in the
state of Kansas, the new Holcomb generating units have not been able to attain
their air permits. Tri-State will continue to pursue the matter legally,
assuming the new units continue to be economically viable and Tri-State's member
load growth persists as projected. Given the uncertainty with the project
to-date and the slowed member sales growth, Tri-State has revised its power
supply plan and pushed the planned construction of a single Holcomb unit beyond
its original 2013 start date to 2016 at the earliest. 

In working to meet the RPS goals for member systems, Tri-State has contracted
with First Solar, Inc. to develop a solar photovoltaic power plant, Cimmaron I
project, with 30 MWs of capacity in northeastern New Mexico. The Cimmaron I
project is scheduled to begin construction in spring of 2010 with the project
expected to be completed by the end of 2010. Tri-state has entered into a
25-year contract to purchase the output from the facility. The energy from the
project will play an integral role in meeting the RPS standards of its member
systems. In addition, the 51 MW Kit Carson wind project is expected to come
on-line in 2010 and along with Cimmaron I project, Tri-State is expected to be
fully compliant with New Mexico and Colorado's RPS requirements through 2014. 

Tri-State Generation and Transmission Association, Inc. is a taxable,
not-for-profit wholesale power supply cooperative, providing power to 44 rural
member distribution systems throughout four states: Colorado (18 members),
Wyoming (8), Nebraska (6) and New Mexico (12). The member systems provide retail
electric service to approximately 600,000 users, or a population base of about
1.4 million. 

The members' retail customer base is adequately diversified, with residential,
industrial, commercial, irrigation and other users accounting for 33%, 34%, 22%,
10% and 5%, respectively, for 2009. The vast majority of operating revenues are
derived from sales to member systems (roughly 79% in 2008), and the rest is
attributable to non-member, mostly contracted sales (i.e., with Public Service
Co. of Colorado, Salt River Power and Shell Energy). 

Applicable criteria available on Fitch's web site at 'www.fitchratings.com'
include: 

--'Revenue-Supported Rating Criteria' (Dec. 29, 2009). 

--'Public Power Rating Guidelines' (June 11, 2009). 

Additional information is available at 'www.fitchratings.com'. 

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE '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
Eric V. Espino, 212-908-0574
Lina Santoro, 212-908-0522
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

Copyright Business Wire 2010

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