Fitch Rates Snohomish County PUD No. 1's (WA) $58MM Electric System Rev Notes 'F1+'

SAN FRANCISCO--(Business Wire)--
Fitch Ratings has assigned an 'F1+' rating to the Snohomish County Public
Utility District (Snohomish PUD) No. 1's $58.2 million electric system second
series revenue notes, series 2009B.

Proceeds will refund outstanding series 2008A notes issued in October 2008 that
funded the purchase of the district's outstanding 1995 variable-rate generation
system revenue bonds. The 2009B notes rank on parity with the 2009A notes and
the district's junior lien electric system obligations.

Fitch is also affirming the following ratings for Snohomish PUD debt
outstanding:

--$254 million generation system revenue bonds at 'AA-';

--$262 million electric system revenue bonds at 'AA-' (senior and junior lien);

--$220 million series 2008A and 2009A electric system second series revenue
notes at 'F1+' ($58 million of series 2008A notes will be refunded by the 2009B
note proceeds).

The Rating Outlook on the bonds is Stable.

Although the generation system bonds are paid as an operating expense of the
electric system, Fitch rates the bonds on parity with the electric system
revenue bonds given the combined operation of the two systems. No rating
distinction is made with the senior and junior lien electric revenue bonds.

The 'F1+' rating on the series 2009B short-term notes reflects the long-term
credit quality of Snohomish PUD, expected market access to refinance the notes
upon termination, and a strong liquidity position that would be sufficient to
repay the notes, if necessary.

Fitch recently (Oct. 9, 2008) upgraded Snohomish PUD's long-term debt rating to
'AA-' from 'A+' based on the following key credit factors:

--A competitive power supply portfolio;

--Substantial resolution regarding the terms of a new 20-year power purchase
contract to be signed with the Bonneville Power Administration;

--Resolution of litigation stemming from the 2001 western energy crisis;

--Success in budgeting Snohomish PUD's variable hydroelectric resources.

Ongoing credit positives include a strong financial position with healthy cash
reserve levels, solid financial policies and targets, and conservative risk
management practices. Credit concerns include the potential for greater impact,
although thus far muted, of the economic recession on kilowatt hour (kwh) sales
and area economy, the ability of the district to continue to effectively manage
the variable hydroelectric power supply and associated wholesale revenues, and
maintain cash reserves adequate to support refinancing of the short-term notes
should capital market access prove to be difficult in 12 months time.

Snohomish PUD's competitive power supply is based on a low-cost power sales
contract with the Bonneville Power Administration (rated 'AA' with a Positive
Outlook by Fitch), which accounted for 87% of power supply in 2008. The contract
includes two products: 1) Block - which provides a firm amount of power each
month, and 2) Slice - which provides the district with a percentage of the
federal system. The Slice product requires active power management of the
resource and has the potential to provide excess energy in high-water
conditions. Therefore, regional water conditions and market prices have a direct
impact on the district's operations and financial position. Snohomish PUD
mitigates the surplus revenue volatility associated with the Slice contract by:
budgeting based on conservative water conditions (Snohomish PUD has
substantially exceeded budgeted wholesale revenues since 2002) and maintaining
substantial cash reserves and conservative risk guidelines.

In December 2008, Snohomish PUD entered into a new contract with Bonneville for
20 years beyond the current 2011 contract term, which will provide a high level
of power supply certainty at attractive prices for the long term. Snohomish
PUD's remaining power supply will be provided by its limited owned resources (a
hydroelectric project and a co-generation facility) as well as from new wind
contracts the district has secured. As with other utilities that must comply
with state renewable targets, the district expects to meet load growth through
new renewable contracts/resources and energy efficiency. The cost of renewable
energy is substantially higher than the district's existing power supply and
will likely create long-term cost pressure on rates, although this will be the
case in the industry as a whole.

Snohomish PUD's financial position is strong and, with moderate growth, is
projected to remain solid. Debt service coverage on a combined basis (of both
generation and electric system debt) was 3.7 times (x) in fiscal 2008 and cash
reserves have continued to increase over the past few years with healthy
wholesale sales and lower than anticipated power costs. Debt levels are
moderate, providing debt capacity to support the expected capital spending, a
portion of which will be debt-financed.

Snohomish PUD is a retail electric system that provides electric service within
the county to approximately 696,000 people and 317,000 electric customers.
Located 30 miles north of Seattle, the county includes the city of Everett,
which is home to the Boeing manufacturing facility and a Naval Station, two of
Snohomish PUD's largest customers.

Snohomish PUD's 317,000 customers are relatively diversified with residential
sales accounting for slightly more than 50% of retail energy sales. Customer
concentration is not a credit concern. The top three customers account for 8% of
revenues. The system is winter peaking, with a peak demand of 1,560 megawatts in
2008. Load growth has slowed in recent months, but is projected to continue to
grow (<2% per year) post 2009.

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, +1-415-732-5622 (San Francisco)
Lina Santoro, +1-212-908-0522 (New York)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com

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