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Fitch Rates Energy NW's $856MM Series
2006 Elec Rev Rfdg Bonds 'AA-'

by Staff
dBusiness News, March 13, 2006

NEW YORK -- Fitch has assigned an 'AA-' rating to Energy Northwest's aggregate $856 million 2006 series A-D revenue bond financings. The Rating Outlook is Stable. Fitch also affirms Energy Northwest's outstanding $2.3 billion prior lien bonds and $3.8 billion revenue bonds issued in connection with Project 1, Columbia Generating Station, and Project 3.

The 2006 A-D financings consist of taxable and tax-exempt series and involve the three projects mentioned above. The 2006 bonds are payable on a subordinate basis to outstanding prior lien bonds. The prior-lien resolution was previously closed. Bonneville Power Administration (BPA) is obligated to pay debt service on the Energy Northwest bonds prior to any of its payments to the U.S. Treasury. BPA's obligations are not general obligations of the United States government and are not secured by the full faith and credit of the United States. The series 2006 A-D bonds are being issued to refund certain prior lien and revenue bonds issued by Energy Northwest in connection with Project 1, Columbia and Project 3, and finance capital expenditures for the Columbia Generating Station. The financing is scheduled to price the week of March 21, and April 11, 2006 with Goldman Sachs as senior manager. Positive support for the rating is BPA's position as a leading provider of electricity and transmission in the Pacific Northwest and its highly competitive wholesale power rates. BPA sells and/or exchanges power with more than 100 utilities in the region and with several industrial customers with contracts that expire in 2011. The service area spans 300,000 square-miles in the Pacific Northwest and accounts for approximately 45% of the electric power consumed in the region. BPA's power supply is primarily hydro-based (90% of energy) and derives from 31 federally-owned hydroelectric projects, most of which are located in the Columbia River Basin (approximately 9,000 average megawatts under medium water conditions), and from several nonfederally owned and operated projects, including the nuclear-fueled Columbia Generating Station.

Credit concerns include the risk inherent in a hydro-based system where available energy and wholesale costs are dependent upon weather conditions (precipitation and water flow). Fiscal year 2005 (FY2005) marked the sixth consecutive year of below average water flow. Positively, the outlook for FY2006 is better with hydrological conditions forecasted to be close to average. Additional risks involve meaningful regional political differences among BPA's customers (including environmental groups) and a yet to be determined rate structure and BPA service obligation for the period beyond the existing contracts.

Fitch also continues to monitor other developing factors, including the 2007 federal budget proposal and ongoing disputes regarding fish preservation. The current federal budget proposal requires BPA to make early payments on its federal debt from any BPA surplus sales in excess of $500 million (potentially adding 10% to BPA's wholesale power rates). In addition, current disputes regarding water flow and spillage to enhance salmon migration is expected to cost BPA $70-80 million this year. Fitch believes BPA's financial position and credit profile is sufficient to mitigate these additional financial pressures.

Fitch also takes note of BPA and Energy Northwest's "direct pay" proposal, whereby Energy Northwest's customers would send their cash payments for costs related to the Columbia Generating Station directly to BPA rather than to Energy Northwest. Fitch believes the direct pay strategy provides BPA with greater financial flexibility without substantially reducing Energy Northwest's ability to meet its costs.

Energy Northwest owns and operates the Columbia Generating Station. BPA is the largest of the regional federal power marketing agencies within the Department of Energy (DOE). Total population served approximates 11 million. It also owns and operates a high voltage transmission system comprising approximately 75% of the bulk transmission capacity in the Pacific Northwest.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, ''. 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 Rates Energy Northwest's $856MM Series 2006 Elec Rev Rfdg Bonds 'AA-'
dBusiness News, March 13, 2006

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