September 15, 2009

1. Issues affecting Public PowerAPPA Finance ConferenceChris JumperSenior Director - Public Power212-908-0594chris.jumper@fitchratings.com September 15, 2009

2. Hot Topics in Fitch Public Power Committees Presentation Overview • Market disruption • The impact of volatile counterparties • The impact of volatile fuel costs • Management • Resource portfolio additions / changes a. Generation & transmission/distribution • Response to proposed environmental regulations • Management • Demographics • Financial metrics/cost structure • Operational performance • Political pressure • Management Fitch Outlook – Stable in the Short-term Stable in the Long-term* www.fitchratings.com

3. 1. Market disruption • Counterparty risk • Access to bank liquidity/LOC’s? • Major providers have drastically reduced Utility’s access to liquidity • While the market has begun to thaw, bank liquidity is: • Higher priced; and, • Tougher terms; • Creative Solutions for self liquidity? • Access to the capital markets – Build America Bonds seemed to have helped • Volatile commodity prices • The next shoe to drop? • A meltdown of the commercial real estate market (and CMBS transactions) or Consumer Debt? • Inflation/declining US dollar and the future impact on fuel, labor, material costs • The resiliency of the already stressed US consumer. www.fitchratings.com

4. 2. Resource Portfolio Additions / Changes - Generation • Nuclear? • Natural Gas-fired? • Renewables? • Fitch looks for issuer to have diversity & flexibility in power resources. • Are new resources needed for long-term growth or regulatory mandates? • Planned generation construction • Impact to cost structure – Additional debt funding. • Technology and price assumptions • How is this option the best alternative for your community; regional context is important • Uncertainty in the industry results in difficultly making long-term resource decisions www.fitchratings.com

5. Resource Portfolio Additions / Changes- Transmission & Distribution Systems • Transmission infrastructure to alleviate capacity bottlenecks and access renewables • Participation in Regional Transmission Organizations (RTO’s) • Conservation and energy efficient programs • The installation of Smart Grids www.fitchratings.com

6. Resource Portfolio Additions / Changes- RPS/GHG emissions • Renewable Portfolio Standards • Over half of the states have adopted renewable portfolio standards • What is the issuer’s strategy to meet RPS (buy credits or build)? • Fitch expects to see federal carbon legislation within the next several years. • Waxman-Markey legislation made it through the House, but does it have the momentum & support to make it through the Senate? • Utilities are measuring their carbon footprint • Modeling various environmental cost structures • Passage of carbon legislation will at least provide some certainty on which to base future decisions about the resource portfolio. • Fitch will monitor management’s decision on how it plans to balance its financial margins/metrics in light of these added cost. www.fitchratings.com

7. 3. Demographics • Analyzing the service area and the customers, usage and key drivers in the region. • Assessing the Local Regulatory Support/Politics • City Council/Mayor priority and support for timely rate increases or revised rate structure • Increased political pressure and potential changes to general fund transfer policies. • Continued political support for pursuing a large capital improvement plan in light of a prolonged economic downturn • Flexible rate structure • Understanding of cost of climate change • Re-evaluating proposed generation in light of current low fuel cost environment • Other economic considerations • Business Strategy • Cost Structure www.fitchratings.com

8. Fitch Public Power Credit Outlook for 2009 • The near-term outlook for the sector is stable. • Long-term, also stable although Fitch recognizes increasing negative credit pressures. The public power industry remains vulnerable. (i.e., climate change). • Public power continues to prove itself to be a very solid investment despite past complexities facing the industry such as deregulation, fuel price volatility, and the corporate credit crisis. • Going forward how will public power address the issues: • Fluctuating fuel costs and the ability to maintain financial metrics • Market disruptions/ability to access the market and obtain liquidity • Uncertainty associated with climate change legislation • Demand for additional generation • Community (and Political) appetite for new policy direction www.fitchratings.com