Fitch Affirms Southwest Power Pool's Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the existing debt ratings of the Southwest Power Pool (SPP) as follows:

-- Issuer Default Rating (IDR) at 'A';

-- Senior secured debt at 'A+';

-- Senior unsecured debt at 'A';

-- Short-term IDR at 'F1'.

Approximately $49 million of debt is affected. The Rating Outlook for SPP is Stable.

SPP's ratings reflect the company's regulated tariffs and contracts with member companies that result in steady and predictable cash flows, as well as a supportive federal regulatory policy. SPP currently operates under a cost-of-service tariff accepted by the Federal Energy Regulatory Commission (FERC), which allows for the recovery of all costs associated with SPP's services, including scheduling transmission, energy market revenues, and market monitoring activities. Fitch's ratings further takes into consideration the expectation that the FERC will raise SPP's tariff cap, if necessary, to recover operating and financial expenses as FERC has historically allowed adjustments to SPP and other regional transmission organization (RTO) tariffs.

Rating concerns include the limited operating history of the Energy Imbalance Service (EIS) market and the voluntary nature of SPP membership participation. In February 2007, SPP launched the EIS market. Nearly two years later, the EIS market is functioning as planned, facilitating more efficient use of the transmission network with a high level of market participation and price stability. To date, there have been very few settlement disputes. Market settlements exceeded $1.3 billion to date in 2008, and are expected to account for approximately 8% of SPP's energy transactions. The energy imbalance market serves as an important building block for ancillary services markets that are contemplated in SPP's plan to better manage demand response, energy efficiency and the variability of many renewable resources.

The departure of a large SPP member could adversely affect the RTO as it would increase the remaining members' share of operating and capital expenses and thereby could result in additional departures from the system. However, the risk of departing members is mitigated by the requirement that the exiting member pay a fee equal to its share of SPP's outstanding debt and other committed expenses. Similarly, SPP's exposure to a market participant's payment default is limited by collateral requirements that would limit the size of any default as well as processes that mutualize the costs of default among the market participants for services net of received payments.

As is the case with other transmission entities, SPP is heavily focused on improving transmission reliability and expansion projects. From a credit perspective, the associated levels of capital spending for these projects are not a concern, since SPP is not responsible for funding the new transmission. The company has identified the need for significant transmission upgrades, totaling $2.2 billion through 2017. Projects in the plan include new lines, line rebuilds and upgrades, reactive devices, transformers, substation upgrades and voltage conversions. In 2007, 70 transmission projects totaling $179 million were completed by members, including terminal upgrades, rebuilds, conversions, new lines, line reconductors, capacitor banks and transformers

SPP is a non-stock, not-for-profit company that is one of nine Independent System Operators/RTOs in North America and is one of eight regional reliability councils. SPP has more than 50 members in nine states: Arkansas, Kansas, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Texas and Nebraska. SPP members serve more than 4.5 million customers. SPP's footprint includes 52,300 miles of transmission lines and 255,000 square miles.

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.