Fitch Ratings assigns an 'A+' rating to the following Nebraska Public Power District (NPPD) revenue bonds:

--Approximately $171 million general revenue bonds, 2015 series A.

The bonds are scheduled to price via negotiation on or about Jan. 21, 2015. Proceeds of the 2015 series A bonds will be used to refund outstanding parity bonds (2005 series C, 2006 series A, 2007 series B, 2008 series B, 2009 series C, and 2012 series C) for cost savings, fund the primary debt service reserve requirement and pay financing costs.

In addition, Fitch affirms the following ratings:

--$1.7 billion in outstanding general revenue bonds at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of the district's electric system (the system). The 2015 series A bonds will also be secured by a cash funded debt service reserve.

KEY RATING DRIVERS

REGIONAL WHOLESALE PROVIDER: NPPD functions principally as a competitively priced wholesale electric provider serving directly or indirectly all or part of 86 of Nebraska's 93 counties. The district's vast service area has remained relatively stable with an agriculture-centered economy that continues to report exceptionally low unemployment.

PRESSURE FROM EXPIRING CONTRACTS: Wholesale contracts with 48 wholesale municipalities, 24 public power districts (PPDs) and one electric cooperative representing nearly half of the district's total revenue base could begin expiring on Dec. 31, 2021, well before the majority of the district's outstanding debt matures. The duration of the contracts exposes NPPD to considerable operating risk that has been well managed to date, but could ultimately pressure the rating in coming years.

STRONG FINANCIAL PROFILE: Debt service coverage has remained at a healthy level, averaging 1.5x over the prior five years, while liquidity has more than doubled over the same period. The district ended fiscal 2013 with 188 days cash on hand, well above the rating category median of 96 days. Fitch expects similar results to continue based on preliminary year-end financial projections for fiscal 2014 and the district's financial forecast through 2020.

DIVERSIFIED POWER SUPPLY RESOURCES: Power supplied by NPPD is derived primarily from a portfolio of owned generating assets and purchased power agreements. Available capacity is fairly diverse by fuel type and number of units with no single resource accounting for more than 25% of total available capacity. NPPD's coal-fired generating resources are equipped with controls expected to meet environmental regulations, although longer-term pressures could require costly investment.

RATING SENSITIVITIES

LOSS OF WHOLESALE CUSTOMERS: The district's inability to make measureable near-term progress towards renewing expiring wholesale agreements and stabilizing long-term demand requirements will likely result in negative long-term and short-term rating action. Although potential termination remains over eight years away, the prevailing uncertainty of the district's service requirements is likely to increasingly frustrate long-term planning efforts.

LOAD REDUCTION: While not anticipated, considerable use of the load release provision in the wholesale contracts could reduce sales over time, further narrowing the base on which fixed costs must be recovered.

CREDIT PROFILE

NPPD is Nebraska's largest electric utility, providing retail service to about 89,600 customers and all-requirements wholesale power supply to 51 municipalities, 24 PPDs and one electric cooperative pursuant to long-term contracts. The district's considerable service area excludes the state's two largest cities, Omaha and Lincoln, but nonetheless includes a substantial population estimated at 600,000. Steady growth in employment throughout the service territory's predominantly agriculture-centered economy has resulted in exceptionally low unemployment and overall stability among the district's customer base. The state's unemployment rate has remained below 5%, including during the recent economic recession.

EXPIRATION OF WHOLESALE CONTRACTS APPROACHING

Wholesale contracts for 48 of the municipalities, 24 PPDS and one electric cooperative served by NPPD representing nearly half of the district's total revenue base expire as soon as Dec. 31, 2021, if customers elect to provide the required five years notice to terminate. The contracts also currently permit wholesale customers to reduce requirements from NPPD by as much as 10% annually with three years written notice.

While only five customers (accounting for less than 4% of NPPD's total revenues) have exercised either contract provision to date, Fitch remains concerned that sizeable reductions in wholesale requirements could nonetheless ultimately occur, leading to compressed operating margins and ultimately requiring remaining customers to absorb higher electric rates needed to support the district's outstanding fixed obligations. Fitch notes that approximately half of the district's currently outstanding debt matures beyond 2021 and additional long-term maturities are anticipated.

The customers' obligation to provide five years notice when terminating contracts provides some comfort as it allows NPPD time to adjust its power supply resource plan accordingly and moderate the impact of any load loss. However, as the termination date approaches prevailing uncertainty related to the district's service requirements could frustrate long-term resource planning and result in additional cost and rate pressures.

The district's competitive wholesale rates and reportedly good relations amongst its customers should aid the district in its efforts to extend the expiring contracts. Nevertheless, Fitch will continue to monitor the district's ability to retain its existing wholesale customers and assess management's response to changes in customer composition and load reduction.

SOUND FINANCIAL METRICS

Debt service coverage has remained at a sound level, averaging nearly 1.5x over the prior five years, and improving to 1.7x in fiscal 2013. Management prudently targets a 1.5x coverage ratio. Liquidity has more than doubled since 2008, leading to a robust 188 days cash on hand at the close of fiscal 2013. Other resources, including $58 million of additional borrowing capacity under the commercial paper program, $14.5 million of unused capacity under a revolving credit agreement and a secondary debt service reserve account that can be used at the board's discretion provide the district with well over 200 days of liquidity.

Financial results through fiscal November 2014 (the district operates on a Dec. 31 fiscal year-end) indicate debt service coverage will remain at or very close to management's targeted coverage ratio of 1.5x. Based on financial projections through fiscal 2020, annual debt service coverage will rise slightly in fiscals 2016-2017 but remain close to an annual average of 1.5x through the forecast period. In addition, liquidity should remain at a sound level given the healthy excess annual cash flow after satisfying all obligations, including debt service and projected pay-go for capital projects. Fitch considers the assumptions included in the forecast to be reasonable and the projected results achievable.

RISING RATES

NPPD's rates steadily increased between fiscals 2009 and 2013, leaving retail rates somewhat high while wholesale rates remained largely competitive. Nevertheless, Fitch views the district's willingness to raise rates positively as financial results remained stable as a result. Rates were held steady in fiscal 2014, followed by a modest 0.5% increase for the current fiscal year for wholesale customers only. Financial projections through fiscal 2020 incorporate nominal base rate increases averaging about 2% annually for both retail and wholesale customers.

AMPLE RESOURCE CAPACITY

NPPD meets the majority of its customers' load requirements with a fairly diverse resource portfolio expected to be sufficient to meet future load growth for at least the next 10 years. The system's 3,626 MW of total resources exceeded the 2014 estimated peak demand (2,807 MW) by a significant margin. The largest owned baseload resource is the 1,365 MW, coal-fired, steam-electric generating Gerald Gentleman Station (GGS) consisting of two units.

Both GGS and the district's other coal-fired station, Sheldon Station, units one and two, are reportedly positioned well to meet existing environmental regulations. Management believes that existing pollution control equipment and the planned installation of mercury control equipment at a modest cost will make the facilities compliant with the Mercury and Air Toxics Standards (MATS) Rule that takes effect in 2015. However, in the longer term more stringent regulations related to the Clean Power Plan proposed rule could require costly investments at both plants.

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

Applicable Criteria and Related Research:

--'Revenue Supported Rating Criteria' (June 3, 2014);

--'U.S. Public Power Rating Criteria' (March 18, 2014);

--'Nebraska Public Power District' (Oct. 28, 2013);

--'U.S. Public Power Peer Study' (June 12, 2014).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841

Nebraska Public Power District

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721857

U.S. Public Power Peer Study -- June 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749789

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=971835

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