OREANDA-NEWS.  Fitch Ratings has affirmed the Long-Term Issuer Default Rating of the California Independent System Operator (CAISO) at 'A+' with a Stable Rating Outlook. Approximately \\$202 million of secured debt is affected by today's rating action. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

--CAISO's ability to adjust rates quarterly without regulator or board approval;
--The integral role played by the CAISO in achieving state and federal energy policy goals with regard to reliability, competition, renewable energy and environmental issues;
--The company's first priority lien on market collections.
--Constructive federal regulatory oversight;
--The solid credit profile of California's three largest investor-owned utilities (IOUs);
--Geographic and membership concentration, and the voluntary nature of CAISO participation.

CAISO's ratings and Stable Outlook reflect the stable revenues and cash flows derived from its Federal Energy Regulatory Commission (FERC) regulated tariff structure, strong grid management charge (GMC) coverage ratios, and the integral role played by the company in achieving state and federal energy policy goals with regard to reliability, competition, renewable energy and environmental issues.

Assured Cost Recovery: Fitch's confidence in CAISO's ability to consistently and fully recover its costs is a function of CAISO's ability to adjust rates quarterly without prior approvals. The ratings also consider CAISO's first priority lien on market collections, a constructive regulatory environment at the FERC and the strong credit profile of California's three largest Investor Owned Utilities (IOUs).

Addition of New Members: CAISO is expanding its real time energy market to other balancing authorities in the western U.S. under an initiative known as the Energy Imbalance Market (EIM). Arizona Public Service Co. (rated 'A-'/Stable Outlook) and Puget Sound Energy has entered into agreements with CAISO to join the EIM in October 2016. Current and prospective members include PacifiCorp ('BBB+'/Positive Outlook) and NV Energy Inc.('BBB-'/Stable Outlook). PacifCorp joined the EIM in November 2014 and NV Energy is to join the EIM later this year. The expanded energy market will leverage resource diversity over a larger geographic area, reduce costs and facilitate greater penetration of renewable energy while creating a more liquid power market. The EIM automatically balances electric demand with supply every 15 minutes and incorporates five minute generation dispatch. PacifiCorp, one of the West's largest balancing authorities, is considering participating in the CAISO as a full transmission member by turning over control of its transmission assets to CAISO, which could potentially lower GMC rates by up to 20%.

Severe Drought and New Solar Additions; Reliability Unaffected: Significantly lower than normal hydrologic conditions in California due to severe droughts is expected to cause up to 2,733 MW of hydro generation curtailments this summer. However, these curtailments are not expected to impact the reliability of the ISO system primarily due to significant new solar generation additions and to a lesser extent, increased energy imports and moderate peak demand growth. A total of 2,328 MW of new generation is expected to enter commercial operation this summer and is comprised of 96% solar, 3.4% wind, and 0.6% of biogas. CAISO's forecasted summer operating reserve margins are expected to be 25.3%, greater than the California Public Utility Commission's 15% resource adequacy requirement for planning reserve margin. The increase in solar generation capacity is in line with California's renewable energy policy goals.

IOUs on Track to Meet 33% RPS: CAISO will play a key role in California's ambitious renewable energy policies. The State of California currently has a 33% renewable portfolio standard (RPS) by 2020, which will require new transmission and renewable investments in the next decade. Renewable generation comprised 23.8%, 21.6% and 23.6% of PG&E, SCE and SDG&E's total retail sales, respectively, as of 2013. Notably, solar generation comprised 9% of CAISO's total generation resource mix for 2014, a material increase of roughly 6% when compared to the prior year. Going forward, due to falling solar PV panel prices and installation costs, Fitch expects this trend to continue.

Creditworthy Members: The grid management charge paid by the three largest IOUs in California: Pacific Gas & Electric (PG&E, IDR 'BBB+'; Outlook Stable), Southern California Edison (SoCalEd, IDR 'A-'; Outlook Stable), and San Diego Gas and Electric (SDG&E, IDR 'A'; Outlook Stable) represents approximately 57% of CAISO's total revenue. The CAISO administers a GMC, approved by the FERC, to market participants to recover all of the company's costs (including operating, capital expenditure and debt service), and to provide an operating reserve.

First-Priority Lien on Market Collections: CAISO's tariff provides a first priority lien on collections for market participants if there is a shortfall in GMC collections. With the implementation of the MRTU, there is now a greater breadth of market revenues to backstop GMC payments in the unlikely event of the default of large participants.

MRTU Enhances Market Volumes: The successful implementation of the new energy market (also known as the market redesign and technology upgrade [MRTU]) has significantly enhanced market volumes and collections, supporting CAISO's creditworthiness and enhancing its strategic role in implementing California's energy policies.

In 2014, CAISO recorded approximately \\$5 billion of market collections compared with \\$4.1 billion in 2013, \\$3.2 billion in 2012, \\$2.4 billion in 2011, and \\$2.1 billion in 2010. The ratio of total market collections-to-GMC approximated 25.4x in 2014 as compared to 21x, 17.1x, 12.5x, 10.5 x, and 8.1x in 2013, 2012, 2011, and 2010, respectively. As the EIM continues to expand Fitch expects total market collections and the ratio of total market-collections-to-GMC coverage ratios to continue to grow.

GMC Revenue Requirement: CAISO budgets into its annual GMC revenue requirement 1.25x debt service coverage and 15% operating expense reserves. The operating reserve account is fully funded at all times. Any over-collections above the 15% reserve are used to offset future year GMC revenue requirements. Additionally, CAISO is authorized to adjust rates quarterly if there is a 2% deviation or \\$1 million difference in current versus budgeted costs without FERC or board approval.

Rating concerns primarily relate to CAISO's membership and geographic concentration, moderately high operating costs, as well as the voluntary nature of CAISO participation. Fitch notes that CAISO's 2013 series bonds are secured by a collateral pledge of CAISO's headquarters in Folsom, CA which was completed in 2011.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for for CAISO include:
--GMC revenue requirement cap of \\$202 million;
--Capex averaging \\$25 million per annum through 2017;
--Long-Term Debt maturities of \\$4.4 million in 2015, \\$4.5 million in 2016, and \\$4.6 million in 2017.

RATING SENSITIVITIES

What Could Trigger a Positive Rating Action: While a credit rating upgrade is not anticipated at this juncture, significant CAISO regional expansion and related efficiencies could result in improving creditworthiness and positive, future rating actions.

What Could Trigger a Negative Rating Action: A substantive adverse change to regulatory oversight or a broad energy policy change at the federal or state levels; significant membership departures; adverse impacts from cyber or physical infrastructure attack; and, competitive threats from emerging technologies could lead to future credit rating downgrades.

LIQUIDITY

Fitch deems CAISO's liquidity position to be adequate, despite the absence of credit lines. The company relies largely on cash balances for working capital needs and has substantial investments, some of which could be readily liquidated in a funding emergency. CAISO is a party to the transactions that clear through the market as per FERC Order 741 in 2011 which required the ISO/RTOs to become central counterparties. Counterparty credit risk is mitigated by weekly settlements and collateral requirements. In the event of a market default any shortfalls are allocated among market participants.

FULL LIST OF RATING ACTIONS

Fitch affirms the following:

California Independent System Operator
--Issuer Default Rating (IDR) at 'A+';
--2013 secured secured revenue refunding bonds at 'AA-.