OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following New York Power Authority (NYPA) bonds:

--Approximately $80 million, revenue bonds, series 2015A;

In addition, Fitch affirms NYPA's outstanding debt obligations as follows:

--$941 million revenue bonds at 'AA';
--$24 million subordinated notes at 'AA';
--$1.2 billion (authorized) traditional commercial paper (CP) notes (series 1,2,3) at 'F1+';
--$200 million (authorized) extendible municipal commercial paper (EMCP) (series 1) at 'F1+'.

The Rating Outlook on the revenue bonds and subordinated notes is revised to Stable from Positive.

SECURITY

The revenue bonds are secured by a revenue pledge (after payment of operating and maintenance expenses) of the utility system. Both the subordinate and CP notes rank subordinate to the revenue bonds of NYPA.

KEY RATING DRIVERS

VERY LOW-COST POWER: NYPA is the largest nonfederal power producer in the U.S. and serves a diverse group of customers throughout New York State. NYPA benefits from a largely 'green' hydropower resource mix that is exceptionally low cost for the state and region. NYPA's Niagara and St. Lawrence hydroelectric facilities supplied approximately 20.7 TWhs of electricity in 2014 at a cost of less than 1.2 cents/kWh.

VARIABLE HYDROELECTRIC PRODUCTION AND REVENUE: The revision in Outlook to Stable reflects the authority's challenge of maintaining consistently stronger financial performance given its exposure to hydroelectric output and market prices, which are inherently variable. Net income is expected to be significantly lower than budget in 2015 ($52 million vs. $206 million) and through the 2019 forecast period due to lower production and market prices. However, metrics should remain broadly consistent with the 'AA' rating category.

STRONG FINANCIAL PERFORMANCE: NYPA continues to exhibit strong financial metrics, despite the weakness observed through 2015. The authority's diversified revenue base, low leverage (58.5% equity capitalization), strong liquidity and healthy cash flow under pin its credit quality. Fitch-calculated debt service coverage (prior to NYPA transfers to the state) will remain relatively strong, albeit lower than historical levels, at approximately 2.2x-2.3x over the four-year period of 2016-2019.

CONTRACTED CUSTOMER BASE: NYPA's customer mix is diverse, and revenues are largely derived pursuant to wholesale power contracts. The authority's largest contracts all expire within the next 10 years, but the current rating reflects Fitch's expectation that the existing contracts will be renewed or new agreements executed given the competitive profile of NYPA's resources.

TRANSFERS TO STATE GENERAL FUND: NYPA's annual voluntary contributions to the state general fund represent an ongoing credit concern as the level of these transfers can vary. The transfers are subject to NYPA Board approval and maintenance of a 2.0x debt service coverage prior to transfer. Expected transfers for fiscal 2015 totaling $90.0 million are in line with budget estimates.

MODERATE VARIABLE-RATE EXPOSURE: NYPA maintains a moderate proportion (23.3% at Dec. 31, 2014) of variable-rate debt to total debt (debt includes capital lease obligations), with associated remarketing and interest rate risk. However, on a net basis, taking into account financial hedges, the variable rate exposure declines to 19.3%.

SUBSTANTIAL INTERAL LIQUIDUTY: NYPA's short-term rating is supported by the authority's various sources of internal and external liquidity and its strong 'AA' long-term rating. Total liquid resources provide coverage of maximum potential requirements that are well in excess of Fitch's target for 'F1+' short-term ratings.

RATING SENSITIVITIES

CONSISTENTLY WEAKER OPERATING RESULTS: Consistently weaker performance by the New York Power Authority as a result of water flow and market price variability, political pressure to materially increase transfers to the state or the imposition of other energy initiatives could result in downward rating pressure.

FAILURE TO CONTRACT CAPACITY: Any failure to extend or replace existing wholesale contracts, which exposes NYPA to higher market risk over the long-term could also result in downward rating pressure.

CREDIT PROFILE

NYPA is an integrated, primarily wholesale provider of electricity throughout New York State. It is the nation's largest quasi-state owned electric utility, with 16 generating facilities across the state and more than 1,400 miles of transmission. NYPA was created in 1931 via state legislation. NYPA owned and contracted generation account for net dependable capacity of approximately 6,000 MW.

NYPA serves customers throughout New York State primarily via contracted wholesale power sales to municipal, rural electric and investor-owned utilities, direct industrial users, public corporations, and several out-of-state utility customers. The authority's largest contracts all expire within the next 10 years, but Fitch expects that the existing contracts will be renewed or new agreements executed given the competitive profile of NYPA's resources.

VERY LOW COST HYDROELCTRIC RESOURCES
NYPA's principal generating assets remain the Niagara and St. Lawrence-FDR hydroelectric projects, which together provide 3,509 MWs of net dependable capability (61% of the authority's total) and over 20.7 billion kWhs (81%) of net generation in 2014. Both units have been relicensed by the FERC through 2057 and 2053, respectively.

Hydrological conditions are moderately below expectations for 2015 reflecting lower precipitation levels and icing conditions earlier in the year. Full year flows are expected to total 21.4 TWh rather than projected 22.6 TWh. Favorably, the hydrology level remains above the long term average of 20.2 TWh.

The Niagara and St. Lawrence-FDR projects represent two of the lowest cost production assets in the nation. Year to date 2015 production costs at Niagara and St. Lawrence-FDR total 7.64 mills/kWh and 11.19 mills/kWh, respectively. Sales from the hydroelectric projects are predominately to municipal, rural electric and investor-owned utilities, and direct industrial users. Approximately 30% of NYPA's hydroelectric power sales are merchant.

NYPA's other principal assets include the 1,160 MW Blenheim-Gilboa Pumped Storage Project, a 500 MW combined cycle facility in Queens, New York (Astoria), and eleven 47 MW combustion turbine units located throughout New York City. The New York City based units, together with 250 MW of Blenheim-Gilboa, are generally used to meet the requirements of NYPA's New York City governmental customers (SENY customers). Supplemental purchases for the SENY customers are also made from a second 500 MW unit at the Astoria facility (Astoria II).

SOLID FINANCIAL PERFORMANCE AND LIQUIDITY

NYPA has a history of solid financial and operating performance. The authority maintains a strong balance sheet (58.5% equity capitalization for fiscal 2014), exceptionally low leverage (debt-to-funds available of 3.7x), healthy cash flow, and debt service coverage averaging more than 2.5x for the past five years (greater than 1.60x coverage of full obligations) - all of which exceed Fitch 'AA' median levels.

However, net income for fiscal 2015 is expected to be considerably below budget ($205 million annual projection revised to $52 million) due to lower than anticipated energy prices and hydrological conditions. Despite weaker net income, Fitch-calculated debt service coverage should remain sound for the rating category, at approximately 2.0x.

Prospectively, NYPA should maintain solid debt service coverage (Fitch-calculated) in excess of 2.2x through 2019, despite net income that will remain below historical levels and prior projections ($98.4 to $122.5 million) due to lower hydroelectric revenues. NYPA's capital expenditure plan remains manageable at $1.95 billion through 2019, with moderate net new debt.

SIZEABLE COMMERCIAL PAPER PROGRAM

NYPA's total CP authorization is substantial at $1.4 billion, and its liquidity resources (internal and external) are minimally adequate to support its 'F1+' short-term rating. However, NYPA's CP outstanding cannot exceed the size of the bank revolving agreement (as per the CP
resolution). As a result, the size of the revolving line of credit ($600 million) is more indicative of NYPA's actual CP borrowing capacity.

NYPA's commercial paper program is supported by its $600 million revolving line of credit with four major banks with solid short-term ratings of 'F1' or 'F1+' by Fitch, as well as by approximately $1.37 billion of unrestricted cash and investments. The bank revolving credit agreement expires in January 2017.