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New York, March 20, 2002 – The Electric Reliability Council of Texas, or ERCOT, the not-for profit Texas independent system operator, has been assigned an A1 long-term issuer rating in anticipation of its expected April 2002 long-term debt issuance to refund outstanding Prime-1 commercial paper notes ($110 million in 2000), Moody's Investors Service reports.

"The credit rating reflects the well-established and accepted role ERCOT has maintained in the electric industry in Texas and the essential services ERCOT provides in establishment and enforcement of protocols for operation and reliability of the transmission system in the ERCOT region," says analyst Dan Aschenbach.

The 37,000-mile power grid that is the ERCOT region encompasses about 85% of Texas's electrical load, excluding East and West Texas and the Texas panhandle. ERCOT is governed by the Public Utility Commission.

Unlike other independent system operators (ISOs) in the US, ERCOT has an established history, having provided electricity transmission oversight since 1970. Its current mandate is to establish the infrastructure to support retail customer choice, secure operations of the bulk power market, ensure efficient and reliable use of Texas's transmission system, and coordinate future transmission planning.

"ERCOT will not function as a power pool nor have responsibility for energy pricing or matching buyers and sellers," Aschenbach adds.

Key to ERCOT's ratings is its essentiality, a lack of competition attributable to the nature of the services provided, high start-up costs, and its support from state statute and role as a Texas state legislature- and Public Utility Commission-sanctioned ISO.

"Moody's believes that this essential service is a major factor in bond security since the charges paid by customers are more certain to be made when required, even in a bankruptcy of the utility provider," says Aschenbach.

ERCOT funds its administrative and debt-service costs with a per-megawatt-hour charge assessed on the load of the market participants who are called qualified scheduling entities.

Further credit support derives from the relative stability of the Texas market. ERCOT's reserve margin has been strengthened by new generation facilities built in the state since 1995 (which reduces price spikes and shortages), and by the fact that less than 1% of power sold in Texas is imported.

Another important credit factor is that 90% of the ERCOT's transactions involve six electric utilities that have a weighted average credit rating of A3. Also, ERCOT has established creditworthiness standards for existing and new qualified scheduling entities.

"Over time Moody's believes this credit monitoring function will be more important as an increased number of participates enter the market," Aschenbach concludes. "ERCOT's credit monitoring procedures will more than likely be tested and may be a credit factor should the weighted credit quality of ERCOT weaken."

Note to Journalists: For a copy of this New Issue Report, contact John Cline at 212-553-0376.