Fitch affirms American Transmission Co.

CHICAGO, Ill., Sept. 26, 2002 — Fitch Ratings has affirmed the credit ratings of American Transmission Company (ATC) as follows: senior unsecured debt at ‘A’ and short-term debt at ‘F1’. The Rating Outlook for the company is Stable.

The rating affirmation is based on a recent comprehensive review of ATC’s updated business plan and financial condition. ATC’s ratings reflect the company’s relatively low debt leverage combined with a low business risk profile as an electric transmission utility. The company has stable and predictable cash flows under a Federal Energy Regulatory Commission (FERC)-approved tariff, which is based upon projected rate base.

The company’s November 2001 tariff settlement with FERC includes an annual true-up mechanism, which uses a three-year cycle to project and adjust rates, thereby minimizing regulatory lag in annual rate updates. ATC’s network customers pay fixed demand charges that account for over 90% of ATC revenues. The network customers are financially sound, regulated electric utilities operating in Wisconsin and adjoining states. Variable revenues, derived from point-to-point service, comprise less than 10% of total revenues.

ATC has solid credit protection measures that are consistent with the ‘A’ rating category. The company is targeting a 50%-53% debt/capital structure, assuming an 80% dividend payout ratio. Funds flow coverage of interest cost is forecasted to be consistently above 4 times over the next four years. ATC’s current liquidity position is sufficient, with access to a one-year $75 million senior credit facility, all of which was available as of second quarter 2002.

ATC further benefits from the strong counterparty credit qualities of its largest customers, largely offsetting ATC’s concentration of revenues from three companies (Wisconsin Electric Power, Alliant Energy and Wisconsin Public Service (WPS), who collectively represent approximately 74% of the company’s network revenues.

ATC will need to obtain external debt and equity financing in the future to fund construction of additional transmission facilities. Potential sources of equity financing include subscription of additional equity by some or all of the current shareholders or a public offering of shares after 2003; sources of debt financing are the $75 million revolving credit facility and new public or private debt offerings.

ATC’s largest capital investment commitment is the Arrowhead Weston project, an electric transmission line to be jointly constructed by WPS and Minnesota Power. WPS is funding and managing the construction of the project, and ATC intends to buy out and assume WPS’ interest once the line is built. The Public Service Commission of Wisconsin (PSCW) approved the project at $165.7 million.

Recently revised estimates indicate that the ultimate project cost may be higher than the originally approved estimate by more than 10%, which requires a certificate amendment by the PSCW.

ATC is an original member of the Midwest Independent System Operator (MISO, rated ‘BBB+’, Rating Outlook Positive), which began operations in December 2001. MISO operates as a regional transmission organization pursuant to FERC rules and administers ATC’s FERC-approved Open Access Transmission Tariff. Fitch’s analysis considers that MISO acts as an agent of ATC for the billing and collection of some revenues, resulting in the commingling of some ATC funds in MISO’s hands for one day.

ATC is a for-profit investor-owned public utility that owns, manages and maintains transmission assets in portions of Wisconsin, Michigan, and Illinois. ATC’s principal owners are Wisconsin Electric Company, Alliant Energy, Wisconsin Public Service Company, Madison Gas & Electric Company, and Wisconsin Public Power Company.

Source: Fitch Ratings

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