CHICAGO - The Nebraska Public Power District plans to enter the market next week with $325 million of fixed-rate bonds that will finance construction of a major new transmission line as well as mark the district's final share in its financing of a new coal-fired plant.

The bond issue comes as one of Nebraska's busiest issuers shifts its borrowing focus from generation projects to transmission and upgrades. The NPPD's entire $1.5 billion debt portfolio is fixed rate, and nearly all is 30-year debt tied to the life of generation assets that are "very expensive to build and very cheap to run," said district chief financial officer Traci Bender.

Despite its financially conservative debt philosophy, the NPPD did not entirely escape the recent turmoil in the auction-rate market, and a few months ago it converted about $138 million of auction-rate debt into fixed-rate bonds.

The new-money issue is the district's first since its former senior underwriters - UBS Securities LLC and Bear, Stearns& Co. - exited the municipal bond market, leaving the issuer to assemble a new team of Wall Street underwriters to work with its six-firm regional team.

While most of the proceeds of the bond sale will finance transmission projects, about $25 million will mark the final financing piece of a new coal-fired plant being built by the Omaha Public Power District. The $718 million plant - about 24% of which will be owned by the NPPD - is set to go online by May 2009.

The NPPD's current coal-fired plants could pose a credit challenge due to evolving clean-air regulations, analysts warned.

A major player in Nebraska's economy, the district is ramping up its role in the ethanol industry in Nebraska, the second-largest ethanol producing state in the U.S. behind Iowa. Ethanol sales currently account for 8% of the NPPD's revenues, and are expected to grow to 15% by 2014 despite a recent leveling-off of growth in the industry, according to Bender.

The NPPD expects to open a one-day retail order period on Sept. 8 for the $325 million of fixed-rate, tax-exempt general revenue bonds, followed by institutional pricing Sept. 9. Of the total issue, about $285 million will be new money while just under $35 million will be used to refund commercial paper notes. Most of the bonds have 30-year maturities, though a $25 million new-money piece will have 35-year maturities. Finance officials are still considering whether to purchase insurance for the bonds.

Goldman, Sachs & Co. is senior manager on the transaction. Lehman Brothers Inc. is co-manager, leading a team with Banc of America Securities LLC and Morgan Stanley, as well as six regional firms that largely help with retail sales, Bender said. The district hires its underwriters from a rotating short list.

Bender said the district continues to work with former Bear Stearns banker Rick Molke, now at Morgan Stanley, and former UBS banker Ted Sobel, now at Banc of America Securities.

Bond counsel is Fulbright & Jaworski LLP. Castleton Partners LLC is financial adviser.

The bonds are rated A-plus by Fitch Ratings, A1 by Moody's Investors Service, and A by Standard & Poor's. All three assign the credit a stable outlook.

Of the current issue, about $148 million will finance construction of a 345-kilovolt transmission line that will be built from Columbus to Lincoln, Neb. Another $77 million will finance various generation and transmission projects. Another $25 million will mark the district's final share of remaining construction of the Nebraska City 2 coal-fired generation project.

The new roughly $720 million 663-megawatt plant will be located in Nebraska City and will be operated by the Omaha Public Power District, which already operates one coal-fired plant in the same city. The plant is expected to come online by spring 2009.

"We're continuing to make sure we upgrade our current facilities, and we continue to look at new transmission development across the state," Bender said.

The extent of upgrades required at its various coal-fired plants as well as its nuclear station remain uncertain and could be significant, according to analysts. Future clean-air regulations could mean costly updates and retrofitting at the district's coal-fired plants.

"A major uncertainty in NPPD's six-year capital budget is the cost of the retrofitting of existing coal-fired generation stations with new emission control technology," Moody's analyst Dan Aschenbachsaid in a report on the upcoming bond sale.

The U.S. Environmental Protection Agency is currently reviewing some of the district's plans, and could require upgrades within the next few years. For example, if the EPA requires "scrubbers" to be installed on coal-fired plants, the costs could be between $1 billion and $1.5 billion.

The district's Cooper Nuclear Station also represents some risks to the credit, as the federal Nuclear Regulatory Commission steps up its inspections and oversight of the station, according to Fitch analyst Joanne Ferrigan.

"NPPD anticipates that required improvements will be made in a timely manner," she wrote in the Fitch report. "However, any further deterioration in the plant's operations or regulatory compliance could have a negative impact on the rating."

As an all-public power state, Nebraska prohibits any investor-owned utilities, a law that has helped secure the NPPD's dominant market position, particularly in rural areas. The district serves 91 of the state's 93 counties and serves about 88,500 retail customers. In all, about 26% of the district's revenues came from retail sales, 42% from wholesale sales, and 32% from other sales and revenue during fiscal 2007.

The district also plans to step up its role in wind-energy projects, entering into two power-purchase agreements as it continues to operate the largest wind-power station in the state.

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