RATINGS RATIONALE

The rating downgrade to A3 reflects the significant expected compliance costs that SCPPA will bear as part of a U.S. Environmental Protection Agency (EPA) settlement related to regional haze reduction and the San Juan coal-fired generating unit SCPPA owns. SCPPA has 41.8% ownership interest in Unit No.3. In addition, there remains significant uncertainty surrounding how SCPPA will legally finance its share of the compliance costs. The uncertainty relates to whether the legal provisions of Senate Bill 1368 will preclude SCPPA's ability to issue revenue bonds. SB 1368 establishes a performance standard for all base load generation resources seeking long term investment in California. The performance standard is that greenhouse emissions must be equal or lower than those of a combined cycle natural gas plant on a Mwh basis.

There also remains uncertainty about SCPPA participants future exposure to a new complicated carbon cap and trade program. California's new cap and trade program we expect to reduce the economic value of the plant to the SCPPA participants. While the state's new carbon cap and trade program had its first auction in November 2012 and reportedly there were relatively few problems, the program is complicated and subject to unintended consequences.

Also recognized in the rating is the lower weighted A2 average credit quality of SCPPA-San Juan project participants. The A2 weighted average rating of the participants now reflects a previous rating action that had lowered the rating on the project's largest participant, the Imperial Irrigation District to A1 from Aa3.

The A3 rating on the SCPPA-San Juan bonds also reflects San Juan Unit 3's satisfactory operating record; SCPPA's prudent management of the project including maintaining satisfactory liquidity; and the bonds are well secured by take-or-pay contracts with several municipal electric utilities with an average weighted rating of A2.

SCPPA had acquired with the original 1993 San Juan Power Project bonds a 41.8% undivided ownership in the 497 MW San Juan Unit No. 3 coal fired generating station located in New Mexico. Unit 3 is part of a four-unit coal-fired generation facility.

OUTLOOK

Moody's has assigned a stable outlook on SCPPA's San Juan revenue bonds. Negative rating pressure remains however due to the evolving environmental regulation and the new California carbon cap and trade program. Moody's believes at this rating level the outlook is stable largely due to the strong take-or-pay contract obligations of the SCPPA participants.

What Could Change the Rating --UP

The rating could be upgraded should less uncertainty about financial impact of increased regulation on coal-fired generation be evident. Both the carbon cap and trade program and how the financing will take place to comply with the environmental upgrades on San Juan Unit No.3 are significant credit issues.

What Could change the Rating-DOWN

The rating could be downgraded further should the price of carbon rise significantly above the floor level and for any of the SCPPA participants that have uncovered carbon tonnage having a sizable unbudgeted cost which could pressure their contract obligation.

STRENGTHS

*The weighted average rating of SCPPA San Juan participants is A2

*Strong take-or-pay contracts

*Municipal electric utilities that are participants in SCPPA San Juan project are unregulated with several with electric rates below neighboring investor-owned utilities

*Relatively short-term on existing debt to 2020; but environmental retrofits have to be financed and how this gets done is question mark

*SCPPA power resource management is a positive feature of membership providing utilities diversity through joint ownership

CHALLENGES

*The new state cap and trade program is subject to complex rules which are subject to interpretation and could lead to untended consequences

*Municipal electric utilities that participate in the SCPPA San Juan Unit 3 project are now subject to the cap and trade program which includes new unregulated commodities market which could create significant cost exposure. The ceiling on the price of carbon is $50 a ton so as allowances lessen cost exposure increases

*There remains Implementation risk in next year if allowances do not cover full portfolio for individual utilities and speculators drive price up; the unbudgeted costs could be substantial

*Should SCPPA not be able to finance revenue bonds to finance the environmental upgrades required to be in compliance with the PNM and US EPA settlement, participants may have to use current surplus funds if permitted to meet their share of obligation

*Shift from coal-fired generation to other fuels including 33% renewable energy will have a rate impact which could yield unwillingness to raise rates

*Economic value of San Juan could be reduced relative to other fuels as added costs from the cap and trade program and new environmental improvements are made to the facility

RATING METHODOLOGY

The principal methodology used in this rating was US Municipal Joint Action Agencies published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Please see the credit ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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Dan Aschenbach Senior Vice President Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael G. Haggarty Senior Vice President Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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