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PIEDMONT MUNICIPAL POWER AGENCY, SOUTH CAROLINA

THE SAVADER GROUP

INDEPENDENT INVESTMENT RESOURCES

M U N I C I PA L B O N D CO M M E N TA R I E S

December 28, 2005 The following commissioned report has been prepared by The Savader Group LLC, an independent provider of objective research and analysis covering all types of municipal obligations. More information on The Savader Group LLC may be obtained by visiting our website at: www.thesavadergroup.com or by calling toll-free at (877) TSG-MUNI.

Piedmont Municipal Power Agency, South Carolina

Electric Revenue Bonds k ey p o i n ts

· The Piedmont Municipal Power Agency's Electric Revenue Bonds are secured by revenues generated from a combination of sources including payments from member utilities and certain funds on hand · The Bonds provide satisfactory long-term security reflecting the size and stability of the service area as well as the Agency's ability to maintain adequate financial performance · The Agency provides electric energy from its portion of the Catawba nuclear energy facility to ten member utilities located throughout northwestern South Carolina · Retail rates charged by Agency member's tend to be significantly above those of neighboring utilities and create a credit vulnerability for the Agency · The Agency's near-term credit profile should remain stable as funds on hand provide significant financial flexibility and prospects for retail competition remain low · The rising cost of non-nuclear forms of energy provides an opportunity for the Agency to sell excess energy from its interest in the Catawba nuclear power plant at favorable rates

i s s u e r / b o r r owe r d e s c r i pt i o n

The Piedmont Municipal Power Agency (the "Agency") was incorporated in 1979 under the South Carolina Joint Municipal Electric Power and Energy Act. The Act allowed local communities and public works commissions to form an agency to plan, finance, develop, own and operate electric generation and transmission facilities. The Agency is made up of ten member utilities, all of which are located in the northwestern part of South Carolina, who receive the bulk of their wholesale power supplies from the Agency. Governance is provided by a Board of Directors consisting of one member from each member utility. In November 2005, Don Ouchley, the Agency's General Manager, and Suzanne Armendariz, its Treasurer, simultaneously resigned from their positions effective immediately. No Recent resignations were specific reason for the resignations was made public. However, according to Joel due to, "...personal reasons, Ledbetter, the Chairman of the Board, the recent resignations were due to "...pernot tied to any financial sonal reasons, not tied to any financial malfeasance or wrongdoing, or the Agency's malfeasance or wrongdoing, ability to repay its debt." According to Ledbetter, the resignations are not expected or the Agency's ability to to materially affect the day-to-day or financial operations of the Agency as the overall management team is strong and the members of the Board of Directors have conrepay its debt." siderable experience with the Agency and its operations.

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THE SAVADER GROUP

INDEPENDENT INVESTMENT RESOURCES

An interim General Manager was recently appointed and a committee of the Board of Directors has been formed to search for a permanent replacement. An executive search firm has also been hired to assist with the search. A new General Manager is expected to be named within the next 4-6 months. The search for a new Treasurer will be initiated by the permanent General Manager. The interim General Manager is a current member of the Board and also serves as the General Manager of the Lawrence Commission of Public Works, one of the Agency's ten member utilities. He has been affiliated with the Agency since its inception. The Agency's only energy generating capacity is its 25% ownership in the Catawba No. 2 nuclear power facility. This ownership interest equals 282 megawatts of the unit's generatThe Agency's only energy ing capacity. The remainder of the facility is owned by Duke Power Company, which generating capacity is its 25% is also its operator. The Agency has the rights to sell surplus power and purchase ownership in the Catawba supplemental power. About 94% of the Agency's energy requirements in 2004 were No. 2 nuclear power facility. met from its own generating capacity. In addition, about 10% to 15% of the Agency's annual revenues are derived from the sale of surplus power. The remaining 6%, as well as a 20% reserve, is met from supplemental purchases. Beginning in January 2006, a new supplemental power contract with Southern Power Company will replace the Duke contract for these services. Agency members serve a population of about 143,000 in a nine-county region of northwestern South Carolina. Member revenues are divided almost equally between commercial and residential usage, with industrial revenues typically representing less than 10% of the total. The Agency's six largest members account for over 80% of all revenues and have had uneven economic growth over the last decade. Energy usage has grown by only 2% annually in recent years. In addition, all the member utilities have fairly diverse customer bases without significant concentration among individual customers.

PIEDMONT MUNICIPAL POWER AGENCY, SOUTH CAROLINA

b o n d d e s c r i pt i o n

The Agency's Electric Revenue Bonds (the "Bonds") are secured by a pledge of revenues generated from separate, but identical, power sales agreements between the Agency and its The member agreements members as well as certain funds on hand. Under the agreements, each member require each to pay its share of utility is legally obligated to charge rates sufficient to provide revenue to meet all the Agency's costs regardless Agency financial requirements, including power costs, funding of reserves and the of whether or not power is payment of debt service (principal and interest) on the Bonds. Each member has available or used. the right to set its own rates without the need for any outside approval. The member agreements require each to pay its share of the Agency's costs regardless of whether or not power is available or used. In addition, in the event of a default by one or more member utilities, the remaining members can be required to increase their payments by as much as 25% to compensate for the missing funds. Bondholder security also includes the requirement that the Agency maintain a debt service reserve equal to at least 110% of the largest annual interest requirement on the Bonds. The reserve can only be used to pay debt service in the event pledged revenues are unavailable or insufficient. As of December 31, 2004, the Agency reported approximately $1.2 billion of Bonds outstanding.

lo n g - t e r m c r e d i t st r e n gt h

Long-term bondholder security appears satisfactory given the breadth and general stability of the service area and the Agency's ability to maintain an adequate financial profile. However, the need to bolster the competitive profiles of Agency members reflects a vulnerability.

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THE SAVADER GROUP

INDEPENDENT INVESTMENT RESOURCES

Agency revenues are derived from three main sources: member payments, surplus power sales and interest income. However, the Agency is focused on limiting wholesale rates charged Member retail rates are member utilities in order to limit their expenses and therefore the rates they must typically 5% to 20% higher charge their retail customers. Member retail rates are typically 5% to 20% higher than than those charged by other those charged by other utilities in the State. While competition for retail customers utilities in the State. is currently not allowed in the State, higher rates could prove a major competitive hurdle should circumstances change. The Agency has limited its rates so it will regularly generate most, though not all, revenues needed to pay operating and debt service costs. In fiscal years 2002, 2003 and 2004, revenues in excess of operating expenses ranged from 0.92 to 0.96-times debt service costs. To close the gap, the Agency regularly uses assets held in several funds, including its Rate Stabilization Fund (RSF). The RSF has historically been used to hold revenues in excess of current expenses. As of December 31, 2004, the funds totaled $161 million in assets. With the availability of these assets, as permitted under the agreements securing the Bonds, the debt service coverage ratio rises from less than one to over 1.5-times annual debt service. Agency officials expect fiscal year 2005 debt service coverage to approximate prior year results. Furthermore, the Agency projects that the RSF assets will continue to be available to help meet debt service costs through 2033.

PIEDMONT MUNICIPAL POWER AGENCY, SOUTH CAROLINA

The Agency undertook an extensive debt restructuring program in 2004 in order to reduce its annual debt service expenses.

In addition, the Agency undertook an extensive debt restructuring program in 2004 in order to reduce its annual debt service expenses. By lowering annual debt service costs, the Agency projects it will be able to limit future growth in rates it charges to its members. In November 2005, the Agency approved a 1.55% rate increase to take effect May 2006. This is below the 2.1% average experienced over the last seven years and is in-line with the Agency's plan to hold down wholesale rates.

n e a r - t e r m c r e d i t sta b i l i t y

Over the near-term, the Agency's credit profile should remain stable. Retail competition among utilities in South Carolina is unlikely in the near-future. In addition, the availability of those assets being held in the RSF provides a significant measure of stability. Furthermore, the rising cost of non-nuclear forms of energy--oil, gas and coal--provides an opportunity for the Agency to benefit from its ability to sell excess energy from its interest in the Catawba nuclear power plant at favorable rates. .

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INDEPENDENT INVESTMENT RESOURCES

k ey d ata (financial performance, fiscal year ends december 31, $000)

2002 Electric sales Total revenues Operating expenses Net revenues Annual debt service expenses Debt service coverage by available net revenues (X) Debt service coverage per bond resolution (X) *

Source: Piedmont Municipal Power Agency. * Includes transfers from the Rate Stabilization Fund and Working Capital Fund.

2003 $140,728 155,953 81,314 74,639 77,747 0.96 1.52

2004 $146,265 160,847 89,573 71,274 77,413 0.92 1.52

$141,883 160,819 85,850 74,969 80,240 0.93 1.60

PIEDMONT MUNICIPAL POWER AGENCY, SOUTH CAROLINA

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Disclaimer: Published by The Savader Group LLC ("TSG"). All rights reserved. THIS ARTICLE IS PROTECTED BY COPYRIGHT LAW AND NO PART OF THE CONTENT CONTAINED HEREIN MAY BE RETRANSMITTED, REDISTRIBUTED, REPRODUCED, STORED, DOWNLOADED, ABSTRACTED, DISSEMINATED, CIRCULATED OR INCLUDED AS PART OF ANY OTHER PRODUCT OR SERVICE, IN WHOLE OR IN PART BY ANY MEANS WHATSOEVER WITHOUT TSG'S PRIOR WRITTEN CONSENT. All information contained herein is based on information obtained from issuers, obligors, underwriters, and other sources TSG believes to be reliable. TSG does not audit or verify the truth or accuracy of any such information. As a result, the information herein is provided "as is" without any representation or warranty of any kind. TSG is not engaged in the offer or sale of any security and this document is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of any securities. This document is prepared for general information purposes only and does not consider the specific investment objectives, financial situation, tax considerations and particular needs of any individual, and is not a recommendation to buy, sell, or hold any security. Persons associated with TSG may own any securities mentioned in this document and may, from time to time, sell or buy such securities. Investors should seek professional financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this document and should understand that statements regarding future prospects may not be realized.

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