New York, November 16, 2012 --

Moody's Ratings

Issue: Refunding Revenue Bonds, Series 2012A; Rating: A1; Sale Amount: $290,000,000; Expected Sale Date: 11/26/2012; Rating Description: Revenue: Government Enterprise

Issue: Refunding Revenue Bonds, Series 2012B; Rating: A1; Sale Amount: $200,000,000; Expected Sale Date: 11/26/2012; Rating Description: Revenue: Government Enterprise

Opinion

Moody's Investors Service today changed the rating outlook for Lower Colorado River Authority (LCRA) to negative from stable. In conjunction with today's action Moody's is assigning a rating of A1 to LCRA's planned issuance of approximately $290 million of refunding revenue bonds, Series 2012A and approximately $200 million of refunding revenue bonds, Series 2012B. The amount of the refunding will depend on market conditions. Moody's also affirmed the P-1 rating on LCRA's $175 million Series A tax exempt commercial paper program.

RATINGS RATIONALE

Long-term rating:

The change in LCRA's rating outlook to negative from stable reflects the increased credit risk due to changing relationships and, in some instances, disputes and litigation with wholesale electric power customers. Subject to the outcome of Texas court decisions, the disputes and resulting litigation in particular may result in considerable load loss much sooner than originally expected that will pressure financial performance beginning in fiscal year 2013. In the face of this increase in credit risk, the A1 rating reflects LCRA's record as a well-managed wholesale electricity and water supplier to a large and economically healthy service area in central Texas; its diverse, competitive and reliable generation supply portfolio; and timely rate increases resulting in the Authority's historically sound and stable financial record. LCRA is sufficiently coping with the competitive pressures resulting from deregulation of the electricity market in Texas and we anticipate that its focus on efficiency in its operations should support this effort going forward.

Short-term rating:

The P-1 rating reflects our assessment of LCRA's internal liquidity, which is reflected in part by a trend of maintaining average days liquidity on hand around 142 days over the past three years, and the external liquidity provided by a $175 million revolving credit agreement (RCA) with JPMorgan Chase (A2/P-1;Negative outlook), which expires May 19, 2014. The P-1 rating also considers LCRA's long-term A1 rating for its revenue bonds. LCRA has authorized $350 million for tax-exempt commercial paper notes but can only currently issue notes up to the $175 million amount of the available credit agreement. The Issuing and Paying Agent (IPA), Bank of New York Mellon Trust Company, will issue commercial paper notes upon receipt of issuance instructions from LCRA. No notes may be issued if such issuance would result in the aggregate principal amount of commercial paper notes outstanding exceeding the authorized $350 million amount of the program or would result in the aggregate principal amount of series A tax-exempt notes outstanding exceeding the amount provided for under the RCA. The commercial paper notes may not mature later than: (i) 270 days from the date of issuance; (ii) the third business day preceding any termination of the RCA; or (iii) the CP program maturity date, May 15,2020. Upon an event of default under the RCA, JPMorgan Chase may send a No-Issuance Notice to the IPA. The IPA shall cease issuing commercial paper notes upon receipt of such notice. Upon the payment at maturity of all outstanding commercial paper notes, following receipt of a No-Issuance Notice, the Revolving Credit Agreement may terminate.

RATING OUTLOOK

The negative rating outlook for LCRA reflects the increase in its credit risk profile resulting from the evolving nature of its relationships with its wholesale electric customers. These circumstances create a need to accelerate mitigating strategies, including possible non-fuel rate increases, to cope with anticipated significant load loss and financial pressures if the courts do not rule in a timely way in LCRA's favor on the contract disputes.

What Could Change The Rating-UP:

A rating upgrade is unlikely in the near term given the negative outlook. The rating outlook could return to stable if LCRA successfully responds to the challenges created by the evolving nature of its relationships with its wholesale electric customers, while maintaining financial metrics consistent with historically sound levels. A rating upgrade could occur if LCRA is able to improve its debt service coverage ratio and adjusted days liquidity on hand closer to 2.0 times and in excess of 150 days, respectively, for a sustained period. Strengthening of the debt service reserve to cover at least average annual debt service would also be a credit positive step.

What Could Change The Rating-DOWN:

A rating downgrade could occur if LCRA is unsuccessful in defending its contracts with disputing customers in the Texas courts and/or fails to adequately mitigate the likely negative financial pressures anticipated due to load loss such that its debt service coverage and adjusted days liquidity fall below current levels for a sustained period. Also, if LCRA's wholesale electric price increases above the competitive market, the rating would face downward pressure as economic power market sales opportunities would diminish.

STRENGTHS:

*Autonomy in setting wholesale power rates; direct pass through for timely recovery of fuel and purchased power costs

*Historical willingness to raise rates to protect financial position

*A diverse and reliable generation supply portfolio to support competitive wholesale rates

*33 wholesale customers (approximately 63% of 2012 load) have signed amended and restated wholesale power agreements (ARWPAs) through June 2041

*Established record as a well run power and water agency which is key to state's continued political support

CHALLENGES

*Disputes and litigation with nine of the ten LCRA wholesale customers who gave notice of intent to terminate original wholesale power agreements (WPAs) in 2016; seven of the nine customers that are parties to litigation consider their respective WPAs terminated as of September 2012; of the remaining two disputing customers, one has given notice of termination effective January 1, 2013 and the other has given notice they will begin taking 20% of their requirements from other suppliers beginning December 1, 2012

*Just over half of LCRA's revenues are concentrated with its three largest wholesale electric power customers, one of which has given notice they feel LCRA breached the WPA and they plan to take 20% of their load from another provider beginning December 1, 2012

*Weak debt service reserve requirement in bond resolution

*ERCOT's wholesale power market is a nodal market designed to provide transparent energy price signals for siting of generation and transmission

*Retail competition is available in Texas, which could result in load loss if LCRA's municipal or cooperative wholesale customers open service areas to retail competition

*Potential 35% load release under ARWPAs could present financial pressures if not managed well

RATING METHODOLOGY

The principal methodology used in this rating was U.S. Public Power Electric Utilities With Generation Ownership Exposure published in November 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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Kevin G. Rose Vice President - Senior Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Kurt Krummenacker VP - Senior Credit Officer 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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