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May 04, 2018  

Group Proposes Twist on Stranded Costs

A California trade group is suggesting that two energy companies in the state team up to float a massive securitization.

The California Community Choice Association’s plan calls for Pacific Gas and Electric of San Francisco and Southern California Edison of Rosemead to carry out a joint offering of some $2.5 billion by yearend. It proposed the idea to the California Public Utilities Commission on April 3, with the pitch that it could reduce costs for ratepayers.

Saber Partners is working with the association.

At the core of the matter is a so-called Power Charge Indifference Adjustment that is charged to customers who switch from traditional electricity companies to the association’s member “community choice aggregation” groups — local organizations that buy power in bulk on behalf of residents. That fee is intended to compensate a utility for the difference between the amount it paid to fulfill a ratepayer’s energy needs and the lower sum it can recover by selling that individual’s now-excess power on the open market.

Under the California Community Choice Association’s plan, securitization proceeds would at least partially replace the charge. The bonds would be backed by special fees added to customers’ monthly bills.

In some ways, the proposed offering would resemble a so-called stranded cost transaction. However, most previous bond sales in that category were intended to recoup outlays for facilities rendered uneconomical by deregulation efforts.

Word of the effort follows the May 1 pricing of a $635.7 million offering from Eversource Energy (see Initial Pricings on Page 6). That transaction, led by Citigroup and Goldman Sachs, included a three-year class of triple-A-rated bonds that priced to yield 3.1%. It marked the first utility-fee securitization in the U.S. since June 2016.