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May 17, 2019  

Rare Utility-Fee Bonds Headed to Market

AEP Texas is moving ahead with what would be the first utility-fee securitization in the U.S. since May 2018.

The $229 million transaction is expected to hit the market in the next month or so with Goldman Sachs running the books. The bonds would be backed by special fees added to customers’ electricity bills, with AEP Texas using the proceeds to recover the costs of repairs to facilities damaged by severe storms, including Hurricane Harvey in 2017.

AEP Texas began working on the deal in 2018, when it submitted an application to the Public Utility Commission of Texas. The Corpus Christi operation, a unit of American Electric Power of Columbus, Ohio, previously completed an $800 million securitization in 2012 and a $1.7 billion transaction in 2006.

Affiliates Ohio Power and Appalachian Power separately issued asset-backed bonds in 2013.

The last utility-fee securitization to price in the States was a $635.6 million deal from Eversource unit Public Service Company of New Hampshire. That deal, led by Goldman and Citigroup, was the only one of its kind from an American company in 2018. There were no such transactions in the U.S. in 2017.

The outlook for the asset class in 2019 is dim. Among the few efforts that could stimulate issuance, legislators in Montana and Wyoming have been working on proposals that would allow for securitizations that would pay to switch from coal power to renewable energy.