CPUC Axes SCE $1B Ratepayer Bond

By Published On: October 21, 2021

The California Public Utilities Commission pared back a request by Southern California Edison to recover $1 billion of its wildfire expenses and other costs with long-term ratepayer-backed bonds. With little discussion, regulators authorized SCE Oct. 21 to recover $517 million of its wildfire capital expenses with a 25-year bond secured by ratepayer dollars but excluded $401 million of its operation and maintenance costs associated with fire mitigation and $77 million in uncollected utility bills arising from the pandemic last year.

All the parties agreed it was reasonable for SCE to recover $517 million in capital expenses using long-term ratepayer-backed bonds, as was allowed in the utility’s first securitization last year for $327 million. Bond securitizations are approved when it saves ratepayers money on a net present value basis–looking at the cost over time–compared to traditional financing. Statute (SB 901) requires that the arrangement yield savings for utility customers.

The Consumers Large Energy Group, The Utility Reform Network, and Energy Producers User Coalition successfully argued that allowing SCE to include $478 million that is not a wildfire-related capital expense in a securitization would increase ratepayers cost by $135 million. Instead, recovering these costs with a three-year amortization is far preferable because it does not include a return on the investment and comes with little or no carrying cost, according to TURN.

SCE argued that a $1 billion 25-year bond would save ratepayers $196 million, applying a net present value (NPV) basis compared to the nominal value—the value in today’s dollars. It also protects utility financial health,

“If someone knows the accurate NPV to use during a period of wildly fluctuating assumptions about inflation, they should tell Jerome Powell,” Federal Reserve chair, John Geesman, attorney and former California Energy Commission member, said in response to SCE’s claim. He is not representing any party in this proceeding. “Using debt to pay O&M is financially inexcusable, and the same ‘magical thinking’ that put New York City into fiscal purgatory in the late 1960s,” he added.

Standard rate recovery using balancing accounts should be less costly overall to customers “than financing anticipated to be up to 25 years at an interest rate of approximately 2.35 percent and requiring additional upfront financing costs,” according to the decision.

The CPUC decision also agreed that saddling future customers with an additional $488 million in 25-year bonds would be unfair because they would reap no benefit.

SCE was pleased with the approval of the financing order for securitization of wildfire mitigation capital expenditures but “disappointed at being denied the opportunity to securitize wildfire mitigation-related operations and maintenance costs,” Jeff Monford, utility spokesperson told Current.

The decision requires the CPUC to put together a finance team to oversee and approve the terms, including the interest rate, of $517 million in long-term bonds.

The utility also had asked to submit future requests for approval of ratepayer bonds using an expedited process known as an Advice Letter. The commission rejected that request.

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