Utilities Get Choice on Debt Issuances

By Published On: June 8, 2012

To conform rules with regulatory practice, the California Public Utilities Commission voted unanimously to formally allow private utilities to choose whether to issue debt via competitive or negotiated bids. The updated rule approved June 7 also seeks to increase the role of women-, veteran- and disabled-owned businesses in underwriting and co-managing a subset of utility debt and securities issuances. “This reflects smart regulation,” said commissioner Mike Florio. “The financing rules are in line with current market conditions and rules enacted by the commission,” CPUC member Tim Simon said of his adopted ruling. He called its emphasis on diversity recruitment in underwriting “seminal.” The rule changes a financing regulation dating back to 1946, which was updated five times--the last time in 1986. The competitive bidding rule sought to ensure utility issuances came with the lowest available financing tab to reduce ratepayer costs. Because of today’s vastly different market, which includes derivatives, and other products aimed at hedging risk, the commission had exempted nearly all of the utility debt issuance requests from its competitive bidding requirement. Commissioner Ferron, a former investment banker, however, warned of the potential downsides of the complex derivatives market. He urged utility executives to “proactively manage and personally understand the risk of financial activities” and to ensure staff exercise prudent risk management. The new rule applies to debt issuances up to $200 million by Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric and other electric, gas, and water utilities. Bidding rules are not only more flexible but this week’s decision also: -Exempts bond issuances of less than $42 million. -Reduces the utilities reporting requirement from once a month to annually. -Eliminates that the requirement utilities keep a separate bank account to record the securities.

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