CPUC, not SCE, Calls Shots on Ratepayer Bonds, Lawmaker Says

1 Oct 2020

Southern California Edison is threatening to use pricier financing to recoup $337 million in wildfire costs if the California Public Utilities Commission doesn’t okay its controversial plan to issue bonds fully secured by ratepayers. SCE says it will recover the costs “through traditional utility financing, which will cost customers more,” in an opening brief filed Sept. 25.  

Assembly Utilities & Energy Committee Chair Chris Holden took issue with the threat. “Edison may be allowed to determine what other financing tool it wants to use but I don’t believe that the utility can unilaterally decide that the financing costs related to that decision will be paid for by ratepayers,” he told Current in a Sept. 30 email. 

Holden authored AB 1054, the law that governs the financing application before the commission. It allows Edison–and the other investor-owned utilities—to use AAA-rated, customer-backed bonds to recover wildfire and other costs on condition they are just and reasonable, in the public interest and at the lowest possible cost to ratepayers.

If SCE were to successfully chuck its current bond plan, AB 1054 does not allow the alternative to include the usual return on equity charged to ratepayers. The exclusion is to keep a lid on customer costs. But, standard utility financing approved by the CPUC includes more controls.

Advocates representing large and small consumers and environmentalists object to the utility’s securitization proposal as is. They insist a financing team focused on protecting ratepayers be established to assist the CPUC in ensuring the bonds issued maximize customer savings. These intervenors are alarmed that SCE’s proposal will set a precedent for other securitized bonds. It is the first of several much pricier applications that will come before the Commission seeking ratepayer recovery bonds to cover fire-related and other costs. These will include a request from Pacific Gas & Electric to issue $7.5 billion in bonds to cover part of its second bankruptcy bill.

Securitized bond proposals must be considered on a “case-by-case basis,” Holden wrote to Current. They come with higher ratings and lower costs for ratepayers than traditional utility bonds. But, according to the committee chair, they “may not always in the best interest of ratepayers.”

The energy panel chair added that the CPUC must “consider all arguments for and against using securitization for those expenses it determines are just and reasonable and then determine whether it is just and reasonable to use securitization for these costs.”

The surge in bond securitizations in this state is being closely watched.

“The huge amount of bonds that California utilities plan to issue over the next year has Wall Street’s attention,” said Joseph Fichera, CEO of Saber Partners, a New York-based financial advisory firm specializing in utility securitization on behalf of ratepayers.

About $15 billion in California ratepayer-backed securitization bonds are expected over the next year and less than $3 billion were sold in the last six years nationwide, he noted. “These California bonds will generate more than $75 million in fees for investment bankers with the entire bill going to the ratepayers. Once the bonds are sold, the commission must give up all future review of ratepayer charges.” 

Fichera pointed out that the banks and underwriters have no duty to act in ratepayers’ best interests when pricing the bonds for their investor clients. Saber Partners negotiated with underwriters on similar bond deals at the request of regulators in Florida, Texas, West Virginia, and New Jersey. 

Elizabeth McCarthy

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