SCE Ratepayer-Backed Bonds for Fire Costs Save Million$

23 Feb 2021

Southern California Edison issued $338 million in securitized bonds to cover part of its wildfire capital expenditures on Feb 17. The bond offering closed Feb. 24. It is the first utility to issue what will be billions of dollars of mortgage type, ratepayer-backed bonds to recover fire mitigation and other costs under new state laws.

SCE issued three tranches of AAA-rated bonds backed 100% by ratepayers, with an overall maturity of 23 years. A CPUC-appointed finance team oversaw the deal.

“Edison’s final bond really demonstrates how the Finance Team saved ratepayers millions of dollars,” April Rose Maurath Sommer, Wild Tree Foundation executive & legal director, told Current. “Given the many recovery bond applications soon to be in the pipeline for additional wildfire mitigation costs and under-collections by SCE and the other utilities, overall ratepayers savings will be substantial.”

Joseph Fichera, Saber Partners CEO, estimated SCE’s issuance will save ratepayers an additional $15 million in today’s dollars, compared to SCE’s initial bond proposal. That includes about $12.2 million in debt service payment savings from a longer maturity. SCE had pushed for bonds with a maturity of 18 years. The utility is expected to issue a total $1.5 billion in wildfire recovery bonds, with ratepayer savings adding up to about a total $70 million at current interest rates, Fichera added.

Wild Tree successfully pushed for the creation of a financing team to oversee SCE’s first securitized bond issuance, which sets ratepayer protection parameters pursuant to AB 1054. Assembly Utilities & Energy Committee Chair Chris Holden authored that bill. The law allows utilities to cover up to $5 billion of their fire mitigation costs with bonds fully backed by ratepayers on condition they provide the maximum cost savings possible to customers compared to traditional financing.

The Finance Team reviewed the recovery bonds fees and costs, including upfront and ongoing financing costs; estimated at $5.9 million and $1.17 million, respectively. It required modifications to the structure to “achieve incremental savings for the benefit of ratepayers,” the team noted in a Feb. 16 letter approving the bond issuance. It also directed the utility to repay ratepayers about $2.6 million SCE will charge for its administrative costs.

Three tranches

SCE’s issuances include $137 million in bonds with a 10-year maturity, to Nov. 15, 2031, and a second round of $100 million with a 17-year maturity. The last tranche is $100 million with a maturity date of Nov. 11, 2043.

SCE is allowed to “true up”—collect from ratepayers—any costs higher than projected.

The CPUC’s financing team consists of Edward Randolph, Commission Energy Division director, Arocles Aguilar, CPUC general counsel, Ducera Partners as Financial Advisor, and Paul, Weiss, Rifkind, Wharton & Garrison, the Legal Advisor.

The CPUC approved Edison’s securitization Nov. 5.

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