Securitization

Securitization is a financial process that allows a utility to issue bonds to recover costs. They receive up-front pre-approved costs in one lump-sum payment rather than over time through rates. Utility customers pay a surcharge on their bills to fund this. The utility company then transfers the funds to bondholders as payment.

Utilities use securitization for a variety of purposes. It allows them to accelerate recovery of storm-related expenses, fund environmental upgrades to power plants, and speed up payment of expensive power plants.

Proponents argue that securitization is beneficial to ratepayers because it replaces higher-cost debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. with lower-cost bond debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. . This reduces financing costs that would otherwise be passed on to the consumer through rates. Opponents are concerned about securitization for several reasons, including the following:

• It requires ratepayers to assume a long-term investment risk that shareholders typically should bear.
• It provides no incentive to mitigate costs because once a financing order is issued, it cannot be adjusted.
• It guarantees a payment stream that in future may be entirely inappropriate.
• It does not necessarily guarantee the utility will use the money wisely or for its intended purpose.
• It could reduce market competition by making a large sum of cash available to the utility but not to its competitors.
• It forces ratepayers to take on market
• risk that investors should bear because of stranded costs.