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 seek to use securitization for a variety of purposes. It allows them to accelerate recovery of storm-related expenses. They can also 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 with lower-cost bond debt. This reduces financing costs that would otherwise be passed on to the consumer through rates. Opponents are concerned about securitization because it requires ratepayers to assume long-term investment risk. Typically, shareholders bear these risks. Securitization provides little incentive to mitigate costs once the financing is approved. Further, some proposals funded through securitization also include costs for community redevelopment and worker re-training. These can make ratepayers responsible for costs that typically are borne by taxpayers. In addition, securitization surcharges are nonbypassable and cannot be reviewed or changed by regulators.