Utilities Expected to Turn to Asset-Securitization Market

Article excerpt

As power companies fight to survive in a competitive market, they are beginning to look to the public asset-backed securitization market for a steady source of cash.

Traditionally utilities have placed only small, private securitizations. One typical deal was Portland General Electric's sale last month of the rights to $80.7 million of future electric bills in a conduit deal arranged by CIBC Wood Gundy.

But large utilities will soon be securitizing billions of dollars worth of assets, bankers and credit graders say, because deregulation means many companies will struggle to collect the bills generated by building nuclear power plants during the days when they had a monopoly.

"Competition is coming, and the rates utilities charge may not be sustainable," said Kevin Mullaly, director of asset-backed securitizations at CIBC Wood Gundy. "There's going to be some pressure to cut those rates, but at the same time recover some costs."

Utility deregulation and securitization are farthest along in California. In August, the state's Legislature passed a law to end utilities' monopolies and to provide for issuing $10 billion in "rate reduction bonds" to help utilities move to an open market.

The offerings, which will be paid off by future electricity receivables, are not expected to come to market until late next year, said Michael Sagges, director at the global power group of Fitch Investors Service.

In the meantime, investment banks are knocking on the utilities' doors to help structure offerings. Morgan Stanley is said to be working with Pacific Gas and Electric, and Salomon Brothers is said to be working with Southern California Edison. Chase Securities, a unit of Chase Manhattan Corp., which helped organize a $202 million securitization offering last year for Puget Sound Power & Light Co. in Washington, is also advising utilities. …