Utility Securitization Financing Essentials
Tool for Financing Extraordinary, Uneconomic Assets, Event Catastrophes, Early Plant Retirement, Renewable Energy Transitioning & Grid Modernization
September 27-28, 2021 | Online :: Central Time
This course will examine what the opportunities and challenges are in the “real world” for state legislators, regulators, consumer stakeholder groups and utilities considering whether and how to coordinate and employ securitization financing. This instrument can be applied in manifold ways and purposes, including:
- Retiring uneconomic/potentially stranded assets
- Event catastrophe recovery and re-construction
- Renewable energy transitioning
- Community economic support and re-development
- Grid modernization and infrastructure
It will review several elements that inform whether securitization if a feasible proposition at this complex intersection of utility capital investment and cost-of-service regulation to yield the least cost to consumers while delivering a fair return for shareholders. The program will also consider what additional changes might be required in state renewable energy procurement rules and other regulatory elements to allow for such reinvestment scenarios, as well as the expanded use of the tool for other large capital expenditures. Also considered will be how this concept of ratepayer-backed bond securitization compares to three other financing mechanisms available to utilities under cost-of-service regulation – disallowance (i.e., reductions in the book value and the remaining amount recovered in base customer rates), accelerated depreciation of the full or partial remains balance, or the creation of a “regulatory asset” (that exists only on paper). Finally, subject matter experts from varying perspectives will consider what “best practices” and lessons learned – where this securitization strategy has already been implemented – should be applied.
- Survey the available options for applying ratepayer-backed bond securitization to utility assets and liabilities
- Identify the essential securitization elements – financial, legal, legislative, regulatory
- Assess impacts on utility financial positions of securitization
- Evaluate ratepayer and consumer impacts, as well as perceived safeguards, of securitization
- Examine case studies of previous utility securitization efforts
- Construct an implementation path towards securitization of utility assets and liabilities likeliest to garner the support of multiple parties
Monday, September 27, 2021 : Central Time
8:45 – 9:00 a.m.
Log In and Welcome
12:15 – 1:00 p.m.
9:00 a.m. – 4:45 p.m.
9:00 – 9:20 am :: Overview and Introductions
9:20 – 10:30 am :: Overview and Uses of Securitization by Investor Owned Utilities
Legal and Conceptual Framework 1994-present
- What is “securitization”, structured finance?
- What is an electric utility securitization?
- Traditional “securitization” transactions
- Modern (1997 and later) securitization transactions
- 4 Phases of Utility Securitization
- Pass special state authorizing legislation
- Utility submits financing order application for prudent and
- recoverable costs
- Write/Approve detailed financing order
- Implement financing order
- Characteristic State Legislation
- “Dedicated rate component”
- “Present interest in property” that can currently be sold and/or pledged to secure bonds
- “Financing orders” authorizing the sponsoring utility (or its assignee) to issue securitized bonds backed by a pledge of this property to finance specified costs incurred by the sponsoring utility
- “Non-bypassable” declaration
- “True-up mechanism”), as necessary, to provide for timely payment of the securitized bonds and associated financing costs
- Pledge that the State and its agencies (including the Commission) will not amend, revoke or modify the right to impose, adjust, bill and collect the dedicated rate component until the securitized bonds are re-paid
- Principal transaction documents
- LLC agreement (assuming the issuing entity is a wholly-owned LLC subsidiary of the sponsoring utility)
- Bond indenture
- Sale agreement
- Servicing agreement
- Underwriting agreement
10:30 – 10:45 am :: Morning Break
10:45 am – 12:15 pm :: Financial Framework
- Issuers vs sponsors
- Securitized electric utility bonds versus traditional utility finance
- Most other types of securitized bonds called asset-backed securities
- Corporate bonds paid from general revenues
- Corporate bonds paid from specific revenues
- Corporate securitization bonds from specific revenues and other rights
- Utility balance sheet for financial statement purposes
- Utility balance sheet for regulatory ratemaking purposes – the “rate base”
- Utility balance sheet for rating agency purposes
- Utility revenue requirements for rates unique to utilities
- Capital investments – regulatory assets
- Cost Recovery Methods
- Upfront with levelized payment from ratepayer – securitization
- State regulatory authority over rates – legislative and/or state constitutional basis
- Debt versus equity
- Debt for tax – no up-front income, deductibility of interest
- General pledge of credit versus alternatives
- Secured and unsecured debt
- Revenue sources – the rate base
- Ratepayer bills as source of revenues
- Bill as a receivable, but only after electricity has been bought and delivered to customer
- General charges on some or all retail electric customers
- Specific charges
- Credit ratings impact of utility cost recovery through securitization
12:15 – 1:00 pm :: Group Luncheon
1:00 – 2:45 pm :: The Business Context
- Difference from asset-backed securities
- No receivables until electricity is delivered
- Joint liability of all customers
- Adjustment mechanism increases charges/revenues from all customers to whatever level necessary to repay bonds on time
- Adjusting rates and charges
- General rate cases
- Securitization rate adjustments are automatic periodically pursuant to a Commission-approved adjustment mechanism
- “Revocable” versus “irrevocable” authority
- Property – what does this mean?
- Tangible property
- Intangible property
- Financial assets as property
- Non-financial assets as property
- Utility securitization intangible property
- Property rights – what does this mean?
- Rights can currently be assigned to a bankruptcy-remote issuer in an absolute transfer (sometimes referred to as a “true sale”)
- Rights can currently be pledged to secure bonds
- Federal tax issues
- IRS requirements for securitized bonds to be treated as debt of the sponsoring utility
- 2005 IRS Revenue Procedure
- Federal bankruptcy issues
- Separating assets to support a bond offering – How do bondholders know they can get paid?
- Ring fence/ bankruptcy remote – what does this mean?
- Transferring and selling property
2:45 – 3:00 pm :: Afternoon Break
3:00 – 4:45 pm :: Ensuring the Proper Regulatory Framework
- State law issues
- Constitutional issues
- Binding future commissions
- Binding future legislatures, state regulatory commissions and voters (in states with constitutions granting voters rights of initiative and/or referendum)
- Collecting charges and paying bondholders
- Role of a servicer
- Servicer risks
- SEC issues
- Regulatory process for registering publicly offered debt securities
- “Asset-backed securities” versus corporate debt
- Legal opinions required for different securities offerings
- Traditional utility debt
- Securitization debt – delivery of between 15 and 20 legal opinions addressing
- Federal and State constitutional matters
- Bankruptcy/Substantive non‐consolidation matters
- True‐sale matters
- Security interest/UCC matters
- State regulatory matters
- Tax matters
- Securities laws matters
- General corporate matters
4:45 pm :: Course Adjourns for Day
Tuesday, September 28, 2021 : Central Time
8:45 – 9:00 a.m.
Log In and Welcome
12:15 – 1:00 p.m.
9:00 a.m. – 4:45 p.m.
9:00 – 10:45 am :: Examining Various Cases for Leveraging Securitization to Address Utility Capital Costs
- Case studies
- Fossil fuel plant retirement and uneconomic assets (“Coal to Clean”)
- Financing the shift from thermal generation to renewable energy resources ( “steel-for-fuel”)
- Consumer COVID-19 moratoria debt (bad debts)
- Extreme weather and catastrophic event hardening/losses
- Smart grid investments
10:45 – 11:00 am :: Morning Break
11:00 am – 12:15 pm :: Perspectives on Utility Asset Securitization and What’s Important
- Policy Analyst
- Wall St
12:15 – 1:00 pm :: Lunch Break
1:00 – 2:45 pm :: Applying Lessons Learned
- Anatomy of a good deal vs a bad deal
- Best Practices
2:45 – 3:00 pm :: Afternoon Break
3:00 – 4:45 pm :: The Implementation Path
- Laying the proper legislative, legal and stakeholder foundations
- Financial analysis
- Evaluating spec asset substitution scenario
- Conditions and barriers that may constrain the ability and attractiveness of this strategy for utilities and ratepayers
4:45 pm :: Course Adjournment
Joseph S. Fichera is the chief executive officer and one of the founders of Saber Partners, LLC, a financial consulting firm for regulators, corporations governments. He is an expert in utility securitization, financial markets and capital markets finance. Mr. Fichera has been an effective advocate for transparency and accountability in the securities industry. He was an early critic of Wall Street during the rise and collapse of the auction rate securities market. Under Mr. Fichera’s leadership, Saber Partners has advised the public service commissions in Florida, Texas, New Jersey, West Virginia, Wisconsin and North Carolina for 15 investor-owned utility securitization transactions on $10.2 billion in bonds involving eight utilities. Saber is currently advising Southern California Edison Company on a $1 billion securitization for wildfire expenses. Mr. Fichera has served since 1996 on the Advisory Board of Princeton’s Center for Economic Policy Studies and is currently a life member of the Council on Foreign Relations. In 2018, the National Regulatory Research Institute (NRRI) selected Mr. Fichera as a national Fellow. Prior to founding Saber Partners in 2000, he spent 17 years at major investment banking firms, first in public finance and then as a managing director in corporate finance at Bear Stearns, Smith Barney among other firms. He holds a Bachelor’s degree from Princeton University and an MBA from the Yale School of Management.
Mark Cicchetti is the Chief of Finance, Tax, and Cost Recovery at the Florida Public Service Commission. He is also the President of the Society of Utility and Regulatory Financial Analysts (SURFA). Mark has a BS in Business Administration and an MBA in Finance, both from Florida State University. Mr. Cicchetti was awarded the 2019 Gerald L. Gunter Distinguished Service Award by the Public Utility Research Center at the University of Florida for Contributions to Regulatory Policy.
Uday Varadarajan is Electricity Practice Principal at Rocky Mountain Institute (RMI) and Precourt Energy Scholar for the Sustainable Finance Initiative at Stanford University. Before joining the think tank, he was a Principal at CPI Energy Finance, managing their San Francisco team. At CPI, he led the development of financial, regulatory, and policy data analytics and tools to assist consumers, utilities, and communities in states across the US (including New York, Colorado, Missouri, Minnesota, Utah, and South Carolina) realize the benefits from a just and equitable transition from uneconomic dirty resources to clean energy. Prior to moving to the Bay Area, he served as a program examiner in the U.S. White House Office of Management and Budget (OMB), where oversaw the budget for U.S. Department of Energy (DOE) energy efficiency and renewable energy programs and the cost assessment and approval of the first $8 billion in DOE loans to automakers, including loans to Tesla and Nissan to build electric vehicles. Before joining OMB, Dr. Varadarajan was a AAAS Science and Technology Policy Fellow at the Department of Energy and then on detail to the staff of the U.S. House of Representatives, Appropriations Committee. He came to DC after completing a postdoctoral fellowship in theoretical physics in the Weinberg Theory Group at the University of Texas at Austin.
James Hempstead is Managing Director of Utilities Public Project & Infrastructure Finance of Moody’s Investors Services, where he helps manage the North American Regulated Utility and Power Team. He also acts as a rating chair across all segments of the Global Infrastructure and Project Finance franchise, is a member of the Infrastructure Finance Franchise Committee and a member of the Global Infrastructure Focus Editorial Board. In 2017, he joined Moody’s Global ESG Working Group and is managing the firm’s Green Bond Initiatives. Mr. Hempstead joined Moody’s in December 2002. Prior to joining the rating agency, he spent time as an investment banker with Merrill Lynch & Co., working in the Global Energy & Power Group, providing financial and advisory services to electric, natural gas distribution, interstate pipeline, energy merchant, water and energy technology companies. Preceding his service at Merrill Lynch, Mr. Hempstead worked with Salomon Smith Barney Corporate Finance, working in their Global Energy & Power Group. He is a member of the Wall Street Utility Group, became a Trustee with the Society of Utility and Regulatory Financial Analysts (SURFA) in 2012 and joined the Advisory Council for the Electric Power Research Institute (EPRI) in 2014.
Harriet Moyer Aptekar is Principal at Crest Policy Consulting, a public policy renewable energy research consultancy. She is a specialist in utility securitization financing.
Ron Lehr is an Attorney and Board Member of New Energy Economics. He practices law and consults clients about energy regulation and business matters. Current assignments include work for the American Wind Energy Association on public policy and transmission issues for wind energy, for Western Grid Group on western grid-level system and transmission planning, and for foundation sponsors on America’s Power Plan. He also works for private firms and foundations on renewable energy policies and commercialization strategies. Mr. Lehr has appeared as an expert witness, sponsoring testimony in administrative venues on utility planning and mergers, and in anti-trust, employment, and government claim litigation. He began his environmental advocacy with the Sierra Club in 1967, trying unsuccessfully to prevent filling the Glen Canyon Dam. He served for seven years from 1984 to 1991 as Chairman and Commissioner of the Colorado Public Utilities Commission. He completed terms as an appointed member of panels charged to make recommendations on electric industry restructuring, renewable energy resources, and transmission needs to the Colorado General Assembly, and as President and Commissioner of the Denver Board of Water Commissioners, the water utility for Denver and surrounding suburban areas.
We will be using Microsoft Teams to facilitate your participation in the upcoming event. You do not need to have an existing Teams account in order to participate in the broadcast – the course will play in your browser and you will have the option of using a microphone to speak with the room and ask questions, or type any questions in via the chat window and our on-site representative will relay your question to the instructor.
- IMPORTANT NOTE: After November 30 you will not be able to join a Teams meeting using Internet Explorer 11. Microsoft recommends downloading and installing the Teams app if possible. You may also use the Edge browser or Chrome.
- You will receive a meeting invitation will include a link to join the meeting.
- Separate meeting invitations will be sent for the morning and afternoon sessions of the course.
- You will need to join the appropriate meeting at the appropriate time.
- If you are using a microphone, please ensure that it is muted until such time as you need to ask a question.
- The remote meeting connection will be open approximately 30 minutes before the start of the course. We encourage you to connect as early as possible in case you experience any unforeseen problems.
Please Note: This event is being conducted entirely online. All attendees will connect and attend from their computer, one connection per purchase. For details please see our FAQ
If you are unable to attend at the scheduled date and time, we make recordings available to all registrants for three business days after the event
EUCI has been accredited as an Authorized Provider by the International Association for Continuing Education and Training (IACET). In obtaining this accreditation, EUCI has demonstrated that it complies with the ANSI/IACET Standard which is recognized internationally as a standard of good practice. As a result of their Authorized Provider status, EUCI is authorized to offer IACET CEUs for its programs that qualify under the ANSI/IACET Standard.
EUCI is authorized by IACET to offer 1.3 CEUs for this event.
Requirements For Successful Completion Of Program
Participants must sign in/out each day and be in attendance for the entirety of the conference to be eligible for continuing education credit.
PowerPoint presentations and case studies will be used in program.
Upon successful completion of this event, program participants interested in receiving CPE credits will receive a certificate of completion.
Course CPE Credits: 15.0
There is no prerequisite for this course.
Program Level: Beginner/Intermediate
Delivery Method: Group-Live presented online due to COVID-19
Advanced Preparation: None
EUCI is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit.
Who Should Attend
- Vertically integrated utilities and load-serving entities (LSEs)
- Jurisdictional local distribution companies (LDCs)
- Consumer advocates
- Regulatory counsel
- State regulatory staff
- State legislative staff
- Asset management
- Rate administration
- Legal and regulatory
- Marketing and business development
- Power supply analyst
- Contract administrators and analysts
- Revenue assurance
- Energy finance and analysis
- Procurement management
- Energy operations and supply
- Retail load supply