Stranded cost securitization: Analytical considerations
Securitization is a promising financing approach by which utilities may recover their stranded costs while lowering their cost of capital, permitting them to offer rate reductions to customers. However, there are important issues to analyze before determining that securitization will be an attractive option for bondholders. To facilitate the transition to a competitive electric market, numerous state legislatures have passed or are considering legislation that, while mandating competition, allows utilities to recover their stranded costs through the imposition of a competitive transition fee. To accommodate securitization of revenues from the fees, statutes typically designate as a property right the future revenues from these fees and the utility may sell, assign, or transfer the rights to a financing vehicle. Securities may be issued by a trust or other special purpose vehicle supported by future revenues from these fees. Because of the unique characteristics of the highly regulated utility industry and the {open_quotes}asset{close_quotes} that is securitized, the credit analysis of stranded cost securities differs from that of most other assets. For example, underwriting and servicing issues, which are key items of interest in other segments of the ABS market, are less of a concern in a stranded cost context.
- OSTI ID:
- 569341
- Journal Information:
- Electricity Journal, Journal Name: Electricity Journal Journal Issue: 8 Vol. 10; ISSN ELEJE4; ISSN 1040-6190
- Country of Publication:
- United States
- Language:
- English
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