Stranded cost ABS is expected to pick up in the near term, according to Lehman Brothers, with the bulk of supply coming from New Jersey and Texas - the most favorable states from which to buy RRB ABS. Depending on the legal challenges Lehman estimates that stranded cost ABS issuance could top $3 billion, should all the expected utilities hit the market this year.
Spurring the spate of supply, particularly in New Jersey, is legislation that allows utilities to re-tap the market to recoup additional stranded costs in the years following previous securitizations. In New Jersey, the state legislature passed a law allowing for the recovery of differentials in the retail and wholesale energy rates. Four New-Jersey based utilities - including first-timer Rockland Electric - are planning to tap the market for almost $900 million in securitizations under the new measure. If regulatory approval is received in the next three months, the securitizations could happen toward the end of this year.