Power supply and distribution charges that customers of Detroit-based DTE Energy pay are expected to secure the collateral for the DTE Electric Securitization Funding I, as it prepares to raise $235 million from the capital markets.
DTE Energy is in the process of closing three of its five remaining coal plants by the end of 2022, as it shifts away from coal-fired energy generation to increased investments in wind and solar, according to the company. Moving ahead, the company will use cleaner natural gas and its carbon-free nuclear plant, Fermi.
Coal produces about 60% of DTE’s net power generation portfolio, S&P said, significantly increasing its carbon footprint in relation to its peers. DTE has committed to steadily reducing carbon emissions from its electric utility operations by 80% by 2040, however, compared with its 2005 emissions levels.
“DTE has retired six coal-fired units at multiple facilities, and it plans to retire its coal-fired generation by 2040,” S&P said.
Bonds from the DTE Electric Securitization Funding I deal, will recover certain qualified costs it will incur as it decommissions its River Rouge coal-fired plant, according to a pre-sale report from S&P Global Ratings. The costs include the remaining book value of the River Rouge plant, and the regulatory asset associated with the power company’s tree trimming program.
The power supply securitization will repay the costs of closing River Rouge, and the distribution securitization will recover the costs of the tree-trimming program, S&P said. The two customer types are virtually identical, as 99% of the power supply customers are also distribution customers. The trust will not cross-collateralize the two revenue streams servicing the debt, however. Power supply securitization charges will never be used to repay distribution notes as they come due, and vice versa, S&P said.
Citigroup Global Markets is the arranger on the transaction, with the Bank of New York Mellon acting as trustee.
The rating agency expects to assign ratings of ‘AAA’ to both the $183.5 million A-1 notes and the $52.2 million A-2 notes, and the deal is expected to close on March 17.
