Duke Energy Florida (DEF), a unit of Duke Energy Corp., has launched a $1.3 billion offering of bonds backed by fees it will charge to recover costs associated with the retirement of its Crystal River Unit 3 nuclear power plant. The bonds will be issued by its wholly owned, but bankruptcy remote, subsidiary, Duke Energy Florida Project Finance.
RBC Capital Markets and Guggenheim Securities are joint bookrunning managers.
Moody’s Investors Service, Fitch Ratings and Standard & Poor’s have all assigned triple-A ratings to four tranches of with maturities ranging from 2022 to 2038.
The fees that DEF collects from customers to offset the cost of retiring the nuclear power plant are irrevocable, binding, and nonbypassable. All customers must pay them as a percentage of their power bills, even if, under some future regulatory regime, they elect to switch to another provider of electricity.
DEF also has the ability to adjust, or “true up,” fees as a percentage of bills twice a year to ensure that enough money is collected should demand for power decline. All three rating agencies cite this as a strength of the deal.
The initial fee is expected to only represent 2.7% of the total residential customer bill. In its presale report, Moody’s noted that this is a relatively low percentage compared with charges in other utility fee deals.
Another credit strength, according to Moody’s, is the size, economic stability and diversity of the ratepayer base in DEF’s service area, which includes the greater Gainesville, Orlando, St. Petersburg, and Tallahassee areas. The service area primarily includes a mix of residential customers (59% by revenue) and commercial customers (28%). There are very few industrial customers (6%), whose consumption of energy is more volatile. Unlike most other utility cost recovery securitizations, the service area includes very few industrial customers (6% by revenue), whose consumption is more closely tied to the business cycle, and therefore more volatile.
It is possible that state and federal legislation or regulation could weaken the legal protections of the nuclear asset-recovery property; however all three rating agencies view this risk as remote. It would require the citizens of Florida to amend state’s constitution through initiative powers.
