The Public Utility Commission of Texas on June 21 approved a $1.7 billion stranded cost securitization order for the AEP Texas Central Co., the last of such deals expected from the state.
The PUCT also accepted a settlement agreement that will oblige AEP Texas Central Co. and all other affected parties - including industrial customers, consumer advocacy groups and municipalities - to abide by the details in the financing order. Such a settlement agreement was reached in late May.
As a stranded-cost securitization, the deal will allow AEP Texas Central Co. to recover costs that it incurred after the state deregulated its utilities market, making it more competitive for retail customers. The order also allows the company to collect so-called true-up' costs sustained after its transition within the Electric Reliability Council of Texas (ERCOT), an Austin, Texas-based wholesale energy supplier. ERCOT operates a 38,000-mile power transmission system, which represents about 85% of the state's electric load. The company reduced its securitization amount by $77 million.
AEP Texas expects to secure the bonds with fees charged to retail energy providers, who will then pass them on to ratepayers, said Larry Jones, a spokesman for AEP Texas Central Co. While some market sources said the deal could price by the end of July, documents in the financing order targeted Sept. 1, as the pricing date. If the bonds are not issued on Sept. 1, according to documents in the financing order, then AEP Texas Central Co. will ask for a revision to the carrying costs calculation to account for the change in the number of days from the target pricing date, and will adjust the securitized amount accordingly.
A market source familiar with the transaction said the deal is expected to attract interest from European investors as well. One third of the bonds in the $1.8 billion Centerpoint Energy transaction, they note, were sold overseas. Those bonds carried a risk-weighing of 20%, similar to U.S. agency bonds, as opposed to a 100% risk-weighting for typical corporate and ABS deals. The AEP Texas Central Co. bonds are expected to fare similarly, the source said.
Credit Suisse, RBS Greenwich Capital and JPMorgan Securities will be the bookrunners on the deal, while New York City-based Saber Partners will represent the Public Utility Commission of Texas.
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