Last week, Moody's Investors Service released a report detailing the rating considerations and the risks associated with stranded-costs securitizations.

"Investors should understand that each utility stranded-costs securitization is unique," said Bruce Fabrikant, vice president and senior credit officer at Moody's. "The political, regulatory and structural risks are different for each transaction and should be evaluated seperately. The report highlights both the quantitative and the qualitative risks of each transaction," he added.

Moody's, which has assigned triple-A ratings to 11 stranded-cost recovery securitizations, did a detailed evaluation of utility stranded-costs securitizations in California, Illinois, Massachusetts, Montana, New Jersey, Pennsylvania and Texas.

According to the report, a common feature in these transactions is a provision found in stranded-utility costs legislation across states saying that the state will not change the securitization tariff paid by electric utility consumers.

However, Moody's said that a "one size fits all" approach cannot be applied to determine the effect of this provision on the credit quality of a stranded-utility costs transaction.

In California, Massachusetts and Montana, for instance, voters can repeal the provision on the securitization tariff through the initiative process.

The report also stated that Moody's has revised its estimate of stranded-costs securitizations to the range of $35 billion to $50 billion, from $50 billion to $75 billion a few years ago, based on a combination of factors.

"The initial estimate assumed 40% of possible stranded costs ($130 billion) were securitized. Some states have provided a mechanism other than securitization to recover stranded costs," said Fabrikant. "Also, the initial estimate of stranded costs ($130 billion) assumed energy prices that were lower than the recent actual experience. And the proceeds from asset divestitures were higher than projected," Fabrikant noted.

This report is timely because "There's always an interest in stranded-costs securitizations," Fabrikant said. "The greatest benefit is to understand the differences among the existing transactions and those that will be securitized in the near term," he added.

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