New Jersey energy provider Public Service Electric & Gas (PSE&G) unleashed a $2.5 billion stranded-cost transaction last week, with investors banging down the doors to place bids. In what was the first utility securitization of the year, the success of the New Jersey deal could set the tone on a variety of others slated to come to market in 2001.
Many market observers are predicting record utility issuance this year, approaching $10 billion. In contrast, 2000 only saw $1 billion in stranded-cost issuance.
Currently, two other New Jersey utilities are pressing forward with securitization plans, along with two in Michigan and three in Texas. However, Texas is mired in legal challenges, while a deal could come from Michigan by the end of the quarter.
Consumers Energy, a unit of Michigan energy provider CMS Energy Corp., accepted its order from the Michigan Public Service Commission to securitize $469 million in stranded assets and its filing is currently under review by the Securities & Exchange Commission. The state's attorney general, however, has filed an appeal, and CMS is hoping to settle it quickly.
"We're hoping that the situation will be resolved," said David Joos, chief operating officer of electric at CMS at the company's earnings conference last week. "I believe there's significant recognition [at] the attorney general's office of the benefits that will accrue to customers once securitization is allowed to go forward."
DTE Energy Corp. filed an S-3 with the SEC last month to issue up to $1.774 billion in notes from its Detroit Edison Securitization Funding LLC 2001-1. The offering will contain seven classes of floating-rate notes.
In Texas, Central Power & Light is still awaiting a decision from the state's Supreme Court on constitutional and statutory grounds. TXU Electric Co. is awaiting a hearing from the Court on the amount the company can securitize, while Reliant HLMP cannot issue until CP&L's constitutionality hearing has been settled.
With all the problems in California, many were wondering if New Jersey's deal could get off the ground at competitive prices. But New Jersey and Michigan's restructuring laws were different than California's, and that has helped.
"I don't even characterize what we did as deregulation," said CMS's Joos. "We clearly did not deregulate in Michigan, what we have done is restructure to implement customer choice."
Like New Jersey, Michigan utilities were not required to sell their power generating plants, and are able to purchase contracts and futures for power prices. California utilities must purchase power at spot rates from generating plants they were forced to sell.
