Pacific Gas & Electric is preparing to sponsor a recovery bonds deal that will raise $7.5 billion from the capital markets as reimbursement for certain costs and expenses that PG&E had paid out related to the devastating 2017 wildfires.
The trust, PG&E Wildfire Recovery Funding LLC, will issue bonds secured by the power provider’s rights to impose, collect and receive certain proceeds from about 10 million natural gas and electric consumers, according to Moody’s Investors Service.
The California Public Utilities Code, as amended by the California Senate Bill 901, and a financing order from the California Public Utilities Commission, are the key permissions empowering PG&E to issue the bonds, according to a pre-sale report from S&P Global Ratings.
Citigroup is the arranger on the deal. The trust will pay principal on the bonds according to an amortization schedule through a multi-tranched, sinking fund capital structure with a semiannual payment frequency.
A key form of credit enhancement is in the form of a true-up mechanism. Every year, the trust will make true-up adjustments and could be made more frequently as necessary to correct for any over-collection and under-collection of the fixed recovery charges and to ensure the timely and complete payment of recovery costs, according to S&P.
Both of the agencies expect to assign ratings of ‘AAA’ throughout the note classes. Dates of legal final maturity range from June 2032 to December 2053.
The securitization’s initial fixed-rate recovery charge should represent around 1.2% of its monthly electricity bill, as of December 31, 2021, in accordance with PG&E’s expectations, said Moody’s. PG&E had implemented a similar charge on the outstanding PG&E Recovery Funding from 2021, and expects the combined fixed-recovery charges to represent about 1.5% of the total electricity bill proceeds that it will collect from an average 500 kWh residential customer within its California service area, covering 70,000 square miles.
Along with the strength of the wildfire financing law and the financing order and the low, fixed recovery charge, Moody’s counts the large and diversified ratepayer base and a highly stable and experienced servicer to be among the deal’s strengths.
Among some potential challenges, however, are potential challenges to the wildfire financing law and financing order, Moody’s said. If political winds impose changes on state and federal legislation, they could weaken the strength of the legal protections of the recovery property and the bonds, the rating agency said. Also, future collections could be subject to a number of conditions that result in inaccurate forecasting of consumers’ gas and electricity use, including consumer delinquencies and defaults, population migration, self-generation and damage from natural disasters.
