The Public Utilities Commission of Ohio (PUCO) approved an application by FirstEnergy to securitize approximately $555 million in previously approved deferred energy costs costs.
This is the first use of the Dec. 2011 enacted Securitization Act created by House Bill 364, which allows Ohio’s electric distribution utilities to issue low-interest; long-term bonds to replace certain types of deferred costs that otherwise would have higher carrying costs, resulting in savings for ratepayers.
The deal securitizes costs that the utility paid up front at a higher price. To avoid the possible rate shock of building the costs straight back into rates, First Energy was allowed by the PUCO, the Ohio state utilities regulator, to recover the costs over time and earn an additional return on the recovery because they didn't receive payment right away.
“Today’s ruling will ultimately lead to long-term savings for FirstEnergy’s customers,” PUCO Chairman Todd Snitchler said in a press release on Oct. 10. “By securitizing deferred costs, FirstEnergy will take advantage of lower interest rates available through the bond market and pass the savings on to ratepayers.”
The new Phase-in Recover Rider (PIR) will replace the existing Deferred Fuel Cost Recover Rider (DGC), Generation Cost Recovery Rider (DGC) and the Residential Electric Heating Recover Rider (RER1), effectively saving customers approximately $104 million, according to the press release.
The Commission will retain an independent financial advisor to assist in reviewing the final financing terms upon the company’s issuance of the bonds. The Commission also has co-equal decision making authority with the utility with respect to the structure and pricing of the bonds.