Like most everything, they do rate reduction bonds big in Texas. Three major utilities in the Lone Star State expect to securitize more than $4 billion for the recovery of stranded costs as early as first quarter of 2000.

Following the passage of the state's deregulation law in June, which allows power companies to securitize to refinance their debt by charging customers fees, TXU Corp., Central Power & Light and Reliant Energy Corp. have all flipped the switch on the asset-backed financing process.

As for which company will be the first to bring a Texas utility deal to market, it remains a toss up. Both TXU and CP&L filed on Oct. 18 with the Public Utility Commission of Texas, and Reliant has indicated that it will file with the commission on Nov. 16.

After this initial filing, the commission must act up on the applications for the securitization financing order within 90 days, said Marc Moseley, vice president at TXU. This apparently places CP&L and TXU neck-and-neck with about a one-month lead on Reliant in the process.

"I think that both [CP&L parent] CSW and TXU are looking at the same time frame," Moseley said.

Moseley said TXU expects to securitize approximately $1.7 billion in regulatory assets in the latter part of first quarter 2000 or early second quarter next year. Morgan Stanley Dean Witter will lead TXU's offering.

"The bill requires that the funds from securitization be used to reduce our regulatory assets through the retirement of debt or equity," Moseley said. "We plan to buy back both in the ratio of our current capital structure."

This means TXU will take a portion of the cash from its record $4.4 billion third-quarter operating revenue and combine it with the proceeds from the upcoming securitization to reduce more than $1.5 billion of outstanding debt and preferred stock. The company also intends to buy back over $800 million of stock with the proceeds next year.

Reliant is looking at recovering approximately $1 billion in stranded costs and CP&L has indicated it will issue close to $1.3 billion in ABS to finance its entrance into the unregulated power market. Reliant expects to issue first quarter next year and has employed Merrill Lynch & Co. and Goldman, Sachs & Co. to comanage the deal. Goldman will lead CP&L's deal as well.

TXU has diversified operations throughout the U.S., Europe and Australia. CP&L, through its parent company CSW Corp. owns and operates the second-largest electric utility system in the U.S. Reliant provides international energy services, as well as a wholesale group that invests in power-generation projects and provides wholesale trading and marketing activities.

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