Wisconsin Electric Power Co. is making first-time use of a state law allowing it to recoup environmental control costs through securitization.
According to ratings agency presale reports, a newly established trust (WEPCO Environmental Trust Bonds) will issue $118.81 million in stranded-cost bonds that will be funded by charges levied on the monthly bills of approximately 1.5 million electric and gas customers in northern, southeastern and central Wisconsin.
The bonds have preliminary triple-A ratings from S&P Global Ratings, Moody’s Investors Service and Fitch Ratings.
WEPCO, a publicly regulated utility, is the largest subsidiary of direct parent holding company WEC Energy Group, and its rate base of $6.5 billion accounts for 18.5% of WEC’s asset base.
Wisconsin’s state legislature enacted the law permitting the use of environmental-trust financing in 2004, but the WEPCO bonds sale is the first use of asset-backed issuance to recover costs for environmental control measures.
About $100 million of the bond proceeds will be used to finance environmental control activities at a former coal-powered plant in Pleasant Prairie, Wis., that WEPCO closed in 2018, according to Fitch.
The charges financing the bonds were approved in November by the Public Service Commission of Wisconsin, which intends "to lower the cost to customers on a present value basis via the use of securitization, which compares favorably to alternative methods of financing the environmental control activities," Fitch's report stated. "WEPCO estimates the net present value benefits from securitization financing would be approximately $41 million, compared to traditional utility ratemaking."
The bonds will initiate investor payments semiannually, beginning in December, and carry an expected 12-year maturity.
