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April 21, 2017

Colorado Opens Door to Utility-Fee Deals

Colorado lawmakers are considering legislation that would allow power com­panies in the state to issue asset-backed securities with a provision for unusually long-dated offerings.

The Colorado Energy Impact Assistance Act, introduced in the House on April 13, would enable energy producers to pay for the retirement of out-of-date genera­tion facilities by adding special fees to customers’ bills and then securitizing those cashflows for up to 30 years. While the measure doesn’t mention specific types of plants, a source said it was written with coal-fired stations in mind.

That would position Black Hills Energy and Xcel Energy as potential issuers. Black Hills, of Rapid City, S.D., has been working since 2012 to decommission some older coal plants in Colorado in response to state and federal environmental controls. Minneapolis-based Xcel has been working on similar efforts since 2011, with two facilities in the state set to close this year.

Colorado’s House and Senate are expected to vote on the proposal by midyear. Saber Partners of New York has been serving informally as a consultant to the bill’s sponsors, with an eye toward ensuring the resulting bonds earn ratings of double-A or better. An initial deal of $1 billion or more could take place within a year.

Each offering would be subject to public hearings and review from the Colorado Public Utilities Commission.

Most utility-fee securitizations have carried lives of 10 years or less. So why allow for 30-year securities? The idea, in part, is to allow the issuers to spread their deals’ underlying fees over more time and thus reduce monthly payments for their customers. Sources said Colorado officials also recog­nized strong investor demand for a $1.3 billion transaction from Duke Energy last June that helped fund the decommis­sioning of a nuclear plant in Florida. That offering, led by RBC Capital and Guggenheim, included two of the longest-dated tranches ever seen in the asset class a 15.2-year piece with triple-A grades that priced at 125 bp over Treasurys and an 18.7-year triple-A slice that sold at 69 bp over Treasurys.

The spreads were tighter than those on many triple-A-rated corporate bonds, thanks in part to interest from insur­ers. “There is big demand from insurance companies for high quality, long-dated assets like ratepayer-backed bonds and [Colorado’s transactions] would be another win-win for investors and electricity customers,” Saber chief executive Joe Fichera said.

Only two utility-fee securitizations priced in 2016: Duke’s transaction and a $661 million offering that J.P. Morgan and StormHarbour led for Energias de Portugal in July, according to Asset-Backed Alert’s ABS Database.


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