California utility PG&E is to receive approval on Thursday to issue US$7.5bn of recovery bonds to finance costs and expenses related to wildfires in 2017, which will be the largest utility securitization in history when it emerges.
A financing order by the Public Utilities Commission of California, dated May 6 but posted online on Tuesday, approves PG&E's plan to recoup some of the wildfire costs by issuing bonds backed by increases on bills to ratepayers over a number of years.
Leads have not yet been mandated but underwriting fees are expected to be some US$26.5m-$41.250m, according to the decision filing.
"There haven't been many deals of this size before in the ABS market," said a banker familiar with this kind of utility ABS transaction. "The key to success is cross selling between ABS and corporate buyers by offering tenors with a lot of different flavors and that means potentially going out as long as 30-years," he said.
"If you were only targeting ABS or corporate buyers, there would potentially be enough demand, but across the two you would definitely be able to issue that much," the banker said.
A range of utilities have used these rate reduction bonds to finance costs recently.
Wisconsin Electric Power raised US$118m on Wednesday to finance the dismantling of a coal-fired power plant. In February, SoCal Edison issued a a US$337.78m deal, SCE Senior Secured Recovery Bonds Series 2021, to recoup costs from previous wildfires and fund efforts to prevent future ones.
Utilities argue that the securitization method is cheaper than other sources of financing, though the deals have raised questions over whether consumer interests are being looked after.
The Public Utilities Commission of California said that PG&E must adopt a "Finance Team" to perform an oversight role in connection with the bonds. And the utility is also expected to develop a "Customer Credit Trust" to credit affected consumers in connection with the fixed recovery charges being imposed.
Updated story: Updates with details