The whole “securitized” real estate bubble collapsed less than five years ago. Now securitization has come to WV power companies and the WV PSC.
Power company lobbyists have fast-tracked a bill, HB 4530, that would allow power companies to sell bonds and charge interest to rate payers to cover the rapidly rising costs of generating electricity from coal. In the coded world of the WV Legislature, this bill is well-lubricated to pass. Two of the bill’s sponsors are leaders in the House, the Majority Leader and the chairman of the Finance Committee. These sponsors send a signal to all House members that this is a special bill. The same bill has also been introduced in the Senate as SB584 and is loaded with sponsors from the Senate leadership.
AP’s Larry Messina, in the story linked above, makes the following statement:
Other states have provided such financing alternatives to utilities. Lawmakers in Texas, for instance, approved a similar proposal in 2009 as electric utilities struggled with costs from restoring power systems in the wake of Hurricane Ike. West Virginia’s PSC also allowed Allegheny Energy that year to sell $105 million in bonds so it could install a scrubber to remove sulfur dioxide and mercury from emissions at a Monongalia County power station.
Messina also quotes AEP spokeswoman Jeri Matheney:
Matheney said the company hopes to sell low-interest bonds that would allow the utility to recover the energy costs immediately. The existing rate structure should provide enough revenues to repay those investors over the life of the bonds, she said.
“We have already bought the coal, we have already made the power and customers have already used that power,” Matheney said. “We’re facing this large amount of money that has already been spent.”
The utility estimates that its yearly per-ton coal costs jumped 70 percent between 2007 and this year. Matheney said the normal process has proved unable to cope with such circumstances.
“When it doesn’t work well is when those expenses accumulate much faster and grow to become much larger than you anticipated,” Matheney said. “We feel that’s where we are right now.”
Now read the actual wording of HB 4530. The new WV bill is not an authorization of borrowing to pay for the coal purchases AEP has already made. The bill is a general authorization that can be used by any power company in any similar situation. Messina’s examples from Texas and WV were borrowing to meet costs from one-time events, not ongoing rate increases.
Just like the liar loans and bogus mortgages of the recent real estate bubble, HB 4530 also contains new fees and “adjustments” that will allow power companies to change the terms of the bonds with little or no input from rate payers.
Right now, WV has a pay as you go PSC system that requires power companies to justify their rate increases in a pretty transparent process. With the additional layer of complexity that the new “financing orders” would bring to the PSC process, the WV rate system becomes more complex and opaque.
The changes proposed in HB 4530 will do nothing to control rising rates. The bill will only postpone the day of reckoning and push power companies’ past bad decisions off onto our children and grandchildren.