BRADENTON, Fla. - Florida is poised to join only a few other states that allow municipal utilities to securitize charges on their customers' bills to finance capital.
If a measure sailing through this year's legislative session is passed, and approved by Gov. Rick Scott, it would allow certain governmental entities for the first time to issue cost containment bonds to finance water and sewer projects.
The financing is a form of securitization that has already been used by New York's Long Island Power Authority.
Later this year, the Los Angeles Department of Water and Power expects to join Burbank in issuing about $400 million in bonds for water-related capital projects secured by separate charges on customers' bills, according to agency documents.
Securitization is very effective low-cost financing because it is the "purest form of a triple-A rating" that an issuer can get, said Joseph Fichera, Senior Managing Director and Chief Executive Officer at Saber Partners LLC, which has worked on securitizations by investor owned utilities.
Such deals are protected by special laws and structured with irrevocable charges on customers' bills that secure bonds issued by a bankruptcy-remote special entity. The steady cash flow goes to the trustee to pay the debt.
"It's the best form of financing out there," Fichera said. "The pledge makes it the best triple-A available in any market."
The securitization legislation in Florida has been proposed in House Bill 617 and Senate Bill 1102. It would allow certain entities to place separate and nonbypassable charges on water and sewer bills to secure debt.
HB 617 has already been passed by three committees, and could land on the House floor for final approval this week. SB 1102 is waiting to be heard by a third committee.
In committee meetings before lawmakers, the bill has been supported by its prime benefactor, the Florida Governmental Utility Authority, which unsuccessfully pushed the legislation last year.
Other supporters of the measure this year include lobbyists for Citi and Morgan Stanley, which at one time was the FGUA's financial advisor.
FGUA is managed by Government Services Group Inc. GSG is a for-profit company created in 1996 with five directors, three of whom are attorneys with the law firm Nabors, Giblin & Nickerson PA, according to the Florida Division of Corporation records.
Nabors, Giblin serves as bond counsel to FGUA.
As written the legislation being considered by Florida lawmakers currently would only apply to FGUA, an established water and sewer agency formed through interlocal agreements with Citrus, DeSoto, Hendry, Lee, Marion, Pasco, and Polk counties.
"I have never really been wild about this bill," Rep. Matt Gaetz, R-Shalimar, said during an April 9 Regulatory Affairs Committee meeting as the panel discussed a proposed amendment that would have broadened the number of municipal entities that could take advantage of the financing.
Gaetz said he opposed the amendment because it would dramatically increase the debt capacity of municipalities.
Bill Peeples, a lobbyist for the Toho Water Authority, which provides water, wastewater and reclaimed water services in Osceola County and a portion of Polk County, told the committee that he supported the bill and the amendment.
"The problem is [the bill as written] only allows one entity to use this favorable financing mechanism creating essentially a monopoly for FGUA," Peeples said.
J.W. Howard, an executive director at Morgan Stanley, argued that it makes sense for FGUA to benefit from the legislation.
"What we were trying to do is work with a statewide entity that you could have a point of accountability," Howard said. He also called securitization a very sophisticated kind of financing that requires "a different skill" over other kinds of municipal financing in order to achieve triple-A ratings.
Some members of the Florida section of the American Water Works Association are also interested in being able to use the financing, association lobbyist Lee Killinger, told the Senate Finance and Tax Committee on Monday.
At that meeting when the amendment was considered, Kevin Dempsey, a vice president at Citi, opposed the amendment and said that "it's way too broad."
FGUA lobbyist Mike Harrell, with Buchanon Ingersoll & Rooney PC, said the FGUA also opposed the amendment.
"The reason we locked down early on the amendment is because there is no secret that the governor does not like extra bonding, and if he views every city and municipality doing it, the bill is dead," he said.
So far, committees in both chambers have voted not to amend the bill to make the financing available to more issuers.
While the legislation does allow a minimum of three counties to join forces to run their water and sewer systems, a legal expert who asked not to be identified said that process could take considerable time.
The bill also has been questioned by underwriters, bond attorneys, and financial advisors because the finance team potentially would be locked in place by FGUA.
The legislation could also raise problems for some utilities that have bond resolutions prohibiting them from building competing systems, according to a bond attorney.
"It seems to me that bondholders could have concerns with governmental issuers using this as a mechanism to circumvent the contracts they thought that they had with issuers," the attorney said.
The bill being considered also authorizes an issuer to continue to charge a customers' bill even if the customer no longer pays for the service that was financed, but continues to pay for other services.
"I don't see how they can charge customers of the same class a fee when they may not be using the services of the system," the attorney said.
If the Legislature passes the municipal utility financing bill, it would not be the first time that securitization has been used in the Sunshine state. Lawmakers gave the authority to investor owned electric companies to recoup losses from a barrage of hurricanes that hit the state in 2004 and 2005.
Since that time, only Florida Power & Light has taken advantage of the financing scheme. FPL issued $652 million in bonds in 2007 with Floridians paying charges on their electric bills to pay the debt service.
This year, lawmakers are considering allowing investor owned utilities to use securitization to issue nuclear asset recovery bonds. The law is being sought by Duke Energy Florida to pay for the decommissioning costs of the Crystal River nuclear plant.
