The New Jersey Board of Public Utilities last week authorized Public Service Electric & Gas to issue $2.52 billion of taxable securitization transition bonds to allow the company to further reduce the rates it charges in the state's new deregulated electricity market.
According to the Electric Discount and Energy Competition Act passed last year, utilities wishing to recover their stranded costs -- investments in facilities like nuclear plants that cannot be recovered if power from the plants is sold at market rates -- must lower rates between 5% and 10%.
PSE&G hopes to be able to lower its rates by 2% on Jan. 1, 2000, and another 5% by Aug. 1, 2000, said Kathleen Ellis, a spokeswoman for the company. The company plans to follow a schedule of rate reductions that will have allowed it to reduce its rate by 13.9% in three years Ellis said. The bonds it hopes to sell will help pay for that rate reduction, Ellis said.
The bonds -- which are expected to mature in 15 years -- will be sold by PSE&G through a special-purpose entity, said Fred Grygiel, the utilities board's chief economist. The bonds will be issued through the entity to insure that if the utility goes into bankruptcy, bondholders will still be paid, Grygiel said.
The bonds will be backed by a state-authorized surcharge on utility bills, Ellis said.
There is no firm date on when the utility will sell the bonds, but it is aiming at coming to market at the end of this year, or early next year, Ellis said.
Lehman Brothers has been selected as the lead manager, while Merrill Lynch & Co. and Salomon Smith Barney Inc. have been selected as co-senior managers.
In addition to being the first utility to issue taxable securitization bonds in New Jersey's deregulated market, PSE&G's bond sale is expected to be the largest. Other utilities, such as GPU Energy and Connectiv are also expected to issue bonds, but they won't be issuing as many, Grygiel said. GPU is expected to sell between $400 million and $500 million of bonds before the end of the year, he said.
