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NARUC COMMITTEE ON ELECTRICITY:

NARUC COMMITTEE ON ELECTRICITY:. SECURITIZATION. NARUC COMMITTEE ON ELECTRICITY:. SECURITIZATION Joseph Fichera. NARUC COMMITTEE ON ELECTRICITY:. SECURITIZATION David Sapper. NARUC COMMITTEE ON ELECTRICITY:. SECURITIZATION David Svanda. NARUC COMMITTEE ON ELECTRICITY:. SECURITIZATION

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NARUC COMMITTEE ON ELECTRICITY:

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  1. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION

  2. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION Joseph Fichera

  3. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION David Sapper

  4. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION David Svanda

  5. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION Peter Toomey

  6. COMMITTEE ON ELECTRICITY SECURITIZATION: The AP experience in West Virginia Peter E. Toomey Director, Rates Allegheny Power N A R U CWINTER COMMITTEE MEETINGSFebruary 12-15, 2006Washington, DC

  7. AP had previous experience with securitization from PA stranded cost recovery 2004 Situation Coal power plant emissions Depleting allowance bank Needed to scrub; allowance prices escalating Capital expenditures needed would be very large AP Background

  8. Ft. Martin - emissions Source: CPCN filing, March 2005

  9. Emissions AllowancesPrice forecast Source: CPCN filing, March 2005

  10. 2004 Situation, continued AP’s overall financial condition severely damaged during the 2002-03 period Access to traditional utility capital markets was impaired WV Background • Non-traditional financing was a good fit for AP, and would result in lowest rate impacts for WV consumers

  11. Introduction of concept* WV Commission, Staff and CAD Key legislators, governor Local grass roots campaign Allegheny approach *Included asset ownership transfers for wholly-owned Ft. Martin

  12. Modeled after Wisconsin AE, PSC Staff, CAD, West Virginia Energy Users Group Presented to sponsor Draft provided to WV Commission WV PSC and CAD supportive Bill passed in one legislative session (2005) Legislation

  13. Certificate of Need filed March 2005 To build wet scrubbers at Ft. Martin plant Most cost effective environmental compliance, vs. switching to PRB or dry scrubbing Start late 2006, done by Dec. 2009 Estimated capital cost $338 million Regulatory Applications

  14. Financing application filed May 2005 Contained proposed details of securitization financing Estimated bond issuance dates, terms Itemization of financing costs Description of mechanics (e.g., adjustment formulae) Estimated rate impacts by customer class Regulatory Applications

  15. Extensive negotiations resulted in filing of a settlement on January 11, 2006: Added a PSC Financial Advisor (FA) role Structured FA/PSC review process WV PSC Approval pending Regulatory Update

  16. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION Ellen Lapson

  17. Utility Tariff Bonds: Credit Perspectives Ellen Lapson, Fitch Ratings Managing Director NARUC Winter Committee Meeting, Washington DC, February, 2006

  18. Summary • Fitch Ratings is an acknowledged expert on the credit aspects of Utility Tariff Bonds • When properly structured, Tariff Bonds are an effective financing tool that can satisfy the objectives of two sets of investors • Asset-backed securities (ABS) investors • Utility corporate investors and creditors

  19. ABS Investors’ PerspectiveA Different Breed of ABS

  20. ABS Investors’ PerspectiveChecklist: Essential Features

  21. ABS Investors and Utility Corporate InvestorsLimit the Size of Special Tariff The tariff true-up is most effective when the total special tariff component is a small part of customer’s total cost • In 58% of ‘AAA’ transactions, the total special tariff billing component amounted to 8% or less of total customer cost. • Fitch expects that the special tariffs in ‘AAA’ transactions will aggregate well below 20% of the total customer utility cost.

  22. Utility Corporate Investors’ PerspectivePotential Effects of Tariff Bond Financing

  23. Favorable Storm recovery Environmental remediation or societal benefit investments Questionable 2005-06 gas costs; deferred energy costs Permanent layer of utility capital structure Potential Applications for Tariff Bonds

  24. “Utility Tariff Monetization Bonds Revisited”, Criteria Report, Aug. 22, 2005 “Utility Tariff Monetization Bond Performance Review”, Special Report, Aug. 22, 2005 “U.S. Power and Gas 2006 Outlook”, Special Report, Dec. 15, 2005 “U.S. Power and Gas Outlook for Key Credits”, Special Report, Jan. 11, 2006 “Rising Unit Costs – A Threat to Utility Industry Credit”, Special Report, Nov. 4, 2005 For more information: www.fitchratings.com

  25. NARUC COMMITTEE ON ELECTRICITY: SECURITIZATION

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