The practical applications for utility tariff bonds (UTBs) continues to expand.[1] One additional use for UTBs may well be the recovery of COVID-19 pandemic costs (COVID-19 Costs) incurred by utilities. UTBs are an efficient way to finance costs over which a utility has little practical control and where the recovery of such costs would likely otherwise cause rate “shock” for customers.
While COVID-19 Costs are still being incurred and the final amounts thereof remain uncertain, it is clear that stay-at-home requirements and other business operational restrictions are likely to be affecting utility revenues (both aggregate amount and consumption by class of customer) and that such final COVID-19 Costs could be substantial and warrant recovery through UTBs.
In addition, the amount of COVID-19 Costs to be recovered through related UTBs can be effectively limited to such costs after other potential recoveries, whether through other governmental COVID-19 pandemic policy responses (for example, monetization of related net operating losses) or where the related COVID-19 Costs could have been mitigated by utility action, but were not. Of course, these and other related requirements should be included in the related authorizing legislation or the required PUC proceeding to approve the UTBs and in the financing order thereunder.
Utilities may be well advised to track COVID-19 Costs, whether for related UTBs or another means of recovery.
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[1] See our other related Perspectives at:
- Utility tariff bonds for coal and other electrical generating plant retirements in Montana?
- Utility tariff bonds for storm recovery in North Carolina—Coming to your state soon?
- Unstranding “Stranded Cost” Securitization: New Applications for a Proven Technology.
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