[BETA] Fortnightly

I was surprised and disappointed at the limited and unbalanced perspective that Bruce Radford brought to his comments on securitization ("Wall Street's New Game," PUBLIC UTILITIES FORTNIGHTLY, April 15, 1997, p. 4).

The article implies that the push for securitization legislation is being driven by the investment community's desire to create an investment product with a guaranteed return. It also references and quotes freely, without critical comment, from a report prepared by one camp within the New York State Legislature, which has been criticized by a number of responsible parties as a flawed and partisan analysis, while it ignores completely the overwhelmingly favorable testimony provided more recently at a New York Senate hearing.

Securitization cannot be meaningfully examined out of its proper context, as a part of the ongoing comprehensive actions now being taken on the unique and complex issues associated with the transition of the electric industry to competition.

The securitization legislation as proposed in New York (which differs in some important particulars from that described by Mr. Radford) would allow for a refinancing of debt (em just as a homeowner would refinance a mortgage (em but only when the Public Service Commission determined that significant ratepayer savings would result. The savings would result from the security provided by a legislative (as opposed to a regulatory) commitment to do what the state has already promised to do: provide a reasonable opportunity to recover prudent expenditures made by utilities in fulfillment of their public service obligations.

Mr. Radford describes the assets to be securitized as "those that have lost their value in the market," as if a change in the market has devalued the assets. The fact is that if the government does nothing, these investments will continue to have value and be recoverable under the existing regulatory compact. They will lose value only where they have been rendered uneconomic, not by a change in the market, but either by government-imposed cost adders, or where government has affirmatively acted to change the rules with respect to past investments and past promises to investors of a reasonable opportunity for recovery.

The article further points out, seemingly as a revelation, that ratepayers will pay for the securitized assets. In fact, these are investments, determined by regulators to have been prudent, for which ratepayers are paying now and for which they will continue to pay, in return for service. What securitization would do is let the ratepayer pay less for those assets, without raising the constitutional and ethical issues associated with the "taking" of investors' property and without tapping the state treasury.

Securitization is a concept that is already working successfully in other states that are also introducing competition in the electric industry. It is supported in New York by such diverse interests as the New York State Consumer Protection Board, the Business Council of New York State, representatives of low-income energy consumers, the utility industry, the financial community and others. The only objections which have arisen in New York appear to be politically motivated and must not be allowed to impede what represents a