Touted as a panacea for stranded costs, securitization would forever shield rates from market scrutiny.
We consumers display an amazing talent to squander the fruits of our labor on the whim of the moment. Examples might include bungee jumping, vanity license plates or pet rocks. Or just about anything you might find in a magazine stuffed in the back of an airline seat.
Now make way for electric utility restructuring, where the latest fashion calls for securitization of uneconomic costs. (I deliberately avoid the industry's euphemism of "stranded" costs.) Will securitization aid consumers, as claimed by its advocates, or will it go down as just another bad idea that was once very popular?
Much of the debate runs rife with doublespeak. It tends to diminish and confuse the subject. Do proponents seek a bailout? Or is this a "win-win" proposition as advertised by proponents? Perhaps the biggest problem with securitization is that it might be seen as a panacea for all projects that become uneconomic.
The truth is at once more simple and profound. Securitization is mostly a refinancing option (em paid for by customers to recover the cost of bad investments. Utilities with uneconomic costs, their shareholders and potential underwriters are the only ones that stand to benefit from securitization. Estimates on the size of the market for these financial assets would make even Carl Icahn sit up and take notice. Salomon Brothers estimates that the market could approach $50 billion. An analyst at Fitch Investors Service stated that it could reach $100 billion.
A Perversion of Process