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AEP Texas looks to securitize $229M to recover hurricane restoration costs

American Electric Power Co. Inc. subsidiary AEP Texas has asked the Public Utility Commission of Texas to approve securitization of $229 million in costs associated with restoring service to its distribution system damaged by Hurricane Harvey.

Harvey in August 2017 ravaged the company's service territory, which covers portions of the Texas Gulf Coast and includes approximately 8,000 miles of transmission lines and 43,000 miles of distribution lines. This portion of the company's Texas service territory is known legally as AEP Texas Central Co.

The request, filed March 8, is the latest example of how extreme weather events are hitting utilities and transmission and distribution companies hard. The company said Harvey, a Category 4 hurricane, was the most intense storm to hit its service territory since Hurricane Celia struck in 1970.

In the application, the company asked the PUCT to approve securitization of $229 million in distribution-related costs associated with restoring service. In a February settlement, the PUCT allowed AEP Texas to apply to securitize $225 million, but the company now says the total amount for securitization will be $229 million, when the costs of issuing, servicing and administering the bonds and repayment are considered. (PUCT Control No. 49308)

AEP Texas in August 2018 asked for recovery of $415 million in both transmission- and distribution-related system restoration costs, proposing to obtain $295 million in distribution-related costs through securitization and $120 million in transmission-related costs through an existing interim transmission cost-of-service process and a future rate case. This request was resolved with the February settlement. (Control No. 48577)

"The purpose of securitization is to lower the carrying costs of the assets relative to the costs that would be incurred using conventional utility financing methods," the company said in a statement March 13. "Because of their secure, dedicated cash flow, the system restoration bonds are expected to carry a triple-A credit rating and correspondingly lower interest rates than traditional term utility debt."

The company said ratepayers will save approximately $52 million if the company securitizes the costs compared with recovering costs through conventional utility financing and rate filings. The charge to retail electric providers supplying the average residential customer using 1,000 kWh a month will be about $1.33 a month over a 10- to 15-year period if the request is approved, AEP Texas said.