SFA Research Corner: Rate Reduction Bonds–Teaching an Old Dog New Tricks
Provided by Structured Finance Association
With 36 states having enacted renewable and clean energy goals, securing adequate financing is crucial in states’ efforts to transition effectively. Securitization, through the issuance of Rate Reduction Bonds (RRBs) is increasingly being used to fund these transition cost. RRBs were first used by utilities in the 1990s to reduce the impact of costs on consumer (ratepayers) associated with the deregulation of the electricity market. More recently, RRBs have been used extensively to ease the pain of wildfires in California (2017) and of severe winter storms in the south (2021). Now RRBs are being used to recover or reduce expenses associated with states’ transition towards sustainable energy sources and, specifically, to retire coal plants. In 2022, RRB issuance was 22 times greater than the average annual level of the past 14 years.