On April 7, 2020, FERC and the National Association of Regulatory Utility Commissioners (“NARUC”), the national organization representing state public service commissions, sent a letter to the Federal Reserve supporting a request from the Edison Electric Institute (“EEI”), the American Gas Association and the National Association of Water Companies (together, the “Trade Groups”) to expand access to short-term debt available to the utility industry during the COVID-19 pandemic, as utilities are facing decreasing load and increasing bill nonpayment.
On March 17, 2020, the Federal Reserve announced the establishment of a Commercial Paper Funding Facility (“CPFF”) to support the flow of credit during the coronavirus outbreak. A CPFF is a financial vehicle created by the Federal Reserve to provide short-term debt to support businesses facing a credit crunch in the commercial paper market. Commercial paper markets directly finance a wide range of economic activity, including auto loans and mortgages. The Federal Reserve last created a CPFF in 2008 to combat that financial crisis. The U.S. Treasury will provide the Federal Reserve with $10 billion of credit protection for the current CPFF. To be eligible for purchases by the CPFF, however, commercial paper must be rated A1, P1, or F1.
In a March 24, 2020 letter to the Federal Reserve, the Trade Groups urged the Federal Reserve to expand the CPFF to include A2/P2/F2 Tier 2 companies. Extending the CPFF to commercial paper programs that are rated A2, P2 or F2 Tier 2 would cover most utilities. This followed another late-March announcement by EEI and others that member companies would not disconnect customers for nonpayment during the COVID-19 outbreak.
FERC’s joint letter with NARUC highlights the utility industry’s need for credit during the COVID-19 crisis to support the country’s essential infrastructure. Utilities are significant issuers in the A2/P2/F2 commercial paper market. The letter explained that extending CPFF purchasing would help ensure a properly functioning short-term debt market during the COVID-19 crisis.
FERC has taken a number of other actions in response to the COVID-19 pandemic (see March 31, 2020 edition of the WER).
A copy of the letter is available here.