By Mathew Carr

April 3, 2024 — Americans are paying more for electricity because of a decision by Bloomberg LP to change the way it categorizes bonds.

Bloomberg apparently used its bond-market influence to make electricity less competitive vs fossil fuels, based on this story below by the Wall Street Journal.

Even natural gas distributors may also need to be charging higher prices to pay for increasing debt costs after the Bloomberg decision … that certain bonds sold by utilities would no longer be classified as “corporate bonds,” but instead as “asset-backed securities”:

www.wsj.com/finance/bonds-got-relabeled-now-millions-of-americans-get-higher-electric-bills-d765c609

There is little U.S. regulation on how investment securities are categorized to fit them into, or leave them out of, the passive bond indexes, WSJ reported.

Being left out of passive bond indexes can substantially decrease demand for a bond. Lower demand means a smaller price and higher interest rate on the bond…which can boost lending costs. These lending costs are passed onto company customers.

CarrZee: Regulators need to start regulating this market better, so customers and the climate are better protected. I’ve repeatedly opined that Bloomberg needs to be broken up to reduce its conflicts of interest. I was fired by the company in May 2020.

Context

Key bit, by WSJ:

In the summer of 2022, financial-data giant Bloomberg decided that certain bonds sold by utilities would no longer be classified as corporate bonds.

Instead, the bonds—sold by utilities to repair their systems following natural disasters—would be considered asset-backed securities.

The reclassification of these so-called recovery bonds altered their placement in Bloomberg’s widely followed bond indexes. That, in turn, restricted the pool of potential buyers for these bonds since many institutional and individual investors are prohibited from buying asset-backed instruments.

The upshot? The utility companies end up paying more interest on new issuances of this type of debt, a cost that is passed on to customers in the form of higher monthly electricity bills.