OKLAHOMA CITY – The Oklahoma Supreme Court can begin considering the constitutionality of the state’s securitization law at least a month earlier now.
Oklahoma Attorney General John O’Connor announced this month that he will not intervene on the state’s behalf in the lawsuit challenging the legality of Senate Bill 1050, the Regulated Utility Consumer Protection Act.
That measure, enacted last year in response to staggering fuel bills that utilities incurred during the February 2021 winter blast that froze Oklahoma, authorizes ratepayer-backed bonds to pay off those extraordinary natural gas and electric bills over periods of several years. The securitization legislation stipulates that ODFA must first get approval from the Oklahoma Supreme Court before the bonds can be sold.
O’Connor informed the Supreme Court that he supports “the issuance of securitization bonds to support recovery of prudently incurred costs … related to” the 2021 storm. He reiterated his belief that “the lower interest rates of securitization bonds will save customers significant money” over a period of 20 years or more.
Nevertheless, O’Connor contended that his office could make “no substantial contribution” in the litigation. “The difficult policy decisions” confronted by the state Corporation Commission when reviewing those abnormal utility energy expenses “are not presented here for the Court’s review,” he wrote.
Instead, the justices are being asked to consider the “constitutional validity” of securitization bonds that would be issued by the Oklahoma Development Finance Authority and the law that authorized them. The ODFA’s legal counsel “has ably briefed these questions,” O’Connor wrote.
He also “has concerns with the procedural delays necessary to accommodate additional briefing.” Interest rates are rising, he noted.
The Supreme Court gave the Attorney General a deadline of March 15 to “show an intent to intervene and be heard” in the proceedings or advise the court why he wouldn’t.
Had O’Connor opted to intervene, he would have had a month to submit a legal brief to the court. In turn, the ODFA and former state Rep. Mike Reynolds, who has contested the constitutionality of the securitization bonds, would have been given 15 days to respond, which would have pushed the issue to April 30.
“Securitization” would allow a utility to transfer its winter storm debts off the company’s books through the sale of bonds issued by the Oklahoma Development Finance Authority. Proceeds from the bond sales would compensate the utility for its winter storm expenses.
Under the terms of the agreements approved by the Corporation Commission, each of those utilities would charge its customers a specific amount each month for a specific number of years.
In turn, the utility companies would – on a monthly, quarterly or annual basis – send the revenue generated by that tariff to a trustee bank selected by the ODFA. The bond buyers would recover their investment via the proceeds from the surcharge added to the utility company’s monthly bills and remitted to the trustee bank.
Reynolds, an Oklahoma City Republican, lodged a protest after the ODFA asked the state Supreme Court to validate up to $800 million in ratepayer-backed bonds to recover extraordinary costs Oklahoma Gas & Electric Co. incurred during the storm last year.
“The subzero temperatures and severe winter weather created a prolonged demand for natural gas and electric power resulting in the failure of existing infrastructure and a corresponding shortage in natural gas supply,” the ODFA wrote in its application to the Supreme Court.
“The wide-scale nature of the event caused the spot and daily index markets for natural gas to spike to unprecedented levels, resulting in utility providers having to purchase gas at unusually high prices…”
The Corporation Commission reviewed OG&E’s application and approved $739 million in “prudent and reasonable” expenses. Financing and upfront securitization costs boosted the final sum to $760 million, “which is subject to change based on final carrying costs.”
In comparison, the company’s entire fuel acquisition cost in calendar year 2020 was $521 million, company officials testified before the commission.
OG&E asserted that “compared to traditional utility financing,” the securitization bonds would save its customers $959 million over the 28-year life of the bonds. Yet interest alone on the debt will cost the ratepayers more than $300 million, and an annual servicing fee will add more than $10 million to the debt, one protestant told the Corporation Commission.
Reynolds complained that OG&E ratepayers “are being asked to pay hundreds of millions of dollars more than they owe for Winter Storm 2021 fuel and purchased power costs being securitized under very nebulous terms arrived at via a lopsided ‘settlement agreement’ to which those (residential) ratepayers who will bear the bulk of the resulting financial burden never agreed.”
In his lawsuit against the ODFA, Reynolds contends the Regulated Utility Consumer Protection Act is unconstitutional because it attempts to give the ODFA authority to sell “state debt bonds” without a vote of the people as required by Article 10, Sections 23, 24 and 25.
Statewide votes on previous bond issues were held in 1972 and 1992, Reynolds informed the Supreme Court.
“Massive borrowing” without a vote of the people and a pledge of a direct, annual tax sufficient to pay for the debt is unconstitutional, Reynolds contends.