OKLAHOMA CITY – A pair of measures to allow extraordinary energy costs incurred by utilities during the subfreezing February winter weather to be “securitized” was signed by Gov. Kevin Stitt on April 23 and went into effect immediately.
Senate Bill 1050 is the Regulated Utility Consumer Protection Act, and Senate Bill 1049 is the Unregulated Utility Consumer Protection Act.
Both measures allow the extreme energy price spikes arising from the February 2021 winter storm to be securitized via the issuance of bonds backed by ratepayer revenues, reducing the financial impact of the enormous costs related to the winter storm.
Through the process of “securitization,” SBs 1049 and 1050 will enable ratepayers to lower their monthly costs associated with the weather event and lengthen the period of time the increased costs will be paid out, said Sen. James Leewright, R-Bristow. He chairs the Senate’s Business, Labor and Commerce Committee and is chairman of the Senate Select Committee created to study this issue.
The concept is not new. “We looked at what other states have done in this area,” said Rep. Garry Mize, R-Guthrie. “This has been around for perhaps 30 years, and at least 20 other states have used this concept to recover from extreme weather events, for example.”
Mize, chairman of the House of Representatives’ Committee on Utilities, said legislators “worked with the Governor’s office, the Attorney General’s staff, and the Corporation Commission on how to avoid surprising consumers with crippling utility bills.”
“Doing nothing to help ratepayers manage that debt load is not an option,” Leewright said. “If we do nothing, families and seniors on fixed incomes could be faced with choosing between paying their February energy bill or paying for food and medicine. If we do nothing, small businesses could be forced to make layoffs or cutbacks to pay their energy bills.”
Securitization is “the best path forward to help families manage the extreme costs related to the storm, and help small businesses manage the impact as they continue to recover from the pandemic,” Leewright said.
The newly enacted legislation creates a property right based on the customer charges for the securitization, which guarantees the holders of the bonds will be repaid.
The Oklahoma Development Finance Authority (ODFA) is authorized to issue ratepayer-backed bonds. The maturity period of those bonds is limited to no more than 30 years.
Ratepayer-backed bonds must be reviewed by the Council of Bond Oversight and approved by the Oklahoma Supreme Court. Also, the Supreme Court is directed by the legislation to consider “as speedily as possible” the ODFA’s application for approval of such bonds.
The bonds “shall not be an indebtedness” of the State of Oklahoma nor of the ODFA, the legislation stipulates. Further, the face of the bonds must bear a statement that, “Neither the full faith and credit nor the taxing power of the State of Oklahoma is pledged to the payment of the principal of, or interest on, this bond.”
The amount “necessary to service, repay and administer” the bonds must be identified in a separate line-item on the customer’s monthly bill, the legislation mandates.
‘PRUDENCY AUDIT’ TO BE PERFORMED
A utility is allowed by law to pass its legitimate fuel costs on to its customers. The Oklahoma Corporation Commission will conduct a “prudency audit” of the costs that a regulated utility, such as PSO, OG&E, CenterPoint and ONG, wants to pass through to its customers. In Oklahoma, no costs from the February winter blast have yet been passed along to customers of regulated utilities. “They’ve filed estimates but nothing specific,” said Matt Skinner, the Corporation Commission’s public information manager.
Regulated utilities are not allowed to make a profit on fuel costs that are passed along to consumers, Skinner stressed.
SB 1050 provides that the Oklahoma Corporation Commission must consider a utility company’s “qualified costs” in determining whether those expenses “should be mitigated by the issuance of ratepayer-backed bonds.”
Qualified costs are defined in the legislation as fuel-related storage and associated costs, emergency compressed or liquefied natural-gas supplies, contracts for services providing additional pressurization on lines and transportation pipeline penalties, as well as expenses incurred for the purchase of fuel, purchased power, natural-gas commodity “or any combination thereof,” between Feb. 7 and Feb. 21, minus any insurance proceeds, governmental grants or other funding sources.
The Corporation Commission is instructed by the legislation to consider several factors when deciding whether a regulated utility’s “qualified costs” warrant issuance of ratepayer-backed bonds.
Applications for securitization of winter storm expenses incurred by unregulated utilities will be reviewed by the ODFA, and either approved or disapproved.
SB 1049 requires the ODFA to report to the governor and legislative leaders on the status of loan applications, when a loan is issued to an unregulated utility, and provide regular updates to those leaders until the debt is retired.
Now that the Legislature has passed, and Governor Stitt has signed, SBs 1049 and 1050, the bonds can be issued. Representative Mize and the Corporation Commission both told the Ledger the bond sales may start in about six months.
GAS, ELECTRICITY COSTS SOARED IN FEBRUARY
In a filing with the U.S. Securities and Exchange Commission (SEC), American Electric Power, parent company of Public Service Co. of Oklahoma, reported that between Feb. 9 and Feb. 20 PSO spent $175 million on natural gas expenses and $650 million on electricity purchases from other entities, for an estimated total of $825 million.
PSO serves more than 562,000 customer accounts in eastern and southwestern Oklahoma. It provides electricity to more than three dozen cities and towns in southwest Oklahoma, including Lawton, Altus, Duncan, Apache, Cache, Cement, Chickasha, Cyril, Elgin and Fletcher.
CenterPoint revealed in an SEC filing the week of Feb. 22-26 that because of “extraordinary increases in the price of natural gas” the company’s estimated fuel purchase costs for February exceeded corporate plans by $2.5 billion. CenterPoint served almost 100,000 residential, commercial, industrial and transportation customers in western and southeastern Oklahoma as of Dec. 31, 2020.
Cities and towns in southwest Oklahoma that are supplied with natural gas by CenterPoint include Altus, Apache, Blair, Burns Flat, Chickasha, Comanche, Duncan, Elgin, Fletcher, Lawton, Mangum, Marlow, Olustee, Sterling and Temple.
Oklahoma Natural Gas estimated its additional costs at $1.5 billion.
Oklahoma Gas & Electric Co. indicated its winter storm bill was at least $1 billion. Its bill for natural gas during the February winter storm “significantly exceeded the Company’s entire fuel cost for calendar year 2020,” the utility reported.
OG&E on Monday became the first utility company to file an application with the Corporation Commission to have its abnormal winter weather costs addressed via the securitization plan.
The Fort Cobb Fuel Authority absorbed $550,000 in additional natural gas purchase costs in February, attorney Ron Comingdeer said during a Corporation Commission hearing March 25. A typical bill for gas buys in February is approximately $200,000 to $250,000, he told the Ledger. The company had to borrow money to be able to pay that additional $550,000, he said.
FCFA buys gas from third-party non-affiliated gas suppliers and distributes the fuel to its customers, said Comingdeer, managing attorney with Crowe & Dunlevy law firm in Oklahoma City.
Utility companies weren’t the only ones clobbered with extraordinary bills from the February weather.
The natural-gas bill for Comanche County Memorial Hospital in Lawton for the month of February was “around $400,000,” CEO Brent Smith said. In comparison, he said, the hospital’s gas bill for all of last year was about $210,000.
The town of Yale, a Payne County community of approximately 1,200 residents, was stunned when it received a natural-gas bill of $1.4 million for February, Acting City Manager Phillip Kelly said. The city’s gas bill is normally $20,000 to $30,000, he said.
City Hall buys the gas and resells it to the town’s residents.
Yale’s gas supplier, BlueMark Energy, issued a statement on its website that attributed the dramatic increase in pricing to freezing conditions and a reduced supply during a time of high demand for heat.
BlueMark, based in Tulsa, is a retail provider of natural gas to commercial and residential customers, its website shows. It buys and markets natural gas for more than 100 producers in the Mid-Continent region.
The City of Lawton received a February natural-gas bill from CenterPoint Energy for $13,224. In comparison, the city’s gas bill for March was $4,641, January’s gas bill was $9,858, and the bill for December was $8,193.
“Our Finance Team reports that our average monthly gas bill (per the last 12 months) averaged $4,158.19 a month,” Community Relations Director Tiffany Martinez Vrska said on April 20. The Financial Services Division reported that the city’s natural-gas bills in previous Februarys were: $8,556 in 2020; $11,768 in 2019; $13,381 in 2018; $8,287 in 2017; and $8,376 in 2016.