OKLAHOMA CITY – The state Supreme Court gave the Oklahoma Development Authority permission to issue up to $800 million in ratepayer-backed revenue bonds to cover debts that Oklahoma Gas & Electric Co. incurred during the February 2021 winter storm.
The May 3 vote was 8-0, with one recusal. However, three of the Justices complained that the Legislature imposed limitations on the court’s ability to review the bond authorization process. In addition, Oklahoma Attorney General John O’Connor was harshly criticized for his “lack of meaningful participation at all stages of this rate-related proceeding.”
The February 2021 Regulated Utility Consumer Protection Act was enacted last year to “provide financing options to lower the economic impact” of public utilities’ storm expenses on Oklahoma ratepayers.
Besides the $800 million in bonds requested to cover OG&E’s expenses, three other similar applications from the ODFA pending before the Supreme Court total in excess of $2 billion in ratepayer-backed bonds. They include Public Service Co. of Oklahoma, $725 million; Summit Utilities of Oklahoma, $95 million; and Oklahoma Natural Gas Co., $1.45 billion. The characteristics and issues in all three cases are virtually identical to those posed in the OG&E case.
“Most Oklahomans could not afford a one-time, cost-recovery payment imposed by the utility,” and the legislation enacted last year “provided a new mechanism to spread the fuel cost recovery over a longer period to minimize the financial impact” on utility customers.
For OG&E’s 870,000 customers, the one-time cost-recovery payment would have been $454.14. Alternatives were to amortize the debt at $40.14 extra per month for a year; $10.32 extra per month for four years; and what was finally agreed to: $2.12 per month for 28 years.
Fifteen individuals, including former state Rep. Mike Reynolds, lodged protests to the ODFA’s application and challenged the OG&E bonds on “several grounds” but focused primarily on their constitutionality, the Court related.
“A heavy burden is placed” on those who challenge a legislative enactment, “and every presumption is to be indulged in favor of the constitutionality of a statute,” the Court wrote.
Many of the protestants questioned “securitization itself and … what entities are profiting from the bonds (in carrying charges and servicing costs),” the Justices wrote. However, it is “firmly recognized that it is not the place of this Court, or any court, to concern itself with a statute’s propriety, desirability, wisdom, or its practicality as a working proposition.”
The Justices cited a 1988 decision which held that the Supreme Court “is not authorized to delve into the wisdom, need, or desirability of a valid, constitutional legislative enactment.”
Furthermore, the Legislature “has the right and responsibility to declare Oklahoma’s fiscal policy,” the Court ruled in 1999. “It is not this Court’s prerogative to question the sagacity of the expressed policy.”
Reynolds and other protestants argued that the securitization bonds are unconstitutional in that they violate Oklahoma’s requirement of a balanced state budget.
“In construing constitutional debt-limitation provisions, we have held the judiciary’s duty is to guard against indebtedness, not against modern methods of financing,” the Justices wrote.
Certain bond issues
not considered ‘debt’
in conventional sense
The state Supreme Court previously approved bonds that financed the acquisition or construction of “self-liquidating” projects. “That kind of obligation did not create a debt because the bonds issued were retired solely from revenues derived from the project itself,” the Court noted.
Those financial instruments included bonds sold to build the Turner Turnpike in the early 1950s, with the debt service financed from tolls; bonds sold to build dormitories at OU and OSU, with annual payments made from rents and fees paid by student users; highway construction bonds, office building bonds paid off with rentals paid by renters; and bonds to finance various governmental projects.
“In many cases we approved bonds as self-liquidating even when repayment was dependent on annual legislative appropriations,” such as a $300 million bond issue the Legislature approved in 1999, the Justices noted.
“Contrasted with that revenue-generating standard, the proposal here is far superior.” In this instance, the ratepayer-backed bonds will be repaid with “a secure revenue source,” through a fee added to each ratepayer’s monthly utility bill. “The money to directly pay the bonds is reliable, predictable fees from ‘outside’ sources – rather than from one state entity to another.”
Also, the 2021 Act “specifically provides” that the bonds “shall not at any time be deemed to constitute a debt of the State or the ODFA,” and imprinted on the face of the bonds will be a statement that “neither the full faith and credit nor the taxing power of the state is pledged for the payment of the principal and interest” of the securitization bonds.
Reservations expressed
Justices Dustin P. Rowe, Noma Gurich and Douglas L. Combs concurred in the opinion but issued separate opinions in which they expressed certain concerns.
Chief among them were “frustrations and concerns about the Act’s limitations on our review process and the Attorney General’s lack of meaningful participation at all stages of this rate-related proceeding,” Combs wrote.
Reynolds told Southwest Ledger that anyone wondering whether he will appeal the Court’s decision “must think I’m worth a lot.”
He pointed to Justice Combs’ written comment about “the ODFA attorney’s revelation at the referee’s hearing in this matter that OG&E would have asked any Protestant filing an appeal [of the Corporation Commission’s order] to post a $760 million … bond…”
“If they’d let me securitize that bond, I would appeal,” Reynolds quipped.
“[T]he prospect of having to post a nearly billion-dollar bond has a chilling effect on anyone deciding whether to file an appeal,” Combs asserted.
Combs wrote that a “grave concern” to him was “the Attorney General’s abdication of his duties to OG&E’s consumers…” The A.G. has a statutory duty as the chief law officer of the state “to represent and protect the collective interests of all utility consumers of this state in rate-related proceedings before the Corporation Commission.”
Nevertheless, O’Connor “shirked this duty,” Combs charged. He “chose to support securitization in the abstract,” contending it would save OG&E’s consumers money.
The company’s original estimate of its “extreme” and “extraordinary” costs incurred during the 2021 storm were $838 million. But OG&E agreed to reduce the amount of extraordinary costs it would seek to recover by $99 million “in exchange for a concession from large stakeholders that a compromise amount” of $739 million was “just, fair, reasonable, and prudently incurred,” Justice Combs wrote.
If O’Connor had litigated the amount of OG&E’s extraordinary costs, Combs wrote, “he would have likely saved those consumers even more money and, better yet, would have engaged the adversarial process so as to reach a more just result.”
Furthermore, the Attorney General would not have had to post the nine-figure bond that other protestants would, Combs pointed out.
Approval of bonds
prevents challenge
“I find it hard to reconcile that our statutorily mandated pre-approval of the bonds in this matter … serves to foreclose the right of [the protestants] and others in the future to challenge the legitimacy of the bonds or to raise any other valid legal issue,” Justice Rowe wrote.
The securitization statute decrees that the Court’s decision “shall be a judicial determination of the validity of the bonds … and thereafter the bonds so approved … shall be incontestable in any court in this state.”
“That legislation was drafted so no one could ever appeal the Supreme Court’s decision – except the Attorney General, who could appeal at no cost whatsoever,” said Reynolds. “Based on what’s happened, Governor Stitt should’ve appointed me Attorney General, because I’d do a better job.”
“The utility consumers that the Attorney General should be representing have effectively been left without representation,” Justice Combs lamented.
O’Connor’s press secretary, Madelyn Hague, issued the following statement after the court’s decision was announced:
“The Attorney General appreciates the Oklahoma Supreme Court’s decision upholding the constitutionality of ratepayer-backed securitization bonds. These bonds will allow utility customers to pay back Winter Storm Uri costs at much lower rates over a manageable period of time, saving customers millions of dollars compared to utility financing.
“The Attorney General has advocated throughout the regulatory process to minimize interest rates paid by customers and prevent utilities from profiting from the Winter Storm Uri. Further, the Attorney General continues to urge utility companies, regulators, and others to take the necessary steps to make sure similar events do not impose such significant costs on customers again in the future.”
At least three other ODFA securitization bond proposals are still pending before the Supreme Court, but the characteristics and issues are virtually identical to those posed in the OG&E case. Also still pending before the Court is Reynolds’ challenge of the constitutionality of the February 2021 Regulated Utility Consumer Protection Act.
Supreme Court Justice Dana Kuehn recused herself from the OG&E case and Reynolds’ lawsuit. Although she provided no explanation, financial disclosure records filed with the Oklahoma Ethics Commission show Justice Kuehn has an ownership interest in U.S. Payments, a Tulsa firm that is contracted by OG&E in its paperless payment program.