OKLAHOMA CITY — A former state lawmaker contends that ratepayer-backed bonds which would be issued to pay for the extraordinary costs utility companies incurred during the winter storm last year are “unconscionable” if not unconstitutional.
Mike Reynolds filed a protest to the Oklahoma Development Finance Authority’s application for approval of up to $800 million in bonds that would be sold to pay $739 million in unusual costs Oklahoma Gas & Electric Co. paid to procure fuel to power its generating plants during the February 2021 winter storm.
The state Supreme Court has scheduled oral presentations in the case for 10:30 a.m. Jan. 26 in the Judicial Center near the State Capitol in Oklahoma City.
While serving in the Oklahoma House of Representatives, Reynolds, R-Oklahoma City, often grilled his colleagues – Republicans and Democrats alike – about the actual and potential pitfalls of their legislation.
His protest is significant because it challenges the very essence of ratepayer-backed bonds that are proposed by several public utilities, including Public Service Co. of Oklahoma and CenterPoint/Summit, to recover their abnormal storm expenses.
The exceptionally high bills incurred by OG&E, PSO, Oklahoma Natural Gas Co., Western Farmers Electric Co., the Grand River Dam Authority and the Oklahoma Municipal Power Authority may cost Oklahomans more than $3 billion “over the decades to come,” the American Association of Retired Persons (AARP) testified in PSO’s request to “securitize” its winter storm expenses.
A tentative settlement agreement would “securitize,” via bonds, PSO’s winter storm costs of approximately $688 million; that bill, arising from approximately two weeks last February, would be retired over a 20-year period. Those expenses included natural gas expenses and electricity purchases from other entities, the utility’s parent, AEP, reported in a filing with the U.S. Securities and Exchange Commission.
PSO has more than 565,600 customers in 232 cities and towns in eastern and southwestern Oklahoma; approximately 85% of those are residential customers. The utility serves at least 37 communities in Southwest Oklahoma, including Lawton, Altus, Duncan, Cache, Elgin, Fletcher, Porter Hill, Sterling, Hobart, Apache, Cyril, Temple and Rush Springs.
CenterPoint asked the Corporation Commission for permission to securitize an estimated $87.67 million in expenses from last February’s winter storm that were attributed to “extraordinary increases in the price of natural gas”. The bill would be retired over a 15-year period “or shorter if deemed necessary to obtain the most favorable … terms for customers.”
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.
The Corporation Commission on Nov. 16, 2021, approved the sale of CenterPoint’s assets in Oklahoma, Arkansas and Texarkana, TX, to Summit Utilities, a subsidiary of Southern Col Midco. The sale closed on Jan. 10, 2022, the Arkansas Public Service Commission announced.
Winter ’21 storm bonds an attempt to sidestep Oklahoma Constitution
Reynolds contends the bonds are legally unconstitutional and morally “unconscionable.”
The Corporation Commission proposes “ironclad ratepayer-backed bonds whose future financing is carved in stone and absolutely guaranteed” in order to secure favorable financing terms – “(i.e., a ‘AAA’ rating)” – from the bond markets.
Claiming the bonds are not “an indebtedness of the state” is intended to circumvent the Oklahoma Constitution’s provisions pertaining to a balanced state budget and bonded indebtedness – “which would require, among other things, a vote of the people and collection of a direct annual tax to pay, and sufficient to pay, the interest on that debt as it falls due.”
The storm debt recovery bonds are “unquestionably debts contracted by … this state,” Reynolds asserted. They are “being authorized by statute, transacted by and through a state agency (the ODFA) and backed by revenues collected via a legislative order of yet another state agency (the Corporation Commission).”
Further, “to attempt to categorize the winter storm bonds as “unenforceable …‘moral obligation bonds’ instead of … an unconstitutional pledge of ‘future revenue’ or a binding commitment on future legislatures”… is to “ignore the financing order’s repeated attempt to prevent any future scrutiny or modification of its terms.”
For example, the financing order declared that it is “final … and is not subject to review or appeal” …; all other obligations of the State of Oklahoma and the Commission set forth in this Order, are direct, explicit, irrevocable and unconditional upon issuance of the bonds and are legally enforceable against the State and the Commission in accordance with Oklahoma law.”
Customers will pay several million $$$ in interest charges
In a 48-page financing order dated Dec. 16, 2021, and approved on a 2-1 vote, the Oklahoma Corporation Commission declared that OG&E’S $739 million in 2021 winter storm costs were “reasonable and prudently incurred.”
That determination was “absurd,” Reynolds charged. The commission issued the order without conducting an evidentiary hearing “or even the results” of Attorney General John O’Connor’s “promised investigation into potential price-gouging and market manipulation” or the “unfair allocation” of the majority of those extraordinary costs to residential ratepayers “who will soon be voting either to re-elect or replace the A.G…”