OKLAHOMA CITY – The state Supreme Court has given its blessing to $2.27 billion in ratepayer-backed bonds to pay off abnormal energy expenses three public utility companies incurred during the winter storm of February 2021.
That included $725 million for Public Service Co. of Oklahoma, $95 million for Summit Utilities (formerly CenterPoint), and $1.45 billion for Oklahoma Natural Gas Co. All three companies have customers in southwest Oklahoma.
The Supreme Court previously approved up to $800 million in ratepayer-backed bonds for Oklahoma Gas & Electric Co.
The characteristics of all four “securitization” bond issues are nearly identical.
The state’s high court has ruled that the bonds are constitutional. Since the Court previously approved bonds that financed the acquisition or construction of “traditional, self-liquidating” projects, stare decisis “demands” approval of the PSO, ONG and Summit bonds, as well as the OG&E bonds.
[Stare decisis is a Latin term that means “to stand by things decided.” It’s a principle that a court should follow precedent established by previously decided cases with similar facts and issues, in order to provide certainty and consistency in the administration of justice.]
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.
“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 wrote.
“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.”
Last year the Legislature authorized “securitization” that enables public utilities to transfer their storm debts off the company’s books through the sale of bonds issued by the Oklahoma Development Finance Authority. Proceeds from the bond sales will compensate the utilities for expenses they incurred between Feb. 7 and 21, 2021.
The securitization legislation stipulated that the ODFA was first required to secure approval from the Oklahoma Supreme Court before the bonds can be sold.
The ratepayer-backed bonds will be repaid with “a secure revenue source:” through a fee added to each customer’s monthly utility bill.
In turn, the utility companies will – 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 will recover their investment via the proceeds from the surcharge that’s added to the utility company’s monthly bills and remitted to the trustee bank.
“The money to directly pay the bonds is reliable, predictable fees from ‘outside’ sources – rather than from one state entity to another,” the Court wrote.
The 2021 legislation “specifically provides” that the securitization bonds “shall not at any time be deemed to constitute a debt of the State,” 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.
The Justices emphasized that using securitization bonds to recover the costs of the 2021 winter storm was “a legislative fiscal policy decision.” The Supreme Court “is not to question” whether that decision was “wise or unwise, whether it is based on sound economic theory or whether it is the best means to achieve the desired result,” the Justices wrote. “[T]his Court may not – based on its perception of how the State should conduct its business dealings – direct legislative decision-making.”
Public utilities
borrowed millions
during 2021 storm
Utility companies borrowed millions of dollars to buy natural gas and/or supplemental electricity to provide their customers with power and heat during the bitter February 2021 cold snap.
After conducting hearings and gathering information, the regulatory Corporation Commission and the utilities reached mutual agreements on storm-related expenses that were deemed to be “reasonable” and “prudent.”
Under the terms of the agreements, each of those four utilities will charge its customers a specific amount each month for a specific number of years.
“Most Oklahomans could not afford a one-time, cost recovery payment imposed by the utilities or a monthly payment under the utilities’ traditional financing method,” the Supreme Court Justices wrote. The state Legislature “provided a new mechanism to spread the fuel cost recovery over a longer period at a lower interest rate to minimize the financial impact on utility customers.”
Up to $725M in bonds
to be sold to pay off
PSO’s 2021 storm bills
Public Service Co.’s “extreme” expenses incurred during the February 2021 cold snap were for purchases of natural gas for its power generating plants and supplemental electricity.
The utility’s bill for purchases of natural gas and supplemental electricity during that two-week storm was calculated at $675.2 million. In comparison, the company’s fuel bill for all of 2020 was $520 million, Region Communications Manager Wayne Greene said.
A PSO residential customer who typically uses 1,100 kilowatt-hours of electricity each month will pay an extra $4.06 per month for the next 20 years to retire the debt. Without securitization, the customer would receive a one-time bill for $476.53, or pay $39.73 extra each month for a year, or pay an extra $6.45 per month for 20 years if PSO financed the debt itself, officials reported.
“We appreciate the ruling” by the Oklahoma Supreme Court “and look forward to continuing the process in the interests of our customers,” PSO executives said.
PSO has more than 565,600 customers in 232 cities and towns in eastern and southwestern Oklahoma.
The utility serves more than three dozen communities in southwest Oklahoma, including Lawton, Altus, Duncan, Cache, Elgin, Fletcher, Porter Hill, Sterling, Temple, Hobart, Apache, Temple, Rush Springs, Carnegie, Cement, Cyril, Davidson, Duke, Elmer, Fort Cobb, Frederick, Gotebo, Gould, Grandfield, Granite, Headrick, Hollis, Lone Wolf, Manitou, Martha, Mountain Park, Mountain View, Roosevelt, Snyder, Terral, Tipton and Waurika.
Summit/CenterPoint
storm bill: $87.67M
CenterPoint (later acquired by Summit Utilities) calculated its winter storm expenses at $75.67 million for “extreme” purchase costs and $411,781 in “extraordinary” costs. Carrying costs and upfront securitization costs boosted the total to $87,678,000.
CenterPoint’s gas bill for the two-week period of February 7-21, 2021, was $79 million, “more than three times the company’s cost of gas in all of 2020,” the Corporation Commission was told by Brett Jerasa, assistant treasurer of CenterPoint Energy Services Corp.
The typical CenterPoint/Summit natural-gas customer will be charged an extra $4.36 each month for the next 15 years to pay off the securitization bonds.
Without securitization, CenterPoint/Summit residential customers would receive a one-time bill of $538, pay an estimated $44.61 extra each month for 12 months, or be charged $6.37 monthly for 15 years if the company carried the debt itself, the Corporation Commission was told.
CenterPoint/Summit customers who were enrolled in the company’s fixed-price billing plan, and low-income customers who receive financial assistance with their heating bills, won’t have to pay the additional fee.
The Oklahoma Corporation Commission approved the sale of Houston-based CenterPoint’s assets in Oklahoma, Arkansas and Texarkana, Texas, to Summit Utilities, a Colorado-based subsidiary of Southern Col Midco, on Nov. 16, 2021. The sale closed on Jan. 10, 2022, the Arkansas Public Service Commission announced.
The obligation to recover the costs from the winter storm was transferred to Summit as part of the sale and was included as a part of the $2.15 billion purchase price, Lizzy Reinholt, vice president of Sustainability & Corporate Affairs for Summit Utilities, told Southwest Ledger.
CenterPoint served almost 100,000 residential, commercial, industrial and transportation customers in western and southeastern Oklahoma as of Dec. 31, 2020.
More than 90 communities in Oklahoma are supplied with natural gas by Summit. Cities and towns in southwest Oklahoma that are served by Summit Utilities include Altus, Apache, Blair, Burns Flat, Chickasha, Comanche, Duncan, Elgin, Fletcher, Lawton, Mangum, Marlow, Olustee, Sterling and Temple.
ONG: $1.4B energy bill
After a “thorough review of the entire record” the Corporation Commission ruled on Jan. 25 that ONG should be allowed to recover $1,338,906,447 through securitization. That amount included:
Ÿ “extreme” purchase costs of $1,284,101,405.
Ÿ “extraordinary” costs of $33,429,793; and
Ÿ carrying costs estimated at $21,375,249.
The securitization legislation enacted last year defined “extreme” and “extraordinary” expenses.
“Extreme” purchase costs means “expenses incurred for the purchase of fuel, purchased power, natural gas commodity or any combination thereof, whether at spot pricing, index pricing or otherwise, with delivery beginning February 7, 2021, and ending February 21, 2021.
“Extraordinary” costs are those a regulated utility incurred that were related to the February 2021 winter storm. Such expenses include, but are not limited to, “fuel-related storage and associated costs, emergency compressed or liquified natural gas supplies, contracts for services providing additional pressurization on lines, and transportation pipeline penalties.”
The “typical” ONG residential customer will pay an extra $7.82 per month for the next 25 years to retire the $1.45 billion securitization bonds debt, Commission Chair Dana Murphy said.
ONG has approximately 905,000 residential, commercial and industrial customers. The utility provides natural gas to more than four dozen cities and towns in 10 southwest Oklahoma counties.
They include Fort Sill, Elgin and Fletcher; Frederick, Grandfield, Davidson, Manitou, Tipton and Walters; Anadarko, Apache, Carnegie, Cement, Cyril and Fort Cobb; Duncan, Comanche, Marlow and Rush Springs; Duke and Eldorado; Gould and Hollis; Gotebo, Hobart, Lone Wolf, Snyder, Mountain Park and Mountain View; Waurika, Hastings, Ryan and Terral.
OG&E bill $739M
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.”
The ODFA received permission from the Supreme Court to issue up to $800 million in ratepayer-backed bonds to pay that bill.
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.