OKLAHOMA CITY – State utility regulators experienced a setback at the hands of the State Supreme Court in a fight with Oklahoma City over the suspended collection of franchise fees as part of the 2021 Winter Storm Uri fees.
And now it raises major questions about the collection of those fees, which were part of the bonds used to spread costs from the February 2021 storm over periods ranging from 20 to 28 years.
The Court ruled recently that not only must the Corporation Commission give standing to the Oklahoma Municipal League in the legal battle, but it also must reverse its decision to allow utilities not to collect city franchise fees. And in ruling against the regulators, the high court said they didn’t have the power to put the collection of the fees on hold. They ordered the commissioners to take back the case and, in essence, correct things.
It was a victory for Oklahoma City, which challenged the 2-1 decision by the commission in 2022. A spokeswoman for the city said officials had no comment because it is considered “pending litigation.”
The case also proved to be just what Commissioner Bob Anthony predicted when he voted against the move two years ago: “problematic.” Anthony issued a statement in response to the ruling.
“It is noteworthy that when the Oklahoma Supreme Court was not legislatively limited in its judicial review of this OCC order which improperly waived utility company tariffs and violated contract rights in response to the 2021 Winter Storm, the Court found the OCC’s order was ‘not sustained by law and must be reversed.’ We can only imagine what the Court might have done to the OCC’s multibillion-dollar Winter Storm bond financing orders if it had not been prevented from considering the protests filed in those cases, some of which made substantially the same legal arguments,” Anthony wrote.
“Justice Rowe is right to wonder who will be required to pay that additional $60-$100 million owed to Oklahoma’s towns and cities. Sadly, the OCC’s transparency and track record on these issues has not improved in the years since.”
Commissioner Todd Hiett and then-Commissioner Dana Murphy approved the decision, despite opposition from the OML.
The commission decided after the 2021 winter storm that the extraordinary fuel costs subject to municipal franchise fees and municipal gross receipts taxes at the time of the storm would not be collected by utilities from customers due to application of the February 2021 Regulated Utility Consumer Protection Act.
“We conclude the commission’s determination that the February 2021 Regulated Utility Consumer Protection Act changed, amended, or altered a utility’s legal obligations concerning municipal franchise fees and gross receipts taxes is a determination not sustained by law and must be reversed,” the Justices wrote.
Oklahoma City went to court and challenged the commission order.
In ruling against the OCC, the Supreme Court criticized the regulators for entering the arena of legislative actions.
“The Final Order’s language is primarily legislative and not judicial when combined with the PUD’s [Public Utility Division] request for the commission to legislative a result consistent with the PUD’s perception of fairness for customers by alleviating them from the PUD’s perceived ‘windfall’ for municipalities,” the Court added.
The Justices also said the commission was wrong in taking the stance that utilities had no gross receipts tax and contractual municipal franchise fee liability.
The Corporation Commission “is not empowered to determine whether a utility has a legal tax liability (obligation) or contractual municipal franchise fee liability (obligation) in a particular circumstance,” they wrote.
The ruling also made it clear that the Regulated Utility Consumer Act of 2021 does not give commissioners the authority to determine the legality of a municipal franchise fee or whether such a fee liability is legally unenforceable by a utility rate or tariff.
When Oklahoma City filed suit, it argued the decision was unconstitutional and represented an “invasion of the exclusive right of electors residing in Oklahoma City to negotiate and approve franchise agreements with utilities and to receive franchise fees from utility franchisees.”
Millions of dollars in uncollected franchise fees remain at stake.
Commissioner Anthony was the lone regulator who opposed the order in August of 2022. In his dissenting opinion filed after the vote, Anthony suggested the decision could lead to major problems down the road.
“If a court of competent jurisdiction later determines that franchise fees or other municipal fees or taxes are owed…, then the majority’s order preventing Respondents from billing for such fees and taxes could prove exceptionally problematic. Will past uncollected amounts be recoverable from ratepayers? What if those past amounts fall outside of the test year? Will prohibited retroactive ratemaking be involved? How else will the amounts be recovered?”