First Oklahoma securitized utility debt validated by court

The first of four Oklahoma securitization deals related to 2021's Winter Storm Uri could hit the market as early as this summer after winning State Supreme Court approval.

The high court on Tuesday validated about $800 million of ratepayer-backed bonds to finance the recovery of fuel costs incurred by Oklahoma Gas and Electric Company (OG&E) during the February 2021 storm. 

Michael Davis, president and CEO of the Oklahoma Development Finance Authority, the conduit issuer for the bonds, said on Thursday other steps remain before the deal can be priced, including the “highly unlikely” possibility of a petition for rehearing being filed within 20 days of the court’s ruling and a review of legal documents by the state attorney general.

“We may be able to run some processes concurrently,” he said. “I’ve seen estimates we could be in the market as early as June, possibly July.”

The taxable bonds were made possible by legislation passed in Oklahoma last year that created a securitization framework to address billions of dollars in increased energy costs incurred by utilities during the storm and ease the impact on ratepayers by spreading payments over a longer time period.

Bloomberg News

RBC Capital Markets is the deal’s lead manager, Wells Fargo is co-senior manager, and co-managers are BOK Financial Securities, Morgan Stanley, and BofA Securities.

Three other deals are awaiting validation by the state supreme court — about $1.35 billion of bonds for Oklahoma Natural Gas, $688 million of bonds for Public Service Company of Oklahoma, and $75.7 million of bonds  for Summit Utilities Oklahoma, which took over CenterPoint Energy. 

“The questions that were raised in (the OE&G) case were the same for the other three,” Davis said. “I would hope the court would dispense with the other three in a similar fashion. But that’s up to them.”

The OE&G case had 15 individual opponents, including a former state lawmaker, questioning if the bonds were properly authorized under state law and whether the bonds are constitutional. 

“We answer both in the affirmative,” the high court said in its initial opinion. “The authorization of the ratepayer-backed bonds properly followed the act, and the bonds are self-liquidating and therefore constitutional.”

Under state law, the securitizations are limited to Uri-related fuel costs for utilities that fall under the Oklahoma Corporation Commission’s oversight.

Oklahoma is not the only state to turn to securitizations in the wake of the 2021 storm. The Texas Natural Gas Securitization Finance Corporation could pick underwriters for a $3.4 billion bond issue at its meeting on Friday.