Winter storm securitizations continue to stir controversy in Oklahoma

Two years after the sale of nearly $2.9 billion of ratepayer-backed bonds to cover huge costs Oklahoma utilities incurred during a fierce 2021 winter storm, concerns are still being raised about the debt. 

Last week, a battle ensued over audits utility regulator, the Oklahoma Corporation Commission (OCC), is obliged to provide under a law passed in the wake of Winter Storm Uri, which pummeled the state in February 2021 with record-low subzero temperatures, significant snow and ice, and high winds. 

Senate Bill 1050 allowed OCC-regulated utilities to collect an irrevocable winter event securitization charge and use the revenue to pay off bonds to finance extraordinary costs caused by a spike in the natural gas spot market price. 

Bob Anthony, one of OCC's three commissioners and a critic of the securitizations sold through the Oklahoma Development Finance Authority, said the commission has lost credibility and "willfully neglected to provide audits of winter storm fuel and bond costs in accordance with the law."

Oklahoma Corporation Commission

"In my opinion, fundamental aspects of public utility regulation at this agency are beyond broken," he said at the July 23 commission meeting after his request to hear from accounting expert David Greenwell on the inadequacy of the audits produced by OCC staff was blocked.

The brief audits of two of the four securitizations listed the par amount of bonds, outstanding principal, annual interest rate, interest payments, and revenue collected from the winter event charge paid by utility customers. OCC also has a webpage dedicated to securitization reports. 

"To describe as 'audits' these one-page summaries of costs prepared by the OCC Public Utility Division and sent by the OCC chairman to the governor and legislative leaders is misleading to the recipient officials, the ratepayers of these utilities, the public, and others who might rely upon these documents," Greenwell wrote in an opinion requested by Anthony. "The costs reported were not audited by an independent (certified public accountant) or the state auditor in a manner compliant with the Oklahoma Accountancy Act."

He suggested OCC examine its compliance with the state's accountancy act regarding the securitizations and "more broadly — so that the agency's internal auditing, review and examination processes and procedures might be brought in line with state statutes and governmental auditing standards in name and in practice."

OCC Chair Todd Hiett said hearing from Greenwell would be inappropriate as it would violate commission rules. He also accused Anthony of engaging in "a pattern of deception." 

"When (Anthony) had opportunity to participate within the rate case, he waits until the record is closed, at which time he can no longer legally have any impact on the case and he cries foul," Hiett said. "Why does he do that? He does that to trick the public into believing that he's on their side."

OCC Vice Chair Kim David noted Greenwell's opinion was filed in a rate case in which the deadlines for public comment and evidence expired. 

"If you're wanting just a presentation, then I suggest that we repost this and truly have the honest discussion as presentation, where it's not entangled with all of the cases," she said. 

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Anthony, OCC's longest-serving commissioner whose term ends in January, previously called for an independent assessment of the first securitization, which priced July 8, 2022, for the Oklahoma Gas and Electric Company, saying it resulted in a monthly residential customer rate 57% higher than the rate expected when the commission approved the financing in a 2-1 vote in December 2021.

OCC reported earlier this year that a delay in issuing the bonds led to higher interest rates for the debt as the Federal Reserve hiked rates by 75 basis points. An unsuccessful challenge of the debt's validity before the Oklahoma Supreme Court that questioned its constitutionality and if it was properly authorized under state law caused the delay. 

The effective annual weighted average interest rate for the four triple-A-rated deals, which carry final maturity dates for their various series from 2033 to 2052, ranged from 4.523% to 5.269%.

"(The public utility division) has provided data showing that even with the lawful protests and increased interest rates, the interest for the bonds at issuance still came in well below the commission's ordered cap of 6%," a June 28 OCC press release stated.

OCC's report also indicated the $40 million in issuance costs, including underwriter and bond counsel fees, came in $1.4 million below estimates.

Anthony last year questioned payments made to the deals' participants, claiming OCC's final financing orders constituted a blank check for issuance costs. In February, he flagged a redeposit of a $250,000 payment made to underwriter RBC Capital Markets — the same amount he cited in a September OCC filing as an overpayment to underwriters in the Public Service Company of Oklahoma securitization.

The return of $250,000 by RBC, which co-headed the deal, resulted from the difference between the assumed cost and actual cost of services provided by Paul Weiss, RBC's underwriter counsel, according to the Oklahoma Treasurer's Office.

Taxable bonds were sold in four deals in 2022, with RBC, along with Wells Fargo Securities heading up a $761.6 million issue for Oklahoma Gas and Electric Company. RBC and Citigroup were lead managers in a nearly $697 million deal for Public Service Company of Oklahoma. JPMorgan and Goldman Sachs led a $1.35 billion deal for Oklahoma Natural Gas Company and Citigroup was the senior underwriter for $81.56 million of bonds for Summit Utilities Oklahoma. Hilltop Securities served as the municipal advisor for all four issuances. 

Other events have taken place since the pricings.

Oklahoma Natural Gas Company fell short of a $68.27 million, May 1, 2023, debt service payment and tapped a debt service reserve fund for nearly $1.148 million to make the payment, as well as to cover about $507,000 in ongoing financing costs that were due, according to a notice posted on the Municipal Securities Rulemaking Board's disclosure website.

The company adjusted the surcharge and replenished the debt service reserve fund before the Nov. 1, 2023, payment was due, according to spokesman Chad Previch.

He added, the rate charged residential customers under the securitization has decreased by more than 25% largely due to new customers added to the system. 

Michael Davis, the Oklahoma Development Finance Authority's president and CEO, said there have been no further debt service-related issues among the four deals.

Oklahoma Attorney General Gentner Drummond's office subpoenaed OCC in November to produce all internal and external communications between Feb. 1, 2021, to March 31, 2022, related to Winter Storm Uri.

The subpoena, which specifically cited the securitizations, was part of a probe Drummond announced in July 2023, targeting potential market manipulation and other unlawful conduct related to the 2021 storm.

The document demand covered communications of OCC commissioners, their staff, and commission employees who were directly or indirectly involved with storm cost recovery.

A spokesman for Drummond's office did not respond to questions about the status of the probe.