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 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.