The Oklahoma Development Finance Authority authorized the sale of up to $800 million in bonds today to purchase and pay off $748.9 million in OG&E ratepayer debt incurred when natural gas prices spiked in February 2021. Now approaching its final approvals, the effort is set to become the first utility ratepayer debt securitization in state history, with three more proposals — which could bump the total to more than $4 billion — following close behind.
At 10 a.m. Wednesday, the OG&E debt securitization matter will go before the Council of Bond Oversight in Room 511A of the State Capitol. If approved there, ODFA will file a request for validation with the Oklahoma Supreme Court.
If the proposal is validated by the court following a January hearing, ODFA will focus on its primary objective: achieving a AAA bond rating ahead of the massive spring sale.
“We’re trying to achieve a AAA rating that you would typically not receive based on the investor-owned utility market,” Mike Davis, ODFA director, told his board Tuesday. “If OG&E was to go out and do this under traditional methods, their interest costs would be anywhere from 8 to 10 percent.”
Davis said he anticipates the ODFA’s interest rates will be between 1.8 percent and 2.3 percent.
“There are significant savings here,” he said. “That’s meaningful. We kind of focus on consumers, but there are also businesses in there.”
ODFA has contracted with a number of financial firms — such as Hilltop Securities — to navigate the first utility securitization projects in state history. Mike Newman, Hilltop’s regional head of investment banking, reminded the ODFA board that OG&E is incurring costs for ratepayers currently by “carrying” this debt month to month.
“The sooner we get this financing done, the sooner those carrying costs end,” Newman said. “The goal here is not for anyone to profit. It is to pay a bill, pay it as cheaply as possible and to minimize the cost to consumers.”
Those who buy the ODFA bonds, however, will earn profit over a 28-year period, with the average OG&E ratepayer expected to pay an average additional $2.12 per month over that time. But Newman said shifting the debt collection obligation from OG&E to ODFA should take the estimated rating of the bonds from BBB (if OG&E issued them) to AAA (when ODFA issues them).
“Legally and practically, OG&E is going to sell its right to receive that charge to ODFA. ODFA will then pledge the receipt of that (monthly ratepayer) charge to repay the bondholders. So no creditor will have any right to that charge from OG&E,” Newman said. “We’re jumping from BBB to AAA (on bond rating) by eliminating the credit risk of OG&E and separating the right to receive those funds from OG&E. So nobody will have a right to those receipts other than ODFA.”
The ODFA board also approved selecting Bank of Oklahoma to serve as trustee for the utility securitization program.
“Post issuance, the utility remains the servicer. They’re collecting the dollars (on monthly OG&E bills),” Davis said. “They’re shipping the dollars every day to the trustee. The trustee is taking care of those dollars and providing debt service.”
ODFA selected Image Master as its financial printer for the bond issuances. Davis also announced that his agency’s first website has gone live to provide “transparency” about the ODFA and serve as a marketing tool for the sale of the utility securitization bonds.
Background on utility securitization
In March, the Oklahoma Legislature authorized ODFA to orchestrate bond financing for regulated utilities (SB 1050) and unregulated utilities (SB 1049), and OG&E’s plan becomes the first utility securitization effort authorized in the state.
The plan received approval from the Oklahoma Corporation Commission on Thursday, Dec. 16, despite opposition from the American Association of Retired Persons, which expressed frustration over the investor-owned utility’s ability to profit while ratepayers see their bills hiked for nearly three decades.
“It’s unfortunate that 870,000 OG&E customers will be paying for a winter storm bill for 28 years while OG&E profited $224 million last quarter alone,” Sean Voskuhl, AARP Oklahoma director, told NonDoc in a statement Tuesday. “AARP will remain focused on lowering OG&E’s electric rates, especially for older Oklahomans on fixed incomes. We look forward to the Corporation Commission’s full review of their rates in 2022 and granting residential customers and small businesses the relief they need.”
Christi Woodworth, OG&E vice president of corporate communications, sent NonDoc a statement Tuesday afternoon.
“Last week, the Oklahoma Corporation Commission accepted the judge’s recommendation to approve the request of OG&E and other stakeholders to securitize the fuel costs resulting from the February 2021 winter weather event and gradually recover the costs over time and at a more affordable monthly charge,” Woodworth said. “As authorized by a new law passed by the Legislature in April 2021, securitization is designed to protect customers from a dramatic increase in their monthly bill.”
Woodworth noted that customer bills list direct fuel costs.
“OG&E does not, and cannot, profit from fuel purchases. While fuel costs are normally passed through to customers after they are incurred, no OG&E customer has yet received a bill for fuel costs associated with the February event. We support the OCC’s thorough, public process — as a regulated utility we work closely with the OCC on every investment and practice to protect our customers and reliably deliver electric service to them every day,” she said. “By purchasing natural gas to keep power plants online and operating throughout the course of the February 2021 winter weather event, we were able to preserve customer health and safety by keeping the heat and lights on in customer homes and businesses.”
When the Legislature created the securitization program process, then-Attorney General Mike Hunter had said his office was launching an investigation of the natural gas price spikes for potential criminal activity. Hunter resigned in May, but a spokeswoman for new Attorney General John O’Connor told NonDoc on Tuesday that the office is “still actively investigating.”
If state or federal authorities ever reclaim a portion of gas purchases on behalf of OG&E ratepayers, state law and the Corporation Commission order specify that those funds would be used to help pay off the securitized debt purchased from the utility by ODFA.
The same would apply for any other utility securitization deals approved by the OCC and purchased by the ODFA. Davis said Tuesday that Oklahoma Natural Gas, AEP-PSO and CenterPoint Energy all have financing orders pending and that ODFA could hear their proposals in the first quarter of 2022, if they are approved by the Oklahoma Corporation Commission.
ODFA authorizes funds for other projects
The ODFA board also approved other agenda items Tuesday:
- The issuance of $20 million in solid waste disposal revenue bonds to help finance a $23 million solid waste disposal facility in Tulsa for Alden Group Renewable Energy LLC. According to company leadership, the facility will use new technology to capture a secondary stream of waste oil from large food manufacturers and sell it to biodiesel companies;
- A $1.5 million Oklahoma Community Economic Development award for CaptiveAir, a commercial kitchen ventilation system manufacturer with a location in Muskogee that will be expanding to add an additional 80 jobs over the next five years, according to company leadership;
- A $2 million Oklahoma Community Economic Development award for the city of Newcastle to build a new wastewater treatment facility, with a total project cost of $21 million.
The Oklahoma Industrial Finance Authority — which is governed by the same board as ODFA — also approved a $1 million first mortgage loan on a property in Clinton, in conjunction with the Southwest Intermediary Finance Team, a private nonprofit designed to support western and southwestern Oklahoma. The loan is for Great Plains LLC, which operates the Great Plains Kubota dealerships.
Davis concluded the day’s meetings by noting that ODFA and OIFA Chairman Chris Condley’s position is up for reappointment by Gov. Kevin Stitt.
“We have reached out to the governor’s office to indicate that Chairman Condley is interested in serving again and to communicate his institutional knowledge,” Davis said, noting that he and Condley recently visited with Sen. Dewayne Pemberton (R-Muskogee) on the matter.
(Update: This article was updated at 3:38 p.m. Tuesday, Dec. 21, to include comment from Christi Woodward of OG&E.)