Oklahoma regulators, in separate orders issued Feb. 10, allowed two utilities to gradually recover hundreds of millions of dollars in extraordinary electric fuel and gas commodity costs incurred during the February 2021 winter freeze, saying the typical window for fuel cost recovery would have overwhelmed customers.
The Oklahoma Corporation Commission voted to allow American Electric Power Co. Inc. subsidiary Public Service Co. of Oklahoma to recover $675 million in commission-audited fuel costs over a 20-year period, resulting in a monthly charge of $4.06 for the average residential electric customer (Cause No. PUD 202100076).
In a separate decision, CenterPoint Energy Inc. subsidiary CenterPoint Energy Resources Corp. was allowed to recover $87.7 million over a 15-year period for natural gas used in heating, equal to a monthly charge of $4.36 for the average residential gas customer (Cause No. PUD 202100087). Summit Utilities Inc. closed its acquisition of CenterPoint's Oklahoma and Arkansas gas utility operations in January.
The commission previously allowed an extended cost recovery for two other Oklahoma utilities. On Jan. 25, the commission allowed ONE Gas Inc. subsidiary Oklahoma Natural Gas Co. to recover about $1.4 billion over 25 years for natural gas used in heating. The average monthly cost to customers will be about $7.82 (Cause No. PUC 202100079).
The commission on Dec. 16, 2021, issued a similar order for OGE Energy Corp. subsidiary Oklahoma Gas and Electric Co., allowing that utility to recover $749 million over 28 years, leading to an average monthly cost of $2.12 (Cause No. PUD 202100072).
Texas has drawn the most attention in the aftermath of the 2021 winter storm because millions of electricity customers lost power for days, but utilities throughout the Plains faced soaring spot electricity and natural gas costs as they tried to serve their customers. Oklahoma and Kansas both were impacted by the weather as well, but because their utilities are within the Southwest Power Pool Inc. market, customers did not generally experience the service disruptions.
Gas customers in Texas did not get through the storm unscathed. The Railroad Commission of Texas on Feb. 8 approved a financing order allowing several natural gas utilities, including Atmos Energy Corp., CenterPoint and ONE Gas subsidiary Texas Gas Service Co. Inc. to recover nearly $3.4 billion in extraordinary natural gas costs over 30 years.
Securitization allows for extended recovery period
Mechanisms are in place across the U.S. that allow utilities to adjust rates on a timely basis to reflect changes in electric fuel, purchased power and/or gas commodity cost, with under-recoveries generally recouped within a year. For Public Service of Oklahoma customers, commission Chairman Dana Murphy said in a Feb. 10 news release, to pass through the $675 million in fuel costs "as is normally done" would have led to a monthly charge of $476 for the average customer.
Following the February 2021 storm, legislators in Oklahoma and Kansas allowed utilities to securitize storm costs.
As explained by Regulatory Research Associates, a group within S&P Global Market Intelligence, securitization refers to the issuance of bonds backed by a specific existing revenue stream that has been "guaranteed" by regulators and/or state legislators.
Securitization generally requires a utility to assign the designated revenue stream to a "bankruptcy remote" special purpose entity or trust, which in turn issues bonds that will be serviced by the transferred revenue stream. Amounts securitized generally include issuance costs, and the funds raised by the bond issuance flow immediately to the utility, net of issuance costs. In many cases, the proceeds are used to retire outstanding higher-cost debt and/or buy back common equity, thus lowering the company's weighted average cost of capital.
The revenue stream to repay the bonds is included within customer bills as a separate, non-bypassable surcharge that is subject to true-up. Amounts collected by the company through the surcharge are remitted to the special purpose entity, which then disburses the payments to the investors.
"While the legislature's development and approval of the securitization law after the winter storm lessens the blow for customers, there is no getting around the fact that bills are going to increase," Oklahoma Corporation Commissioner Todd Hiett said in a news release accompanying the CenterPoint decision. "It is important to remember that these costs were incurred to keep life and property intact during a terrible winter storm. However, at the same time we must continue the effort to explore ways to lessen the chances that this could happen again."
Commissioner Bob Anthony dissented from the Public Service of Oklahoma order, questioning whether the order complies with the state constitution. His signature was not on the CenterPoint order, and he dissented from the earlier Oklahoma Natural Gas and OG&E orders.