On April 23, 2021, the February 2021 Regulated Utility Consumer Protection Act (SB 1050) was signed into law in Oklahoma, allowing utilities operating within the state to file with the Oklahoma Corp. Commission (OCC) for securitization of the incremental costs associated with the 2021 winter weather event. If approved by the commission, utilities will be permitted to securitize extraordinary costs associated with the deep freeze. Similar legislation is currently pending in Texas and Missouri and has already been passed in Kansas and Arkansas. Securitization is a financing tool that creates a property right to revenues collected by a regulated utility from customers pursuant to an irrevocable and non-bypassable mechanism or charge.
In February 2021, OGE Energy Corp. (BBB+/Negative/A-2), ONE Gas Inc. (BBB+/Negative/A-2), and Atmos Energy Corp. (A-/Negative/A-2) experienced total incremental costs of about $800 million to $1 billion, $2.2 billion, and $2.5 billion, respectively. In general, we view the ability to implement a securitization mechanism to finance extraordinary costs incurred by utilities as favorable for credit quality due to features of the mechanism that support off balance sheet debt treatment. Next steps under such frameworks typically require a financing order issued by regulators. We will continue to monitor and assess developments related to securitization efforts underway in these states stemming from the February winter event.
Securitization bills have been passed or are currently pending in five states affected by the deep freeze (see table).
Table 1
| Recent Legislation | ||
|---|---|---|
| State | Bill | Status |
| Oklahoma | SB 1050 | Passed (April 23, 2021) |
| Kansas | HB 2072 | Passed (April 9, 2021) |
| Arkansas | SB 588 | Passed (April 13, 2021) |
| Texas | HB 1520 | Pending |
| Missouri | SB 202 | Pending |
Related Research
- Research Update: Atmos Energy Corp. Ratings Affirmed, Outlook Negative On Uncertain Recovery, March 11, 2021
- Research Update: OGE Energy Corp. And Sub. OG&E Outlooks Revised To Negative On Unprecedented Winter Related Costs; Ratings Affirmed, March 3, 2021
- Research Update: ONE Gas Inc. Downgraded To 'BBB+' From 'A' On Unprecedented Weather Conditions; Outlook Negative, Feb. 23, 2021
This report does not constitute a rating action.
| Primary Credit Analyst: | Kevin M Sheridan, New York + 1 (212) 438 3022; kevin.sheridan@spglobal.com |
| Secondary Contact: | Obioma Ugboaja, New York + 1 (212) 438 7406; obioma.ugboaja@spglobal.com |
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