Oklahoma Supreme Court asked to invalidate utility ratepayer-backed bonds

Oklahoma Legislature

An Oklahoma lawmaker asked the state supreme court on Thursday to invalidate nearly $700 million of bonds issued in 2022 on behalf of a utility company, citing inadequate audits by the Oklahoma Corporation Commission (OCC).

Republican State Rep. Tom Gann's appeal filing targets $696.9 million of taxable ratepayer-backed bonds that were sold through the Oklahoma Development Finance Authority for Public Service Company of Oklahoma as part of a series of securitizations enabling utilities to recover huge costs they incurred during 2021's Winter Storm Uri.

Gann's court filing claims the company's storm-related costs, which were securitized with the bonds, were never audited by the OCC, which also failed to provide a required audit of the bonds in the company's most recent rate case. As a result, OCC's order authorizing the bond financing is void, it added.

"When Oklahoma law requires an audit, the Accountancy Act says it has to be done by independent, licensed (certified public accountants) following nationally recognized standards," Gann said in a statement. "Unbelievably, the OCC allowed the utilities to audit themselves after the winter storm. And OCC employees who are not CPAs have performed fake audits of the bonds ever since."

A spokesperson for the OCC, which maintains a webpage dedicated to securitization reports, said the matter was fully litigated, the issue is closed, and the time to appeal is long expired.

The Oklahoma Supreme Court validated four bond issues totaling nearly $2.9 billion that were sold through the development finance authority for utility companies ahead of their 2022 pricings.

In a statement, Public Service Company of Oklahoma said its priority is to ensure "safe and reliable service while following the guidance and approval processes set by" the OCC. 

"We respect the role and authority of the OCC and Oklahoma Supreme Court and will continue to adhere to all rules and regulations," the statement said.

Audit concerns raised by long-time OCC Commissioner Bob Anthony were largely shut down by the remaining two commissioners. Anthony, who was also a critic of the securitizations, left office in January when his term ended.

Gann, who is a customer of Public Service Company, is seeking refunds of about $140 million in debt service payments made with winter storm recovery cost charges on customers' bills, as well as money generated from rate increases the OCC approved for the utility in November 2023 and January 2025.  The bond issue carries final maturities in 2033 and 2044. 

The bonds were rated triple A by Fitch Ratings and S&P Global Ratings based on an "irrevocable" ability to collect the charges from the utility's Oklahoma electricity customers, as well as a "true-up" mechanism to ensure collections cover debt service. 

An Oklahoma law enacted in the wake of the February 2021 ice and snow storm 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.