Oklahoma utility taps reserve for debt service payment

Bloomberg News

Another Oklahoma utility tapped a reserve fund to help make a debt service payment for bonds sold in 2022 to finance extraordinary costs incurred during 2021's Winter Storm Uri. 

Summit Utilities Oklahoma, which sold $81.565 million of taxable ratepayer-backed bonds through the Oklahoma Development Finance Authority, disclosed last week that $359,107 from the deal's debt service reserve subaccount was used for a $4.122 million principal and interest payment due Oct. 1, as well as for $231,989 in ongoing financing costs, according to a notice posted on the Municipal Securities Rulemaking Board's EMMA website.

Taxable ratepayer-backed bonds totaling nearly $2.9 billion were sold by the authority in 2022 for Summit and three other companies under a state law allowing Oklahoma Corporation Commission-regulated utilities to collect an irrevocable charge from customers and use the revenue to pay off the debt. A true-up mechanism to ensure sufficient collections from customers was included in the triple-A-rated bond issues, which were validated by the Oklahoma Supreme Court. 

The impairment on Summit Utilities' bonds was flagged by Municipal Market Analytics in its Default Trends report on Wednesday.

"The servicer expects to enact and collect a true-up service charge prior to the next payment to ensure sufficient funds are available in the subaccount," the report said. "How this impairment progresses is an important evolution for the power-cost-restructuring segment as the likelihood of more severe storms and similar, more related utility losses, and more deficit refinancings are extremely likely going forward." 

Summit Utilities applied to the OCC for an adjustment In its winter event securitized cost recovery mechanism charge, according to a Wednesday disclosure filing.

In a statement, the utility said a portion of the debt service reserve fund was used after determining the charge was set too low during the last collection period.

"The reserve fund is designed for this purpose," it said. "A routine adjustment taking effect Nov. 1, 2025, will reset the WESCRM charge at a rate sufficient to restore the reserve back to target levels by April 2026." 

In May 2023, Oklahoma Natural Gas Company, which sold $1.35 billion of bonds through the authority, also fell short for debt service and financing cost payments and used $1.147 million from a reserve fund. The company said it adjusted the surcharge and replenished the debt service reserve fund before the Nov. 1, 2023, payment was due.

Meanwhile, a case seeking to void nearly $700 million of ratepayer-backed bonds sold for Public Service Company of Oklahoma is pending before the state Supreme Court. Republican State Rep. Tom Gann filed an appeal with the high court in August claiming 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.

A response filed by the Oklahoma Attorney General's Office on Tuesday contended Gann lacks standing to bring the appeal and that the state Supreme Court's prior validation of the bonds renders them "incontestable."

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

Utility companies incurred huge costs after the fierce winter storm that hit the Southwest in February 2021 led to a spike in the natural gas spot market. The costs from the storm will be borne by their customers, but the securitizations spread that cost out over time.