Evergy Mo. W. Inc. v. Office of Pub. Counsel

676 S.W.3d 438

In the MATTER OF the Application of EVERGY MISSOURI WEST INC. d/b/a Evergy Missouri West for a Financing Order Authorizing the Financing of Extraordinary Storm Costs Through an Issuance of Securitized Utility Tariff Bonds, Missouri Public Service Commission, Respondent;

Evergy Missouri West Inc., Respondent,

v.Office of Public Counsel, Appellant.

WD 85958

Missouri Court of Appeals, Western District.

OPINION FILED: September 26, 2023 Motion for Rehearing and/or Transfer to Supreme Court Denied October 24, 2023

Jennifer Leigh Heintz, Jefferson City, MO and Roger William Steiner, Kansas City, MO for respondents.

Lindsay Marie Vangerpen, Jefferson City, MO for appellant.

Before Division Four: Gary D. Witt, Chief Judge, Presiding, Cynthia L. Martin, Judge, and Chad Gaddie, Special Judge

Cynthia L. Martin, Judge

The Office of the Public Counsel ("OPC") appeals from an Amended Report and Order issued by the Public Service Commission of the State of Missouri ("PSC") on November 17, 2022, which granted Evergy Missouri West, Inc. d/b/a Evergy Missouri West ("Evergy West") the authority pursuant to section 393.1700¹ to issue securitized utility tariff bonds to recover extraordinary costs associated with a winter storm. OPC argues that the PSC's calculation of qualified extraordinary costs that could be securitized is unreasonable because: (i) the extraordinary costs should have been offset by a tax deduction Evergy West received; (ii) carrying costs should have been calculated using a short-term debt rate instead of a long-term debt rate; and (iii) the wrong discount rate was used to analyze the net present value of recovery through securitization. OPC also complains that the PSC's Amended Report and Order is unlawful because it failed to sufficiently describe a statutorily required reconciliation process.

Finding no error, we affirm.

Factual and Procedural Background²

The Securitization Law

In 2021, the Missouri General Assembly enacted section 393.1700 (the "Securitization Law"), effective August 28, 2021. The Securitization Law is a complex, technical, and lengthy statute that contemplates a sophisticated financial transaction. The Securitization Law permits electrical corporations to petition the PSC for permission to recover unusual costs, known as "securitized utility tariff costs," through the issuance of securitized bonds if approved in a PSC-issued financing order. "Securitized utility tariff costs" are defined by section 393.1700.1(17) as "either energy transition costs³ or qualified extraordinary costs as the case may be." This case involves use of the Securitization Law to recover "qualified extraordinary costs."

Section 393.1700.1(13) defines "qualified extraordinary costs" as:

costs incurred prudently before, on, or after August 28, 2021, of an extraordinary nature which would cause extreme customer rate impacts if reflected in retail customer rates recovered through customary ratemaking, such as but not limited to those related to purchases of fuel or power, inclusive of carrying charges, during anomalous weather events.

To permit recovery of qualified extraordinary costs through the issuance of securitized bonds, the PSC must issue a financing order. Section 393.1700.1(9) defines "financing order" as:

an order from the commission that authorizes the issuance of securitized utility tariff bonds ; the imposition, collection, and periodic adjustments of a securitized utility tariff charge ; the creation of securitized utility tariff property ; and the sale, assignment, or transfer of securitized utility tariff property to an assignee .

(Emphasis added.) "Securitized utility tariff bonds" is defined in pertinent part by section 393.1700.1(15) as:

... evidence[ ] of indebtedness or ownership ... issued by an electrical corporation or an assignee pursuant to a financing order , the proceeds of which are used directly or indirectly to recover, finance, or refinance commission-approved securitized utility tariff costs and financing costs , and that are secured by or payable from securitized utility tariff property .

(Emphasis added.) "Financing costs" is defined by section 393.1700.1(8) to include a multitude of costs, fees, taxes, and charges incurred in connection with the upfront issuance of securitized utility tariff bonds or during the lifespan of the bonds. The proceeds of the securitized utility tariff bonds are secured by or payable from "securitized utility tariff property," defined by section 393.1700.1(18)(a) to include:

All rights and interests of an electrical corporation ... under a financing order , including the right to impose, bill, charge, collect, and receive securitized utility tariff charges authorized under the financing order ....

(Emphasis added.) "Securitized utility tariff charge" is defined by section 393.1700.1(16) in pertinent part as:

the amounts authorized by the commission to repay, finance, or refinance securitized utility tariff costs and financing costs and that are, except as otherwise provided for in this section, nonbypassable charges imposed on and part of all retail customer bills, collected ... full, separate and apart from the electrical corporation's base rates ....

Authorized securitized utility tariff bonds can be issued by an electrical corporation or its "assignee," defined in pertinent part by section 393.1700.1(2) as:

a legally recognized entity to which an electrical corporation assigns, sells, or transfers, other than as security, all or a portion of its interest in or right to securitized utility tariff property.

Simplified, the Securitization Law allows an electrical corporation to seek approval from the PSC to issue a financing order that authorizes the electrical corporation or its assignee to issue bonds. The bonds are in the amount of the electrical corporation's qualified extraordinary costs (or energy transition costs) and approved financing costs the electrical corporation elects to include in its request. Upon the sale of the bonds, the electrical corporation will immediately recover its qualified extraordinary costs (or energy transition costs). Then, the electrical corporation's customers are assessed a tariff charge on their utility bills over the lifespan of the bonds that is in an amount sufficient to pay the principal and interest on the bonds, and anticipated ongoing financing costs, over the lifespan of the bonds. The revenue stream represented by the tariff charges is the primary property that securitizes the bonds.

The option of financing qualified extraordinary costs through the issuance of securitized utility tariff bonds is intended to benefit customers by affording an electrical corporation an option for recovery of the costs other than through its base rates, a fuel adjustment clause ("FAC"), or a deferred accounting authority order ("AAO"). In theory, securitization of extraordinary costs incurred during an anomalous weather event should save utility customers money or be otherwise advantageous to utility customers because the interest rate paid on securitized bonds is lower that the interest rate that would be applied to a utility's carrying costs if recovered through customary ratemaking; because an AAO would simply defer the extraordinary costs for consideration in a future rate case; and because an FAC requires recovery of costs from utility customers over a twelve-month period, whereas securitized bonds permit the recovery of costs from utility customers over the lifespan of the bonds which is generally several years.

Evergy West's Petition Pursuant to the Securitization Law

In February 2021, a severe winter storm known as Winter Storm Uri caused sub-zero temperatures, snow and ice, and high winds in Missouri over an eight-day period. As a result, the price of natural gas spiked. The spike in natural gas prices resulted in record high real-time electricity prices for Southwest Power Pool, Inc., of which Evergy West is a member. Evergy West incurred approximately $11.8 million in fuel costs and $314.6 million in purchased power costs during Winter Storm Uri. After adjustments for transmission costs, disallowances, and off-system sales revenue, Evergy West's total energy costs were $315 million, an amount that was approximately $296.5 million greater than Evergy West's average total energy costs for the month of February.

Evergy West filed a petition pursuant to the Securitization Law on March 11, 2022, seeking a financing order from the PSC that would permit the issuance of securitized utility tariff bonds to recover extraordinary costs incurred during Winter Storm Uri. Evergy West sought authority to securitize a total of $356.7 million in qualified extraordinary costs. No party disputes that Evergy West is an electrical corporation as defined in the Securitization Law, or that Winter Storm Uri was an anomalous weather event that caused Evergy West to incur extraordinary costs.

Evergy West's petition contemplated assigning its interest in the securitized utility tariff charges that its customers would be charged to a newly created special purpose entity ("Special Purpose Entity").⁴ The Special Purpose Entity would then be the issuer of the securitized utility tariff bonds authorized by the PSC's financing order. After extensive proceedings participated in by PSC staff ("Staff"), Evergy West, OPC, and other interested parties who had intervened, the PSC issued its initial report and order authorizing a financing order pursuant to the Securitization Law on October 7, 2022. Evergy West, Staff, and OPC filed timely applications for clarification and for rehearing. The PSC issued an Amended Report and Order⁵ on November 17, 2022, with an effective date of November 27, 2022. OPC's application for additional clarifications was denied by the PSC. OPC timely appealed the Amended Report and Order. The Amended Report and Order found that costs in the amount of $307,811,246⁶ incurred by Evergy West "in relation to Winter Storm Uri are prudently...