In re Okla. Dev. Fin. Auth. for Approval of Not to Exceed $800,000,000 Ratepayer-Backed Bonds

510 P.3d 165

In the MATTER OF the Application of the OKLAHOMA DEVELOPMENT FINANCE AUTHORITY FOR APPROVAL OF NOT TO EXCEED $800,000,000 RATEPAYER-BACKED BONDS (Oklahoma Gas and Electric Company), Series 2022 (Federally Taxable)

No. 120,106

Supreme Court of Oklahoma.

FILED MAY 3, 2022

Jered T. Davidson, The Public Finance Law Group, PLLC, Oklahoma City Oklahoma, for The Oklahoma Development Finance Authority.

John Case, Oklahoma City, Oklahoma, Pro Se Opponent.

Mike Reynolds, Oklahoma City, Oklahoma, Pro Se Opponent.

Porter Davis, Oklahoma City, Oklahoma, Pro Se Opponent.

Thomas Austin, Nichols Hills, Oklahoma, Pro Se Opponent.

James Pickel, Oklahoma City, Oklahoma, Pro Se Opponent.

Gail and Larry Foster, Edmond, Oklahoma, Pro Se Opponents.

Deborah Shinn, Oklahoma City, Oklahoma, Pro Se Opponent.

Maureen Harvey, Choctaw, Oklahoma, Pro Se Opponent.

Clare Auwarter, Oklahoma City, Oklahoma, Pro Se Opponent.

Suzanne Broadbent, Oklahoma City, Oklahoma, Pro Se Opponent.

Steven Goldman, The Village, Oklahoma, Pro Se Opponent

Stephen A. Melsh, Oklahoma City, Oklahoma, Pro Se Opponent.

Laura Rice, Oklahoma City, Oklahoma, Pro Se Opponent.

Barbara Gallivan, Oklahoma City, Oklahoma, Pro Se Opponent.

Roy Diehl, Oklahoma City, Oklahoma, Pro Se Opponent.

PER CURIAM:

¶1 The matter before us is an original proceeding brought pursuant to the February 2021 Regulated Utility Consumer Protection Act (Act), specifically 74 O.S.2021, ch. 110A-1, § 9079, https://govt.westlaw.com/okjc (in ch. 110A-1, follow hyperlink titled, "February 2021 Regulated Utility Consumer Protection Act"), which authorized the Oklahoma Development Finance Authority (ODFA) to file an application with this Court seeking approval of ratepayer-backed bonds to finance the recovery of the fuel costs incurred by Oklahoma Gas and Electric Company (OG&E) during the February 2021 weather event. We assume original jurisdiction and approve the bonds.

BACKGROUND AND PROCEDURAL HISTORY

¶2 In February 2021, the State of Oklahoma endured record cold temperatures. The severe cold weather resulted in a shortage of the natural gas supply and in turn extraordinary natural gas costs for regulated utilities operating in Oklahoma. The cost of natural gas for the Oklahoma utilities during the two weeks of extreme cold exceeded their entire fuel acquisition cost in 2020. As a result, the Oklahoma Legislature enacted the Act, 74 O.S.2021, ch. 110A-1, §§ 9070 - 9081, to provide financing options to lower the economic impact on the utility customers. Most Oklahomans could not afford a one-time, cost recovery payment imposed by the utility, and the Legislature provided a new mechanism to spread the fuel cost recovery over a longer period to minimize the financial impact on utility customers. The Act authorized the Oklahoma Corporation Commission (Commission) to approve the recovery of costs through securitization, which is a financial tool creating a property right to revenues collected by a regulated utility from customers under an irrevocable and nonbypassable mechanism. 74 O.S.2021, ch. 110A-1, § 9072(10), https://govt.westlaw.com/okjc. The property right is then sold and used as security for the repayment of the ratepayer-backed bonds. Id .

¶3 The Act is important because OG&E is an investor-owned electric public utility subject to regulatory oversight concerning its retail rates and charges for sales of electricity made within Oklahoma. Unlike a normal corporation, OG&E cannot increase utility rates on its own. Instead, the Commission must approve all rates and fuel costs adjustments. In this case, the Legislature set out the framework for securitization through the Act., but the Commission had to approve any rate increase to recover the fuel costs incurred during the February 2021 weather event.

¶4 The Act sets up a bifurcated process. First, regulated utilities file an application with the Commission to evaluate the "extreme purchase costs, extraordinary costs or both, requested for recovery which may be mitigated through securitization to reduce the utility bill impact on customers." 74 O.S.2021, ch. 110A-1, § 9073(A), https://govt.westlaw.com/okjc. The Commission must determine whether the expenses recoverable from customers were fair, just, reasonable, and prudently incurred. 74 O.S.2021, ch. 110A-1, § 9073, https://govt.westlaw.com/okjc. If the Commission approves the expenses, the Act authorizes the Commission to adopt a financing order allowing the utilities to recover their costs. Second in the process, the Act permits ODFA¹ to issue ratepayer-backed bonds. 74 O.S.2021, ch. 110A-1, §§ 9073 - 9079, https://govt.westlaw.com/okjc. The bonds once issued are repaid by the customers through a nonbypassable mechanism; in this case, a monthly charge on rate-payer's bills that runs with the property. Id .

¶5 On April 1, 2021, OG&E applied with the Commission to determine that the $838 million in fuel costs OG&E incurred during the February 2021 winter storm were prudent. OG&E, the Commission's Public Utility Division, the Oklahoma Attorney General's office, and other large stakeholders (including the American Association of Retired Persons (AARP), Walmart, and Oklahoma Industrial Energy Consumers) entered into settlement negotiations regarding OG&E's application. All the parties, except for AARP and the Attorney General, entered into a Settlement Agreement that found OG&E prudently incurred costs during the winter storm amounting to $739 million.²

¶6 In October 2021, an Administrative Law Judge (ALJ) for the Commission held a hearing on the Settlement Agreement, wherein all parties presented evidence either in support or against the Agreement. However, all parties agreed that securitization was the most appropriate method for OG&E to finance the recovery costs. The ALJ issued a report approving the Settlement Agreement.³

¶7 The Commission then held a hearing regarding the ALJ's report and issued the Final Financing Order on December 16, 2021. The Order approved $739 million in costs incurred by OG&E to be collected through securitization of that debt. The Order specified that ODFA would purchase the debt through issuing bonds backed by a monthly charge (WES charge) assessed to each OG&E ratepayer. The securities were to be amortized for a longer period of time (not to exceed 28 years) to lower the ratepayer collection cost. Under the securitization method, the monthly WES charge was estimated to be $2.12 for an average residential customer.⁴ The final amount to be secured (including financing and securitization costs) was estimated to total $760 million. Id .⁵ No party appealed the Final Financing Order.

¶8 ODFA filed an application with this Court to assume original jurisdiction for approval of the ratepayer-backed bonds, per the provisions of 74 O.S.2021, ch. 110A-1, § 9079, https://govt.westlaw.com/okjc. Fifteen Protestants filed in response to the application and challenge the bonds on several grounds but focus primarily on the constitutionality of the bonds. The questions before this Court are (1) whether the ratepayer-backed bonds were properly authorized under the Act and (2) whether the bonds are constitutional. We answer both in the affirmative. The authorization of the ratepayer-backed bonds properly followed the Act, and the bonds are self-liquidating and therefore constitutional.

STANDARD OF REVIEW

¶9 The Court has long recognized that its obligation in reviewing bonds is to determine whether the bonds facially violate the law and to examine the legal authority presented by protestants. In re Application of Okla. Turnpike Auth. , 2018 OK 88, ¶ 5, 431 P.3d 59, 60-1. Protestants' legal arguments center mainly on the constitutionality of the bonds. A heavy burden is placed on those challenging a legislative enactment, and every presumption is to be indulged in favor of the constitutionality of a statute. In re Application of Okla. Capitol Improvement Auth. , 1998 OK 25, ¶ 8, 958 P.2d 759, 763. If two possible interpretations of a statute are possible, only one of which would render it unconstitutional, a court is bound to give the statute an interpretation that will render it constitutional unless constitutional infirmity is shown beyond a reasonable doubt. Fent v. Okla. Capitol Improvement Auth. , 1999 OK 64, ¶ 3, 984 P.2d 200, 204.

DISCUSSION

¶10 The Legislature conferred upon the Court "exclusive original jurisdiction" to hear and determine ODFA's application. 74 O.S.2021, ch. 110A-1, § 9079, https://govt.westlaw.com/okjc. ODFA gave proper notice of its application and the hearing as required by § 9079, as attested by its proof of publication filed with the Court. Id. The Court's exclusive original jurisdiction entails:

If the Court shall be satisfied that the bonds or any portions thereof have been properly authorized in accordance with this act and the Constitution of the State of Oklahoma, and that when issued they will constitute valid obligations in accordance with their terms, the Court shall render its written opinion approving the ratepayer-backed bonds and shall fix the time within which a petition for rehearing may be filed. The decision of the Court shall be a judicial determination of the validity of the bonds, shall be conclusive as to the Authority, the state, its officers, agents and instrumentalities, and all other persons, and thereafter the bonds so approved and the revenues pledged to their payment shall be incontestable in any court in this state.

74 O.S.2021, ch. 110A-1, § 9079, https://govt.westlaw.com/okjc.

¶11 The Legislature enacted this Act to provide for the issuance of ratepayer-backed bonds to regulated entities like OG&E to allow those entities to recover the fuel costs incurred in the February 2021 weather event passed to their customers and thereby to allow customers to pay those costs at a lower amount over a longer period. 74 O.S.2021, ch. 110A-1, § 9071, https://govt.westlaw.com/okjc. Prior to the Act, OG&E had two options for passing the fuel costs to...