Oklahoma attorney general probe spreads to utility securitizations

BY SourceMedia | MUNICIPAL | 11/09/23 11:20 AM EST By Karen Pierog

The issuance of nearly $3 billion of debt for Oklahoma utilities last year has been drawn into the state attorney general's probe of potential profiteering and other misdeeds stemming from a fierce winter storm in 2021.

A subpoena dated Tuesday from Attorney General Gentner Drummond's office gives the Oklahoma Corporation Commission, which authorized the debt, 20 days to produce all internal and external communications between Feb. 1, 2021, to March 31, 2022, related to Winter Storm Uri. The subpoena specifically cited securitizations that were issued to address huge costs incurred by gas and electric utilities during the severe weather. The document demand covers communications of OCC commissioners, their staff, and commission employees who were directly or indirectly involved with storm cost recovery.

In July, Drummond announced his office may take legal action against various entities believed to be responsible "for market manipulation and other potentially unlawful conduct" related to the storm, which pummeled the Southwest with snow, ice, and high winds amid record low temperatures in February 2021.

Utilities were forced to pay sky-high prices for their natural gas and power purchases. OCC, which regulates utilities, issued irrevocable financing orders between December 2021 and February 2022 authorizing the sale of four taxable ratepayer-backed bond deals for utilities through the Oklahoma Development Finance Authority. The non-callable bonds, which were validated by the state supreme court prior to issuance, were requested by the utilities as a way to cushion the blow to customers by spreading the costs over time.

"I have long said that the attorney general is the proper authority to investigate the actions of the unregulated markets that left the consumer, utilities, and state officials grappling with record high natural gas costs from Uri," OCC Chairman Todd Hiett said in a statement. "I am gratified he is taking this matter very seriously, and the OCC will do all it can to help."

Bob Anthony, one of OCC's three commissioners, has been critical of the securitizations, citing hefty issuance costs and higher-than-expected monthly charges for residential utility customers that resulted from the bond sales.

In September, he called on state lawmakers to request the state auditor and inspector undertake a performance audit of all expenses related to the ratepayer-backed bond issuances OCC authorized.

Drummond, who selected Oklahoma City law firm Foshee & Yaffe to pursue possible legal action, has said he did not find evidence Oklahoma utility companies benefited inappropriately during the storm.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.