A record $17 billion of the debt, known as recovery bonds, has been sold this year, with the total likely to soon surpass $20 billion, data compiled by Bloomberg show.
Buy-and-hold investors such as insurers have been key purchasers, and the deals have also drawn money managers including BlackRock Inc., Citadel Advisors LLC and Pimco, according to bond documents seen by Bloomberg.
The deals are landing in a slumping bond market that has left some of the debt sold this year underwater. But investors with a long horizon like the securities for their attractive yields, sterling credit and robust backing: fees that are approved by state legislation and added to customers’ bills.
For utilities grappling with financial strains triggered by extreme weather, it’s a way to reduce the monthly hit they’d need to pass on to ratepayers, by spreading repayment out over decades.
“The state would have to break contract law to make the bonds stop paying out,” said Dave Goodson, head of securitized credit at Voya Investment Management, which has bought recovery bonds.
“That’s a risk we’re comfortable taking.”
Okla. bond bill: $4.4B;
Texas up next: $3.4B
The next big chunk of issuance is expected from a Texas agency — the Texas Natural Gas Securitization Finance Corp. — which plans to sell about $3.4 billion of taxable municipal debt, in the
largest muni offering ever for the state. The proceeds will help bail out utilities that incurred enormous losses from Winter Storm Uri in 2021, when bitter cold crippled Texas’s energy infrastructure and power firms faced soaring charges.
Kansas and Missouri also are lining up bonds for that storm (Kansas, $430 million; Missouri, $497.5 million), and Oklahoma is wrapping sales totaling $4.4 billion for the same event.
The Oklahoma Corporation Commission and the Oklahoma Supreme Court approved a maximum $725 million in ratepayer-backed “securitization” bonds authorized by the state Legislature to pay for Public Service Co. of Oklahoma’s “extreme” purchase costs of natural gas and supplemental electricity during the two-week Winter Storm Uri.
The PSO bill will be retired over a 20-year period with proceeds from a special charge added to customer utility bills. The fee for the average customer who uses 1,100 kilowatt-hours of electricity per month will be $4.72 per month, but will depend on each customer’s usage, Region Communication Manager Wayne Greene said.
A maximum $95 million in ratepayer-backed bonds was approved to pay Summit Utilities’ extraordinary winter storm fuel bills. That total included $75.67 million in extraordinary fuel costs, almost $12 million in financing costs, plus interest. The bonds will be retired via a surcharge tacked onto customer utility bills over a 15-year period.
Oklahoma Gas & Electric was authorized to sell $761,654,000 in securitization bonds to recover its extreme fuel expenses incurred during Winter Storm Uri, but because of unexpectedly high interest rates the bond sale totaled $1.4 billion. The average residential customer will be charged approximately $2.50-$3.00 per month for the next 28 years to retire those bonds.
The state sold $2.25 billion in bonds in late August for Oklahoma Natural Gas Co., which reported $1.3 billion in extreme winter storm 2021 fuel expenses. Interest costs of $898 million were twice as high as initially projected, and financing expenses boosted the total. ONG customers will pay a winter storm surcharge for 25 years in order to pay off those securitization bonds.