BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

APPLICATION OF OKLAHOMA
ia.ep
NATURAL GAS COMPANY,A DIVISION )
JAN 2 5 2022
OF ONE GAS,INC.,FOR A FINANCING )
ORDER APPROVING SECURITIZATION ) COURT CLERK'S OFFICE - OKC
CORPORATION COMMISSION
OF COSTS ARISING FROM THE OF OKLAHOMA
FEBRUARY 2021 WINTER WEATHER )
EVENT PURSUANT TO THE "FEBRUARY )
2021 REGULATED UTILITY CONSUMER ) CAUSE NO.PUD 202100079
PROTECTION ACT"

Filed 25 January 2022

Re: Order No. 723033

DISSENTING OPINION OF COMMISSIONER BOB ANTHONY

Once again Commissioners are being asked to vote on a Winter Storm 2021 debt package worth
well over $1 BILLION to Oklahoma ratepayers. Artificial 180-day deadlines imposed by the
legislature are no excuse for rushing through bad policy, and the more I study and consider the
details of these deals, the more devils I find. AARP has expressed legitimate concerns about so-
called "securitizatioe and has called for more transparency. Especially if utility company
management is found to have acted imprudently, utility shareholders should share in a portion of
the extraordinary costs, instead of automatically being "made whole."

In my opinion, these stipulated Ratepayer-Backed Bond proposals are ill-conceived,

unconstitutional, and bad for residential ratepayers. Worse, they also appear to be an attempt to
prevent thorough and open examination of questionable, possibly negligent utility management
decisions and imprudent fuel/service purchases made during the storm, as well as an excuse to line
the pockets of special interests on Wall Street and their local counterparts.

For those under the false impression there are no other or better options, note that the Oklahoma
Municipal Power Authority(OMPA)adopted a Winter Storm 2021 plan without using
"securitization." OMPA will amortize new debt over 7 years and did not increase wholesale rates
for 2021 or 2022. Similarly, Cotton Electric Coop, without using "securitization" or Ratepayer-
Backed Bonds, has adopted a 5-year plan with an average $4.50 monthly increase. Furthermore,
without "securitization" or Ratepayer-Backed Bonds, this OCC unanimously ordered a 5-year plan
for Panhandle Natural Gas, Inc. Even more noteworthy, for several different utilities seeking to
charge ratepayers Winter Storm 2021 expenses, the Minnesota Public Utility Commission ordered,
"Recovery of any financing costs is denied."

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Some essential questions regarding the constitutionality oftoday's Order and the February 2021
Regulated Utility Consumer Protection Act("Act"), 74 O.S. Sections 9070 — 9081, have been
raised by the protests to the OG&E Winter Storm Bond package now pending before the Supreme
Court. Indeed, there are many reasons to question the constitutionality ofthese black-box
settlement based Ratepayer-Backed Bonds.

• They appear to be retroactive ratemaking prohibited by Okla. Const. Art. II, Section 23,
because, by imposing a new debt burden on ratepayers without compensation and consent,
the orders retroactively change the Purchase Gas Adjustment or Fuel Adjustment Clause
(PGA/FAC)tariff in effect when the utilities' storm-related purchases were made. This
retroactive ratemaking also likely violates customers' constitutionally-protected
contractual rights under their Commission-approved Service Agreement with the utility.

• The above-mentioned retroactive ratemaking also likely violates the "fixed rate doctrine"
(Okla. Const. Art. IX, Sections 18 and 24) whereby a gas distribution utility is prohibited
from charging more than the Commission-approved tariff amount. Again, forcing
customers to take on untold hundreds of millions of dollars in opened-ended interest
obligations, financing charges and fees more than is owed under the PGA/FAC in effect
changes the Commission-approved tariff after the fact. Ifthe Commission is going to
allow retroactive changes in gas costs, then it must do so by offering the customers the
option of paying their bills in full without interest.

• With limited exceptions, today's Order provides that it is irrevocable and not subject to
amendment, modification, or termination by the Commission. But according to State ex
rel. Wright v. Oklahoma Corp. Com'n,2007 OK 73, ¶27,"[i]t is a well-known principle
of statutory and constitutional construction that one Legislature cannot bind another". It is
my understanding that no two Commissioners can issue an order that binds all future OCC
Commissioners, yet that appears to be what is attempted here. What ifconditions change?
Is the Order not subject to modification?

• Today's Order delegates decisions impacting ratepayers to the Oklahoma Development

Finance Authority(ODFA),such as the interest rate on the bonds,the term ofthe bonds,
and possible credit enhancements. While today's Order sets upper limits on the interest
rate and term, there are no limits regarding possible credit enhancements. Article IX,
Section 18a, ofthe Oklahoma Constitution provides that,"A majority of said Commission
shall constitute a quorum,and the concurrence ofthe majority of said Commission shall
be necessary to decide any question." In light ofthis requirement, how can the
Commission delegate to the Oklahoma Development Finance Authority key decisions
related to the Ratepayer Backed Bonds that are the Commission's responsibility?

• Compelling arguments have been made that these Ratepayer-Backed Bonds do not qualify
as "self-liquidatine (since a future Commission could cut offtheir funding) and yet also
try very hard for the sake ofobtaining a low interest rate not to be unenforceable
"appropriation-risk or moral obligation bonds," since Section 9079 ofthe Act states
explicitly: "... the bonds so approved and the revenues pledged to their payment shall be
incontestable in any court in this state." This appears to leave them instead "debts

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 contracted by ... this State'(Art. 10, § 25)and "constitutional debt [subject to] the budget
balancing amendments of Okla. Const. Art. 10, §§ 23,24 and 25"(Fent v. OCIA, 984 P.2d
200). If this is the case, they are obviously unconstitutional because the provisions of
Okla. Const. Art. 10, §§ 23,24 and 25 clearly have not been followed.

• Citizens will likely be outraged when they realize the "February 2021 Regulated Utility
Consumer Protection Acr attempts to overcome these violations ofthe Oklahoma
Constitution by simply bypassing the Constitution and amending it without a vote ofthe
people! Section 9081 of the Act states,

"If this act, or any provision hereof is, or may be deemed to be, in
conflict or inconsistent with any of the provisions of Section 18 through
Section 34, inclusive, of Article IX of the Constitution of the State of
Oklahoma, then, to the extent of any conflicts or inconsistencies, it is
hereby expressly declared this entire act and this section are amendments
to and alterations of such sections of the Constitution of the State of
Oklahoma, as authorized by Section 35 of Article IX of the Constitution
ofthe State of Oklahoma."

As Justice Opala made clear in his concurring opinion in Southwestern Bell Telephone
Company v. Oklahoma Corp. Com 'n, 1994 OK 142(Opala, J., concurring),"Unlike a
statute, the Constitution cannot be amended or repealed by implication."(Id. at ¶3). When
considering similar language to that in Section 9081, Justice Opala stated that the language
would be "ineffective" to amend or repeal the Constitution.(Id. at ¶4). Justice Opala
further stated,"...nothing in the Constitution can safely be cast aside by implication.
Legislative amendment or repeal must explicitly and narrowly target the changes intended,
leaving nothing to speculation or conjecture."(Id. at ¶5.)

In Oklahoma Gas & Electric Co. v. Corporation Com'n, 1975 OK 15,¶25,the Oklahoma
Supreme Court stated"... if additional powers are conferred upon the Corporation
Commission which are inconsistent with the Commission's constitutional powers,
compliance with the provisions of Art. IX,§ 35, of the Oklahoma Constitution is
mandatory." The Court further stated,"... without compliance with Article IX,§ 35, of
the Constitution,the Legislature may not vest in the Corporation Commission, duties
which are inconsistent with its constitutional duties." (Id. at1129). In my view, binding
future Commissions and delegating decisions to the Oklahoma Development Finance
Authority would be inconsistent with the Commission's constitutional duties absent an
effective amendment to the constitution. To declare "this entire acr an amendment to the
Constitution, per Section 9081, is either lazy lawmaking or clandestine chicanery. One
way or another, the Supreme Court is unlikely to allow the Oklahoma Constitution to be
circumvented in this way, nor should it.

Constitutionality aside, these bonds are quite simply bad for residential ratepayers.

• It is irresponsible and a dereliction of duty for this Commission to allow public utilities to
bypass our mechanisms for consumer protection against abuses by monopoly utilities by

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 adopting a Settlement Agreement that simply declares the Winter Storm 2021 costs in
question to have been "reasonable and prudently incurree without a formal, open and
transparent prudence review. "Extraordinary" costs deserve extraordinary scrutiny!
The ratepayers have a right to know why and how these costs were incurred and who is
getting rich as a result ofthem.

• The ongoing failure of parties involved with these settlements to disclose corporate
relationships and conflicts of interest, including the extent to which the costs in question
were incurred through transactions with the utilities' own unregulated affiliates and
subsidiaries, or the fees the parties and their associates stand to make from the evaluation,
issuance, underwriting, servicing, holding or trading ofsuch bonds, is an affront to the
honesty, integrity, due process, ethics and total transparency ratepayers deserve from a
transaction of this size — indeed from any transaction that involves ratepayer monies.

• The 17 O.S. Section 250,et seq. statutory scheme for the PGA/FAC contemplates that a
customer pays for what he consumes. But this securitization plan arbitrarily and
capriciously changes that to require the customer pay a share of what his customer class
purportedly owes, according to the allocations agreed upon in the Joint Stipulation and
Settlement Agreement. It also makes future new customers, some of whom may not even
be alive yet, pay for consumption by their predecessors. In other words, present and future
customers both may ultimately have to pay for gas they did not consume. How is that
"reasonable," let alone equitable?

• In today's Order, ONG very generously exempts the "Low Income customer class from
paying any portion ofthe Winter Storm 2021 costs or any Termination Fee related to the
February 2021 Winter Weather Event. BUT,instead of assuming those costs itself at the
expense of its own shareholders, the company instead reallocates the Low Income share to
be paid by its other classes of customers. Oklahomans are generous people, but is it
"reasonable to allow a public utility to pick the pockets ofone group ofcustomers without
their knowledge or consent in order to give a free ride to another? Once again, customers
are being required to pay for gas they did not consume through yet another abusive misuse
of the PGA/FAC mechanism.

• Beyond the unreasonableness and imprudency of these costs, the idea that ratepayers will
somehow be "savine money by paying untold millions more than the principal in interest
and fees is increasingly indefensible. Because the interest rate at which these bonds will be
issued is unknown,so too are the hundreds of millions in ongoing financing costs and
servicing fees over the projected 25-year term ofthe bonds. And yet, today's Order finds
"savings" in the difference between the unknown interest rate plus costs and fees and the
8.88% rate of ONG's "traditional utility financing." This ignores that in the absence ofthis
securitization plan, those interest costs could instead be zero. Even many modern Buy-
Now-Pay-Later providers (like Afterpay, Affirm, Klarna and Paypal)offer zero-interest
installment payment options to retail customers to enable larger-than-usual retail
purchases. Zero-interest installment payment plans are a market reality and have been
adopted both by other states and by other(coop or consumer-owned)energy providers here

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 in Oklahoma, yet they are not even considered here. As a result, this self-described -$1.35
billion" Financing Order could end up costing ratepayers upwards of$2 billion.

A case in point is the August 30, 2021 Order of the Minnesota Public Utility Commission
(PUC)(Docket Numbers CI-21-135, M-21-138 and M-21-235). In it, the Minnesota PUC
addresses February 2021 Winter Storm costs of over $500 million for several Minnesota
public utilities. Instead of"securitization" or ratepayer-backed bonds, Minnesota ordered:

• "The burden to prove a rate is just and reasonable is on the utility ... and any doubt
as to reasonableness will be resolved in favor of the customer." Further, it "will
refer issues of prudence to the Office of Administrative Hearings for contested-
case proceedings." Specifically,"In incurring costs necessary to provide service,
utilities are expected to act prudently to protect ratepayers from unreasonable
risks. Utilities that fail to do so will not be allowed to recover the costs of those
failures."

■ The Minnesota PUC decided it "will authorize impacted utilities to recover

extraordinary costs over a 27-month period ... pending prudence review ..." and
"will deny recovery of financing costs and require the impacted utilities to exempt
certain customer groups from extraordinary-cost surcharges."

■ The Minnesota PUC found "... a need for further investigation ..." because,
among other things, utilities "... acted unreasonably in not fully deploying
available storage gas ...", "... utilities should have diversified their natural gas
purchasing ..." and "... utilities imprudently failed to fully deploy mitigation
measures ...".

Oklahoma's residential ratepayers are entitled to those same protections under Oklahoma
law and deserve no less than their Minnesota counterparts.

• According to Appendix -C," today's Order will require ONG's customers to pay an
estimated $18,866,378 in issuance costs, including fees of: $8,145,500 to the State's own
Council of Bond Oversight; $6,268,878 to unnamed "Underwriters," and $2,000,000 to
rating agencies. But once again, these are only "Estimated Issuance Costs" — the real
numbers could be substantially higher and will be passed through to ratepayers regardless.
There are no incentives to control costs anywhere in this Order. Once again, the attitude
appears to be,"Just put it on the ratepayers' tab."

Further, these bonds, formulated under a black-box settlement, are fundamentally ill-conceived.

• According to the prefiled testimony of ONG witness Cory Slaughter, the estimated impact
to Option A residential customers using less than 50 Dth of natural gas per year approaches
$5 per month, and the estimated impact to Option B residential customers using more than
50 Dth per year approaches $8 per month. These charges must be paid every month for the
next 25 years.

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 • The 25-year duration of these bonds assumes that there will be enough customers to pay
offthe bonds throughout that 25-year period. However,the future economics ofcarbon-
based fuels are not so easily foreseeable. In the United States most natural gas is now
consumed by electricity generation. Yet ever increasing climate concerns could easily lead
to new environmental legislation like a federal carbon tax or tightened drilling and air
quality restrictions that could make gas-fired generation prohibitively expensive. Demand
could also fall as appliances and machinery become more efficient, building methods
improve, and competing renewable energy sources like rooftop solar become less
expensive. As demand falls, the burden ofthese long, drawn-out Winter Storm 2021 costs
on the company's remaining customers will only increase. If gas-fired generation were to
end, ONG customers could be stuck with substantial stranded costs for under-depreciated
facilities. Since the company was unable to accurately predict demand in preparation for
the 2021 Winter Storm, knowing the size of its customer base and the forecasted
temperatures some two weeks in advance, I have a hard time trusting any projection that
might be made a decade or two into the future.

• Today's Order "finds that a termination fee is not preferable(p. 34), but in effect it
assigns to ongoing customers the allocation amount departing customers are bypassing.
Therefore, it is again worth noting that new allocations, fees and costs, including interest
charges, imposed through the PGA/FAC mechanism likely constitute further retroactive
ratemaking and violate customers' constitutionally-protected contractual rights under their
Commission-approved Service Agreement with the utility existing in February 2021.

• Financially, on top ofa $1.357 billion principal amount ofratepayer-backed bonds, ONG
itself calculates at least $415 million in interest for a 25-year period ifthe interest rate is
2.35%. But today's Order potentially allows up to 6.0% for the "interest rate ofthe
Bonde(p. 46)which would result in more than $1 BILLION in interest obligation for
ONG ratepayers. Thus,astonishingly' the principal amount plus interest could even
total a staggering $2.4 BILLION.

Once again, this Winter Storm 2021 debt package leaves fundamental questions unanswered and
commits Oklahoma ratepayers to pay unlimited, uncapped financing costs for the privilege of
being able to extend the payment of essentially uninvestigated, potentially imprudent costs out
over an absurdly long 25-year term, at the end of which ONG may no longer be providing natural
gas service, but its former customers will still be paying offtheir nonconsensual bonded
indebtedness from the 2021 Winter Storm. Since the bonds themselves likely run afoul ofthe
Oklahoma Constitution in multiple respects, and the "savings" to ratepayers are completely
illusory, I am left to conclude these securitization plans built on murky Settlement Agreements are
actually efforts(1)to prevent a comprehensive and transparent examination of utility management
decisions and fuel/service purchases made before and during the storm,(2)to protect utility
company shareholders from bearing any ofthe costs that might be associated with possible poor,
negligent or even imprudent decisions by their company's management which exacerbated the
Winter Storm costs, and/or(3)to line the pockets of special interests and anyone else enterprising
enough to wrangle a fat financing fee at the expense of Oklahoma ratepayers.

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The Journal Record January 20, 2022

Oklahomans face $1.4 billion bill after historic arctic blast

By: Paul Monies Oklahoma Watch January 19, 2022

Editor's note: Whatfollows is a condensed article representing a collaboration between Oklahoma Watch
and Floodlight, an environmental news collaborative, co-published with The Guardian.

When Neil Crittenden heard that an extreme winter storm was about to hit Oklahoma last winter, he did what
officials advised him to do and kept his heat on and water running so that his pipes wouldn't freeze. The 40-
year-old Oklahoma City resident even used hair dryers to keep them thawed.

What Crittenden didn't know at the time was that the energy he used was going to cost him significantly. As
winter storm Uri swept across the south-central U.S. last February, utilities that weren't prepared scrambled.
The storm caused blackouts in several states and resulted in the deaths of at least 223 people.

Oklahoma's gas supply was in dire straits, with demand surging and the cold freezing critical equipment. To
keep the heat on,the state's biggest gas company, Oklahoma Natural Gas, made a last-minute decision: It
purchased fuel from the wildly expensive spot market at nearly 600 times the usual price.

Now,nearly a year later, officials say residents like Crittenden have to foot the entire $1.37 billion bill. The
state's utility regulator, the Oklahoma Corporation Commission, is expected to approve the plan later this
month.

"Imagine if you went to the gas station and filled up $50 of gas for your car based on the prices the sign says.
And then two months later, you get told you actually have to engage in a payment plan to pay off 1,000 times
that price," Crittenden said.

Instead of challenging the prices the utility and its customers were charged, Oklahoma is readying a plan to use
securitization — which works similar to a credit card — to cover the debt. It will pay offthe $1.4 billion, plus
interest, by charging customers as much as $7.80 a month over the next 25 years.

Many states have used securitization to cover climate-related costs, like repairing downed power lines after a
hurricane. But it has rarely been used for fuel costs. Energy and economics experts say it can be misused to prop
up unprepared energy systems that are being tested by worsening extreme weather.

"It sets the precedent that there can be basically no upper limits to the cost of gas that would be passed on to a
consumer," said Kylah McNabb,an energy consultant and a former policy adviser to Oklahoma's secretary of
energy and environment under former Republican Gov. Mary Fallin."That's scary to me as a consumer."

Consumer watchdogs are wondering why ONG wasn't better prepared — with emergency fuel contracts or
weatherized power plants. And they want to know who is profiting off the $1.4 billion — a matter state regulators
have agreed to keep secret.

They say state leaders haven't adequately questioned the charges and have instead rushed to make a plan to pay
the debt — in part because the oil and gas industry is so powerful in Oklahoma.

"The state agencies see this as a continuation of business as usual rather than the unusual event that it was,
should open their minds to new solutions," said Steven Goldman,a member of VOICE,an Oklahoma
community group organized through the First Unitarian Church in Oklahoma City."Once the securitization bill

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was rushed through the Legislature then the train started down the tracks and there was no looking for an off-
ramp."

Critics say Oklahoma's story is part ofa national trend of regulators failing to challenge industries they oversee,
as climate change worsens and extreme weather becomes more common.

■
Oldahoma
Watch "Regulators wield tremendous power over energy policy in the United States, but too often defer to the
very utilities they are supposed to regulate. Weak regulation means higher rates for consumers and more carbon
pollution," said Charlie Spatz, a researcher at the Energy and Policy Institute.

Oklahoma leaders counter that they are getting customers a good deal, ensuring a lower interest rate from banks
by charging a flat fee on monthly power bills, regardless of how much energy a customer used during the storm.

ONG says it was prepared for the storm, in part because it had purchased gas at lower costs in the summer and
put it in storage for the winter.

The OCC said regulators could not comment on pending cases. But one commissioner, Republican Bob
Anthony, has signaled his discontent with the way the governing body has voted on recent securitization cases.
He recently voted against allowing an Oklahoma electric utility to pursue securitization. The other two
Republican commissioners approved the request.

"I'm disappointed when people want to 'go along and get along' because we are here to provide justice,"
Anthony said."I don't think my job as a commissioner is to impose extensive interest obligations on
ratepayers."

State officials warned Oklahomans about higher prices in the lead-up to the winter storm, but no one expected
they could surge from $2 to $3 per thousand cubic feet to almost $1,200. Oklahoma's price increases were
among the highest in the region, three times higher than spot prices at neighboring fuel trading locations in
Houston, according to the Energy Information Administration.

Who is profiting?
Consumer advocates have charged that regulators are too close with the industry they oversee. Recent reports
point out that the Corporation Commission's three elected officials have each received more than $200,000 in
campaign donations from employees, subsidiaries or political action committees tied to the companies they
regulate, according to campaign finance reports.

Two commissioners, Todd Heitt and Dana Murphy, did not respond to a request for comment about their
campaign donations. Anthony said his votes were independent and that his voting record had shown that.

Two days after the historic February storm, ONG submitted a "protective order to keep private the names of
gas companies that benefited from the price spike. The Corporation Commission agreed within 48 hours.
Oklahoma Natural Gas said its request for a confidentiality provision with its suppliers was "industry standard."

But the huge price surge — more than 600 times the normal prices — has led to calls for greater transparency.

Oklahoma Watch is a nonprofit, nonpartisan news organization that produces in-depth and investigative content
on a wide range ofissuesfacing the state. For more Oklahoma Watch content, go to oklahomawatch.org.