Kansas tees up first utility securitization for 2021 winter storm costs

Bonds

A deluge of ratepayer-backed utility debt in the wake of 2021’s Winter Storm Uri continues with a Kansas regulator approving the state’s first securitization deal.

The Kansas Corporation Commission (KCC) on Thursday unanimously passed an irrevocable financing order allowing Kansas Gas Service to issue securitized bonds to recover $328 million in costs incurred during the February 2021 storm that hit several states, sparking high demand for electricity and natural gas that dramatically increased prices for those commodities. 

“This is an important tool in the toolbox as we look to pay our debts on Storm Uri and it will save the customer some money,” KCC Commissioner Susan Duffy said ahead of the vote. “It will still be a substantial increase for a number of years.”

“This is an important tool in the toolbox as we look to pay our debts on Storm Uri and it will save the customer some money,” KCC Commissioner Susan Duffy said ahead of the vote.

The bond sale is expected to result in “winter event securitized cost” charges on monthly customer bills ranging from $4.87 to $6.42 over the seven- to 10-year life of the bonds. Without the debt issuance, the KCC said, ratepayers would see charges of $9.04 per month over five years or $13.90 per month over three years using traditional ratemaking.

The customer charges will be subject to periodic true-ups to ensure revenue is sufficient to cover debt service on the bonds, which will be issued through a yet–to-be-formed special purpose entity.

Underwriters and bond counsel for the deal will be chosen in the coming weeks subject to a review process, according to Justin Grady, the KCC’s chief of revenue requirements, who added there is no definite timing for the bonds’ pricing. Atmos Energy has also applied to the KCC for a financing order to recover about $93 million in costs.

The Kansas Legislature passed the Utility Financing and Securitization Act last year to allow utilities to use securitized bonds to pay for extraordinary costs.

Kansas Gas Service is the third division of Tulsa-based ONE Gas, Inc. to participate in a state-sanctioned securitization related to the 2021 storm. 

The Oklahoma Development Finance Authority sold $1.354 billion of ratepayer-backed bonds this week for Oklahoma Natural Gas, that state’s largest natural gas distributor. 

The triple-A-rated noncallable bonds were priced by a JPMorgan Securities-led team with spreads over comparable U.S. Treasuries of 85 basis points in 2037, 150 basis points in 2045, and 135 basis points in 2052. 

Compared to the Refinitiv MMD triple-A taxable scale, spreads were 2 basis points under in 2037, 21 basis points over in 2045, and 47 basis points over in 2052.

The deal marked the second of four by Oklahoma, with the first one — $761.6 million of bonds for Oklahoma Gas and Electric Company that priced in July — criticized by a state regulatory official because it resulted in a much higher-than-expected monthly charge for customers.

Texas Gas Service, another division of ONE Gas, is among eight companies participating in a $3.4 billion Texas Natural Gas Securitization Finance Corporation bond issue.

In an earnings announcement earlier this month, ONE Gas said the Texas bonds are expected to be priced in the fourth quarter.

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