PSC approves Liberty Utilities securitization cases

JEFFERSON CITY — The Missouri Public Service Commission has issued a financing order which authorizes The Empire District Electric Company d/b/a Liberty to issue securitized utility tariff bonds for qualified extraordinary costs incurred during a February 2021 winter weather event (Winter Storm Uri), and recovery of energy transition costs associated with retirement of Liberty’s Asbury coal-fired generating plant.

Based upon the evidence in this case, the Commission determined that the imposition and collection of the utility tariff charge that will result from the issuance of securitized utility tariff bonds is just and reasonable and in the public interest when comparing securitization to recovery of those costs using traditional (non-securitization) methods of recovery such as through the Fuel Adjustment Clause (FAC) charge or general rate case filings. The total qualified extraordinary costs, energy transition costs and upfront financing costs in this case are approximately $288.7 million.

Winter Storm Uri: In February 2021, much of the Midwest, including Missouri, experienced unseasonably cold temperatures which resulted in rolling electrical blackouts and extreme natural gas price spikes. During that time, Liberty incurred extraordinary fuel costs for service to its Missouri customers. Liberty sought authority to securitize approximately $221.6 million for costs related to Winter Storm Uri.

The Commission determined that approximately $199.5 million incurred in relation to Winter Storm Uri can be recovered through the issuance of securitized utility tariff bonds. As part of its decision, the Commission applied Liberty’s 95/5 FAC cost sharing mechanism.

“The Commission finds that Liberty’s costs in the amount of $199,561,572 incurred by Liberty in relation to Winter Storm Uri are prudently incurred costs of an extraordinary nature that would cause extreme customer rate impacts if reflected in customer rates recovered through customary ratemaking and as such are ‘Qualified Extraordinary Costs’ as defined in Section 393.1700.1 (13), RSMo,” said the Commission. “The Commission further finds that Winter Storm Uri was an ‘anomalous weather event’ within the meaning of that statutory definition.”

Asbury Power Plant: Asbury Unit 1 came on line to serve customers in 1970. Asbury was retired near the beginning of 2020 and decommissioning and dismantling of the plant is ongoing. In this securitization case, Liberty sought to recover approximately $140.8 million in energy transition costs for Asbury. Based upon a thorough review of the record, the Commission determined energy transition costs of approximately $81.2 million may be financed using securitized utility tariff bonds and recovery of such is just and reasonable.

Based upon the evidence in the case, the Commission determined that Liberty’s decision to retire Asbury when it did to be reasonable and prudent. “The facts, as the Commission has found them, demonstrate that Asbury was a fifty-year old coal-fired generating plant that could no longer effectively compete in the electrical generation marketplace,” said the Commission. “As a result, its continued operation had become uneconomic and a drain on both the company and its ratepayers.”

Securitization is a process authorized for the first time in Missouri by the legislature in the 2021 general legislative session. This case is the first securitization case decided by the Public Service Commission since the law was passed. The legislation permits investor-owned utilities such as Liberty to securitize certain costs associated with natural disasters and the retirement of electric generating facilities. Generally, securitization takes existing debt of the investor-owned utility and turns it into customer-backed bonds which are sold in the financial markets.

Many details about the securitization bonds are not yet known and will not be known until the bonds are ready to be issued. Before the issuance of any securitized utility tariff bonds under the Commission’s order, Liberty must file compliance tariff sheets that conform to the tariff provisions of the order, but with rate elements identified as estimates. Securitized utility tariff charges will be identified on each customer’s bill as a separate line item.

“The goal of securitization is to structure the securities in a way that will allow them to achieve the highest bond rating possible,” said the Commission. “That will allow the issuer to set the price for those bonds at the lowest interest rate possible, thus saving ratepayers money compared to the amount they would have to pay if a traditional method of financing, at a higher interest rate, were used.”

The Commission authorized Liberty to recover the securitized utility tariff costs and financing costs over a period not to exceed 15 years from the date the securitized utility tariff bonds are issued.

Liberty retains sole discretion regarding whether to cause the issuance of any securitized utility tariff bonds authorized by the Commission in its order, including the right to defer or postpone such issuance.

Liberty serves approximately 155,400 electric customers in the Missouri counties of Barry, Barton, Cedar, Christian, Dade, Dallas, Greene, Hickory, Jasper, Lawrence, McDonald, Newton, Polk, St. Clair, Stone and Taney.