By Mike W. Ray
Southwest Ledger
OKLAHOMA CITY – The application of Public Service Co. of Oklahoma for permission to begin charging its customers for the purchase of a Jenks power plant before the acquisition has been thoroughly vetted was approved June 4 by the state Corporation Commission in a split vote.
Tulsa-based PSO has been considering whether to buy the 23-year-old, 795-megawatt Green Country combined cycle electricity generating plant at Jenks. Green Country has three natural gas-fired generating units.
Public Service Co. inked a purchase sale agreement (PSA) with J-Power, owner of the Jenks plant, on June 28, 2024. PSO assumes Green Country has a remaining lifespan of 30 years.
The purchase price would be $730 million ($918 per kilowatt), according to Richard F. Chandler, managing director of regulated infrastructure development for American Electric Power Service Corp., a subsidiary of PSO’s parent company, American Electric Power Co.
However, PSO’s application stated that because of the magnitude of the investment, closing on the PSA was contingent upon “certain approvals being received from” the Oklahoma Corporation Commission and the Federal Energy Regulatory Commission.
PSO wanted state regulators to declare that the price PSO would pay for the Jenks plant was “prudent.
On Sept. 16, 2024, the utility sought commission permission to begin recovering up to $753 million, “the approximate full-in price” for acquisition of the Jenks power plant, via a “rider” – a surcharge on customer bills – until those expenses can be incorporated into the base rates in PSO’s next general rate case, which will be filed soon after Jan. 1, 2026, company officials announced.
“The average residential customer using 1,100 kilowatt-hours per month will see an increase of $7.19 on their total bill no earlier than August 2025,” said Matt Rahn, PSO’s region communications manager. “In 2026 that average impact will drop to $6.47.”
ALJ recommended
denial of PSO plan
After receiving written and oral testimony, Administrative Law Judge Carly M. Ortel recommended that the three commissioners (Todd Hiett, Chair Kim David, and Brian Bingman) deny PSO’s request for preapproval of the purchase and cost recovery.
“The final costs attributed to Green Country that will be passed on to ratepayers” if the commission approves PSO’s application “are unreasonable and largely unknown,” Ortel asserted. “[A]nd while it has an estimated remaining life of 30 years, that is not guaranteed.”
“I do not believe the company has demonstrated financial need for Green Country,” Hiett said. “There is no proof of need for that power for the next three to five years.”
Ms. David – directing the meeting from Tulsa while the other two commissioners were in Oklahoma City – invited PSO President and CEO Leigh Ann Strahler to sit beside her at the June 4 hearing and answer whether the company would have problems if the commission adopted ratepayer “protections.” Strahler virtually said PSO probably would abandon the purchase.
Thomas Schroedter, an attorney representing Oklahoma Industrial Energy Consumers (OIEC), lodged an objection. “This is highly unusual for someone in the case to get up at the eleventh hour – and not under oath – to tell the commissioners about some aspect of the case. No one has been given a chance to rebut her testimony.”
As for the rider, Schroedter said, “There was no evidence in the case that supported a rider.”
“Every intervenor in this case advised us to deny that rider or incorporate protections for the ratepayers,” Hiett said. “Every intervenor but PSO agreed with that.”
If PSO walked away from the Green Country purchase because the Corporation Commission would allow the utility to collect $30 million “instead of giving them a rider right away – if they were unwilling to accept that – I think PSO might be subject to a shareholder lawsuit,” Schroedter said.
Ms. David, clearly perturbed at being “dressed down,” as she phrased it, told Schroedter that Ms. Strahler was simply “answering a question; she was not testifying.” Those in attendance and anyone watching the proceedings might disagree.
Hiett said he would reluctantly agree to the rider “at the cost of debt.” However, under the final order adopted by the commission, “They not only get the debt cost, they get a return on equity, too – on a plant that PSO ratepayers don’t even need until 2030.”
Ms. David disagreed. “A huge amount of power will be needed in the near future,” she said, mentioning the $4 billion aluminum smelter expected to be built at the Port of Inola as an example.
Matthew Horeled, vice president of Regulatory and Finance for PSO, testified previously that PSO has “a number of customers” who have indicated they will need “new large loads” of power in the near future. Those transactions with PSO “represent an additional 779 megawatts of load growth.”
Paul Demmy, resource planning lead for AEP Service Corporation, testified that the load growth will begin this year and “ramp up” year over year.
Ms. David also said that any excess capacity from the Green Country power plant “will be sold by PSO on the open market.”
Safeguards were
brushed aside
Hiett said he was concerned about the age of the power plant, because it’s already used up about half of its expected life; whether the plant will be capable of producing enough power to “benefit the ratepayers;” and about PSO’s projected $138 million in Green Country operation and maintenance expenses over the next 30 years. “There are extraordinary risks with this purchase,” he said.
Deputy Attorney General Chase Snodgrass had recommended “a number of safeguards to hold the company accountable for its estimations.” Those measures included a purchase price recovery cost cap, a capital spending cost cap, an operations and maintenance cost cap, a value guarantee, and an energy cost savings guarantee. “We need some safeguards for the customers,” Snodgrass said.
Nevertheless, the commission voted 2-1 to approve PSO’s request. David and Bingman voted aye, Hiett voted nay.
“Bringing the Green Country Power Plant into PSO’s generation portfolio strengthens PSO’s ability to provide stable, secure power to customers,” Rahn said.
Purchase price
is ‘a fair price’
Chandler testified on cross-examination that the purchase price of the Jenks plant is “five times greater than the net book value of Green Country.”
During a commission hearing May 19 on PSO’s application, attorney Jack Fite said the cost of the Green Country power plant “is a fair price. It’s a market price. Book value is not what you look at. You look at the market value.”
He admitted the $730 million purchase price is “a lot of money.” But, he told the commissioners, “We think a new plant would cost more than $1 billion.”
Fite also said “there are not a lot of combined-cycle units” that are on the market for sale.
ALJ Ortel stated that denial of pre-approval would not deprive PSO of the ability to proceed with the purchase of the Jenks power plant, but Fite disagreed. “Practically, and as a matter of financial reality,” denial would prevent PSO from buying the plant, he said.
However, Horeled testified that the Tulsa-based electricity provider has a capacity purchase agreement with Green Country that allows PSO to buy 569 megawatts of electricity annually, and that agreement continues through 2027 “regardless of whether PSO purchases the plant.
Horeled told the commission that if preapproval is not granted, PSO “most likely” would cancel the transaction and J-Power “most likely” would “sell it to someone else.” However, Horeled conceded that he did not know that for sure and said his statement was just his “best guess of what he thought would happen.”
The “timing” of the Jenks plant coming up for sale was advantageous, Fite said. “It was placed on the market and we had to act or not act.”
Some conversation focused on potential conversion of the coal-fired Northeastern Station Unit 3 at Oologah to natural gas. However, that plan “has not gone through an RFP [request for proposals],” Fite pointed out. No research has been performed on “how much a conversion would cost.”
Northeast 3’s generation capacity with coal is 420 megawatts, but with natural gas it would drop to 385 megawatts, Commissioner David said.
Under an existing agreement, coal-fired Northeast 3 will cease operation next year. “It has to stop in ’26,” Fite said.
Horeled testified that the company did not include the NE3 unit in its analysis “because it is still speculative.” He said PSO “plans on” converting the unit to natural gas “but it hasn’t happened yet, as there are still some points of the process that need to be worked out.”
OIEC, Atty. General
recommended denial
OIEC attorney Schroedter recommended the “outright denial” of PSO’s application for pre-approval. He urged the commissioners to adopt the findings of fact and conclusions of law in the report submitted by the ALJ.
Ortel’s report is “supported by the law and by substantial evidence” presented in the case, Schroedter said. For example, PSO “failed to comply with the commission’s rule regarding competitive bidding,” he said.
“No evidence was presented throughout the course of this case to show that a waiver of the Corporation Commission’s competitive bidding rules was sought in connection with the acquisition of Green Country,” ALJ Ortel wrote.
“You have to determine whether there’s a real need now and not down the road,” Schroedter said.
A “key factor” in the issue is that “no independent evaluator is telling you the Green Country power plant was ‘the best resource’,” he noted. “There hasn’t been adequate due diligence” performed.
Attorney General Gentner Drummond believes “there’s a need for more capacity, but maybe not until 2027,” Deputy A.G. Snodgrass told the Corporation Commissioners. Nevertheless, an electricity generation company “has to make decisions ahead of time” because a power plant “can’t be built overnight,” he conceded.
PSO seeks to recover up to $753 million via a “rider” – a surcharge that is not included in standard base rates and that allows a utility to recover the costs of specific programs, credits and purchases.
“Only the company is in support of that rider,” Snodgrass said. The Attorney General’s office contends “the company can carry the cost of Green Country until January 2026,” when PSO intends to file another rate case.
“We support the ALJ’s recommendation” and “under no circumstances should the rider be approved,” said Adam Singer, an attorney representing the AARP. If the commission were to authorize the rider, “$72.5 million would be collected from PSO’s customers immediately,” he said.
Failure to get the rider “would not result in a credit downgrade,” contrary to what PSO claimed, Singer added.
Petroleum Alliance,
AARP supported
Law Judge’s report
David Jacobson, an attorney representing The Petroleum Alliance of Oklahoma, echoed the AARP and urged the Corporation Commission to adopt the ALJ’s report “in its entirety.”
“It’s simply too expensive for pre-approval, and the Jenks plant is 23 years old; about half of its life is already used up,” Jacobson said. Furthermore, he noted, PSO “already purchases electricity” from J-Power and its Green Country plant.
It would be better if PSO invested “that kind of money in something new,” Jacobson said.
The age of the Green Country plant “produces an elevated risk of increased costs and/or early retirement as opposed to new, or brand new, facilities,” ALJ Ortel wrote.
PSO acknowledged it does not have an existing need for 795 megawatts of power until 2027, Michael Velez, deputy general counsel of the commission’s Public Utility Division, observed.
“Not knowing the purchase price nor the customer impact” of the proposed acquisition “is a concern to the Public Utility Division,” he said.
The multi-state Southwest Power Pool, in which Oklahoma operates, provides a planning reserve margin for PSO. SPP ”takes into account load and resource uncertainties, and determines the right level of capacity requirements that will result in the reliability that the SPP seeks to operate the pool,” ALJ Ortel wrote.
PSO “asserts that, to mitigate risk,” it includes a “target contingency, or ‘risk adder,’ above the current SPP minimum requirements,” Ortel related.
The 6% “risk adder” proposed by PSO is in addition to the planning reserve margin (PRM) established by the SPP “and it would be akin to PSO operating with a PRM of 21%,” Ortel wrote. PSO customers “would pay for that,” the commission was told.
A regulated public utility in Oklahoma must notify the Corporation Commission when “material changes” in its Integrated Resource Plan (IRP) are planned. “PSO did not do that,” Velez reminded the commissioners. An IRP outlines how a utility intends to meet future energy and demand needs, considering factors such as reliability, affordability, and environmental sustainability.
Demmy, when cross-examined during a commission hearing on PSO’s application, testified that PSO has “no plans to update that IRP,” even with the forecast of another 779 megawatts of load growth.
PUD recommended capping allowable O&M and capital costs, holding PSO responsible for any shortfall projected capacity from the Jenks plant, capping O&M and capital costs of future environmental regulations, and establishing certain depreciation rates.
PSO buys electricity
from SW Power Pool
Frank Mossburg, a partner with Bates White Economic Consulting, pointed out that PSO has “routinely made fairly large purchases from the Southwest Power Pool market.” Company records show that market purchases from the SPP “averaged roughly 30% during the 2019-2023 period.”
PSO projects that without the Green Country power plant, market purchases will average approximately 9,500 gigawatt-hours, or 45% of load, over the 2025-2031 period, Mossburg said. Buying Green Country would reduce market purchases to about 3,700 GWhr, records indicate.
“The risks of extensive market reliance,” such as market price hikes, “should at least be considered in the purchasing decision,” Mossburg said.
On rebuttal, PSO attorney Fite claimed ALJ Ortel “ignored key pieces of evidence” and “was in error and misconstrued” Corporation Commission rules. “And she misstates due diligence performed by Black & Veatch and by the company.”
The proposed purchases “will not meet our need megawatt for megawatt,” he acknowledged.
Fite seemingly dismissed the protestants’ “angst over a 23-year-old power plant.” He mentioned PSO’s Comanche power plant at Lawton. “Even though the unit is old, it doesn’t require extraordinary amounts of operation-and-maintenance or capital investment.”