OKLAHOMA CITY – The Oklahoma Corporation Commission has taken under advisement the recommendation of an administrative law judge to deny Public Service Co. of Oklahoma’s request for pre-approval of the proposed Fort Sill Energy Center (FSEC).
Pre-approval would allow PSO to “initiate cost recovery upon placing the FSEC into service prior to incorporating the project into base rates,” Administrative Law Judge Dustin R. Murer related.
The Tulsa-based utility – which serves more than 562,000 customer accounts in eastern and southwestern Oklahoma, including Lawton, Duncan, Altus, Hobart, Elgin and Cache – failed to consider “reasonable alternatives” and did not “properly bid these facilities as envisioned by Commission rules,” Murer wrote.
Furthermore, the proposed project “provides everything Fort Sill needs and very little capacity to [PSO’s] ratepayers in return,” Murer wrote in his 16-page recommendation after listening to witnesses during three days of hearings in late March and weighing their oral and written testimonies.
PSO proposed the $117.9 million “resiliency” project last fall. It would feature construction of a reciprocating internal combustion engine (RICE) gas-fired generator capable of producing 36 megawatts of electricity, coupled with photovoltaic solar panels providing up to 10.9 megawatts of power.
If pre-approval were granted by the Corporation Commission, construction on the FSEC would begin this fall. Joseph DeRuntz, an AEP project director, said the solar facility would be operational in 2022 and the gas-fired generation would come online in late 2023.
The Energy Center would be constructed on 81 acres of Fort Sill property leased to PSO. The facility would be “islandable” – situated “behind Fort Sill’s defense perimeter” as a national security precaution, PSO executive Matt Horeled said.
The project would enable Fort Sill, home to the U.S. Army’s artillery school, to operate for 14 days without being connected to the standard electric grid in the event of an emergency.
“Under normal circumstances, the energy produced by the RICE generator and solar panels would be fed onto the grid to serve PSO customers,” said Stan Whiteford, PSO region communications manager.
But if the power grid experienced an outage, the four 9-MW RICE engines and the photovoltaic solar panels could be disconnected from the grid to provide Fort Sill with 100% of the 33 MW of energy the post would need to sustain its critical missions. “That’s why it’s called an energy resilience project,” Whiteford said.
ARMY CAN’T AFFORD
TO PAY FOR FSEC
During a meeting Tuesday to hear oral arguments on Murer’s recommendation, Corporation Commissioner Dana Murphy asked whether PSO “reached out to the military to pay some of the cost” of the proposed FSEC.
The Army has pledged more than $10 million for investment in equipment that would help make it possible for the solar and gas-fired facilities proposed for Fort Sill to be isolated from the PSO/Southwest Power Pool grid in the event of a terrorist attack such as 9/11/2001 or a catastrophic weather event such as a tornado, PSO attorney Joann Worthington said. The $10+ million would be used to tie together two substations that provide electricity to Fort Sill.
As for paying most or all of the cost of the proposed Energy Center, that’s not likely, said Army attorney John McNutt of the Office of the Judge Advocate General.
The Army “is not looking for free electricity or a subsidy from PSO,” he said. But because the U.S. Army has approximately 100 military installations, “It’s not economically feasible for the Defense Department to build its own electric power facilities at military installations. The Pentagon has not budgeted for these kinds of projects.” Additionally, building and maintaining power plants “is not our core competency,” McNutt said.
Murphy noted that PSO has three cases pending before the Corporation Commission that potentially could have a financial impact of more than $1.1 billion on ratepayers: an estimated $825 million bill for electricity and natural-gas purchases from other entities in order to weather the February winter storm, a $172.4 million rate hike request, and the $117.9 million Fort Sill Energy Center project.
PSO COULD BUILD
FSEC NOW, ALJ NOTES
“It is important to note that PSO’s ability to construct, operate, and make the expenditures related to the FSEC are not an issue,” Murer wrote.
The Corporation Commission’s decision on PSO’s application “will not grant or deny permission to construct” the proposed power generation facility, the ALJ wrote. “PSO’s management already has the authority and discretion it needs to invest and build the FSEC regardless of the commission’s decision in this case. Should PSO opt to build the FSEC without pre-approval,” the utility could propose to include those expenditures in its rate base “in a future proceeding…”
“We could go forward” without the commission’s blessing, Worthington acknowledged Tuesday. However, “That’s really not a tenable suggestion,” the PSO attorney said. “Making this type of investment would put us in a tough position” in view of Murer’s recommendations and the criticism of the project by the commission’s Public Utility Division staff.
Murer observed that the FSEC “was designed to meet the specific needs of Fort Sill,” and with the exception of the proposed Energy Center, PSO “does not offer a service whereby customers may use PSO generation facilities to isolate from the electric grid…” Also, if not for Fort Sill’s “special need for islandable power,” the additional capacity from the proposed Energy Center “would not need to be located at” the Army post.
PSO pointed out that OG&E has a similar arrangement to provide emergency electrical power to Tinker Air Force Base in Oklahoma City. As a result of an Air Force initiative to privatize utilities on its bases, OG&E assumed maintenance of Tinker’s exterior electrical distribution system on Sept. 1, 2012. The contract was awarded in 2010 and was approved by the state Corporation Commission in 2011.
And Todd Bohrmann of the Oklahoma Attorney General’s staff said PSO is in preliminary discussions to install similar facilities at the McAlester Army Ammunition Plant.
NO IMMEDIATE NEED
FOR MORE CAPACITY
Murer referred to an exchange during oral testimony between Mark A. Becker, managing director of resource planning for PSO’s parent company American Electric Power, and Tom Schroedter, executive director of Oklahoma Industrial Energy Consumers, an association of companies with facilities in Oklahoma that consume significant quantities of energy.
Becker testified that PSO forecasted a capacity shortfall of 510 megawatts of electricity in 2022. However, on cross-examination by Schroedter, Becker said PSO purchased enough capacity to cover its reserve margin shortfall for 2022 through 2024, leaving excess capacity of 50 MW in the short term.
In 2025 and 2026, though, Becker testified, “We’ll need roughly 600 MW, and in 2027 PSO will need roughly 1,100 MW after Northeastern 3 is retired.” The 40-year-old Northeast 3 coal-fired unit at PSO’s Oologah generating plant is scheduled to be shuttered in 2026.
Mary Doris Casey, a public utility regulatory analyst with the Corporation Commission, maintained that PSO “disregarded reasonable alternatives that would meet its capacity requirement, thus limiting the scope [of the FSEC] to fit the needs of Fort Sill.”
While this application has been pending before the Corporation Commission, “several potential benefits of the RICE units were implied to provide value to the grid and PSO’s customers,” Murer wrote.
Although the RICE technology may provide benefits beyond generation capacity, “any such benefits” are “not supported by evidence and cannot be considered an established need” in this case.
Furthermore, Murer continued, the RICE units proposed in the FSEC are designed to provide peaking power, but PSO “has not identified a need in any particular load center for peaking generation.”
Murer asserted that PSO has not proven that “there is a need of additional resilience and reliability for Fort Sill and the [electric] grid in general.” In fact, he wrote, the records show that PSO has historically provided very high electric service reliability to Fort Sill.”
Over the past decade, “there has not been a single service interruption to Fort Sill due to transmission forced outages, generation supply shortages, or regional electric grid emergency events,” energy consultant Scott Norwood testified in the case earlier this year.
ENERGY CENTER
A ‘PRIORITY,’
ARMY SAYS
However, Michael F. McGhee, testifying on behalf of the U.S. Department of Defense, said the FSEC is “an important priority for Fort Sill and the greater surrounding Lawton community…”
The Army seeks to achieve “additional energy security and resilience on its installations by developing ‘islandable’ projects” which “contribute to the Army’s ability to provide access to necessary energy and water in the event of a disruption.”
Military installations that have secure electric power plants “inside the fence-line” which can operate even if the regional electric grid is disrupted “have a tremendous, strategic advantage,” testified McGhee, Deputy Assistant Secretary for the Army for Energy and Sustainability.
“For the last 10 years the Department of Defense has been trying to harden our installations,” Army attorney McNutt told the Corporation Commission on Tuesday. “Electricity is critical for our installations. We rely on the grid. We have to have reliable backup power.”
NO EVIDENCE
OF ALTERNATIVES,
ALJ CONTENDS
PSO “did not present evidence of any other alternatives” for the Corporation Commission to consider, Murer wrote. The utility “did not perform an economic analysis to demonstrate that the FSEC represents the lowest reasonable cost alternative to supply the needs of PSO’s system.”
For example, using U.S. Energy Information Administration data “as a proxy” for 36 megawatts of capacity, PSO residential customers “would face an increased bill of 54¢ per month rather than the $1.27 impact expected for the RICE facility” proposed by PSO, Murer wrote.
And James B. Alexander, a regulatory analyst with the Oklahoma Attorney General’s Office, testified that the recommendation of the AG’s office would result in an average increase in a PSO residential customer’s bill of 43¢ versus the $1.27 monthly impact of PSO’s proposal.
PSO did consider alternatives but within the limits of the Army’s requirements, Worthington said. She conceded that the FSEC “would cost more than something not behind Fort Sill’s fence-line.”
If the Fort Sill Energy Center were approved as requested by PSO, “the overall body of PSO’S customers would pay for the project, even though aspects of the project were intended to meet the special needs of Fort Sill,” the ALJ continued.
Public Service Co. and Fort Sill executed a 30-year lease on the post property, with an option for an additional 10 years.
If PSO’s application is approved, the utility would be contractually obligated to provide islandable power generation for at least three decades “even if the facilities were to become uneconomic,” testimony showed. The lease agreement “puts customers at too much risk and is against the public interest,” Murer contended.
PRE-APPROVAL OF FSEC
‘UNFAIR’ TO CUSTOMERS
“[I]t does not appear that pre-approving these facilities is fair to PSO’s ratepayers, as it provides everything Fort Sill needs and very little capacity to ratepayers in return,” Murer wrote.
PSO responded that it was “puzzled” by the ALJ’s recommendations, and wrote that although the company designed the FSEC to meet Fort Sill’s goals, it would serve all of the utility’s customers “the vast majority of the time, which no party disputes.”
David Melvin, a senior public utility regulatory analyst with the Corporation Commission, said that Oklahomans “already pay federal taxes to support our military and should not be charged the extra requirements of Fort Sill for resiliency and renewable energy…”
Chris Bertus, a public utility regulatory analyst with the commission, testified that the energy resilience Fort Sill requires “can be obtained through other means that do not involve PSO.”
McGhee, though, flatly stated that the United States Army “will not directly or indirectly contribute toward the construction or operational costs of the [FSEC] project, other than as a general PSO customer and ratepayer.” The Army’s position is that “PSO is financially responsible for the construction and operation of this project, on the ground that the assets will be used to benefit all of PSO’s customers.”
FORT SILL ‘VITAL,’
HAS $2B IMPACT
It was noted during a previous Corporation Commission hearing that while PSO customers would pay for the Fort Sill energy project, all Americans potentially could benefit from the project in the event of a crisis because the Army post would remain in operation. Therefore, Matt Horeled was asked, shouldn’t “the entire country” be responsible for “supporting the needs of the military?”
“I think we all do, with our taxes,” said Horeled, PSO’s regulatory and finance vice president.
Kyle Vazquez, a Corporation Commission attorney in the Public Utility Division, asked Horeled whether it’s “equitable to have a small subset of Oklahoma citizens – PSO customers – subsidize the cost of a project at the request of a national entity?”
Fort Sill is the third-largest single-site employer in this state and has a $2 billion economic impact on Lawton and Oklahoma, Horeled said. “Those aren’t benefits for the whole federal government. Therefore, I think there’s a strong public policy argument for supporting this project in Oklahoma.”
Fort Sill is “incredibly vital to the community,” state Rep. Rande Worthen, R-Lawton, wrote in a letter to the Corporation Commission.
A project of the magnitude of the proposed Energy Center “would provide a significant number of jobs and infuse money into the Lawton and southwest Oklahoma economy throughout construction of the facility,” he wrote.
It also would “showcase the interest and value” of Fort Sill, since “under the current presidential administration, there is some concern that the military is not a high priority and potential downsizing of military bases may occur.” Because Oklahoma has multiple military installations, the legislator wrote, “it is not unreasonable to consider that one of our military bases may be discontinued.”
Investment in the Energy Center would be “an investment in the future of Fort Sill,” southwest Oklahoma “and our state as a whole,” Worthen asserted.
“There was no point in PSO pursuing its collaboration with Fort Sill, and there will be no point in pursuing such unique projects in the future, if the Commission deems such efforts unwelcome, unimportant and not in the public interest,” PSO declared in its exceptions to ALJ Murer’s recommendations.