OKLAHOMA CITY – The Oklahoma Corporation Commission has approved an increase in the base rates of Public Service Co. of Oklahoma that will enable the electricity provider to recoup approximately $700 million in new investments.
The monthly bill of a residential customer who uses 1,100 kilowatt-hours per month will increase $5.07, or approximately 4.72%, according to commission Administrative Law Judge Dustin Murer. That’s less than half the company’s original rate increase request, which would have boosted residential base rates by approximately $11 per month.
“Today’s action was consistent with interim rates that have been in place since October,” PSO Region Communications Manager Wayne Greene said Tuesday afternoon.
The $50.7 million rate hike is based on a return on equity of 9.4%, a cost of long-term debt of 3.73%, and a weighted average cost of capital of 6.74%. In calendar year 2020 PSO’s rate of return on its rate base was 7.33%.
This will be PSO’s first rate increase in two and a half years, the commission noted. PSO’s current rates have been in effect since March 2019.
Even after the price increase, PSO’s rates will be 33% below the national average, 15% below the regional average, and 14% below the state average,” the commission claimed.
Besides the rate increase, $102.7 million in “rider” revenues will be incorporated into the utility’s rate base. One “rider” and a portion of two others will be rolled into the base rate, Greene said. Electricity and gas distribution companies use temporary rate “riders,” which are not itemized on a customer’s bill, to adjust differences between actual costs and approved rates for providing service.
PSO’s new investments, part of the company’s grid Security, Transformation and Efficiency Plan (STEP), are already in service and providing benefits to customers but are not included in current prices, a now-retired PSO executive told Southwest Ledger.
STEP, company executives said, is designed to 1) strengthen the electric grid, resulting in fewer and shorter power outages; 2) result in cleaner air and greater use of efficient and environmentally friendly power sources like low-cost natural gas and Oklahoma wind energy; and 3) provide new programs and offer customers new service options and integrate technology.
PSO has more than 565,600 customers in 232 municipalities across eastern and southwestern Oklahoma. The utility serves at least 37 communities in southwest Oklahoma, including Lawton, Altus, Duncan, Cache, Elgin, Fletcher, Porter Hill, Sterling, Hobart, Apache, Temple, and Rush Springs.
The utility’s customers number 486,566 residential, 64,003 commercial, 6,796 industrial, and 8,283 “other.”
AARP dissatisfied with settlement
The three Corporation Commissioners on Tuesday accepted a “Joint Stipulation and Settlement Agreement” that was endorsed by PSO executives, the commission’s Public Utility Division (PUD), the Oklahoma Industrial Energy Consumers (OIEC), and the U.S. Department of Defense (DoD).
The International Brotherhood of Electrical Workers (IBEW), Local 1002, AFL-CIO, rejected the agreement because it “does not address the concerns raised by the Union…”
Representatives of the American Association of Retired Persons (AARP) also refused to sign the document “because it is not in the best interest of customers and results in rates to residential customers that are neither fair, just, nor reasonable.”
AARP contended that:
- PSO’s $20 monthly fixed fee should be reduced to $12, an argument the AARP made to the commission in 2015, 2017, and 2018. PSO’s monthly fixed charge is the highest residential fixed charge of all American Electric Power affiliates. (AEP is PSO’s parent company.)
Ron Nelson, a director with Strategen Consulting of Berkeley, CA, testified that AEP Texas charges a standard monthly residential customer fee of $4.79; SWEPCO-Texas, $8; AEP Ohio, $8.40; and SWEPCO- Arkansas, $10. OG&E Oklahoma charges $13, and OG&E Arkansas charges $9.75.
Lowering PSO’s base service charge from $20 to $12 “is not warranted at this time,” the Corporation Commission ruled Tuesday. “[T]he issue can be addressed in future proceedings if desired by AARP or any other party,” the three-member panel said.
- The settlement agreement provides “an excessive rate of return” at 9.4%, when Walmart, OIEC, and the commission’s own PUD staff “all filed testimony in this matter advocating that an appropriate ROE would be no higher than 9.0%.”
However, the DoD and the state Attorney General’s staff supported a 9.4% return on equity, and “the record clearly supports the Amended Joint Stipulation requesting a 9.4 ROE,” ALJ Murer wrote.
- The stipulation includes recovery of the 650-megawatt Oklaunion coal-fired power plant near Vernon, Texas, which was shut down three months ago and has since been sold. “Customers will pay PSO for replacement capacity and AEP shareholders benefit twice,” the AARP complained. Oklaunion “is no longer used and useful and is not operating to serve the public and therefore should not be reflected in rates,” the AARP asserted.
Matthew Horeled, PSO’s vice president of Regulatory and Finance, testified that Oklaunion was retired because PSO and Southwest Power Pool members who voted to keep the 34-year-old generating plant open were outvoted by “other interest holders who wished to close” the facility.
The Oklaunion power plant was co-owned by four partners: PSO (which operated the facility), 15.62%; AEP Texas, 54.69%; the City of Brownsville, Texas, 17.97%; and the Oklahoma Municipal Power Authority, 11.72%.
The OMPA is a nonprofit organization that serves 42 municipally owned electric systems. The public power entity is owned by the cities it serves, which include Altus, Comanche, Duncan, Eldorado, Frederick, Granite, Mangum, Manitou, Marlow, Olustee, and Walters.
- The stipulation allows PSO to return excess customer funds of $712,051 over a period of 20 months. PSO discovered “an inadvertent over-recovery” of those funds through the System Reliability Rider, which was discontinued in a 2017 PUD case, Horeled said
AARP asserted that the funds should be returned “as soon as possible, not over almost two years.”
- The settlement also allows a “discriminatory rate shift” of electric transmission costs “in favor of industrial customers at the expense of residential customers,” the AARP argued.
On the flip side of that debate, Lisa Perry, senior manager of Energy Services with Walmart Inc., testified that electricity is “a significant operating cost for retailers” such as Walmart.
Walmart operates 134 retail units and two distribution centers, employing more than 34,000 associates in Oklahoma, Perry said.
She also testified that within PSO’s service territory, Walmart has approximately four dozen retail stores, including Supercenters, Sam’s Clubs, Neighborhood Markets, related facilities, and one distribution center.
When electric rates go up, “the increased cost to retailers can put pressure on consumer prices and on other expenses required by businesses to operate,” she noted.
Similarly, OIEC’s members are large users of electricity on PSO’s power grid “and therefore are very sensitive to any electric rate increases,” said energy consultant Scott Norwood of Austin, Texas.
“Every dollar spent on electricity is a dollar that cannot be spent on Oklahoma jobs,” said Mark Garrett on behalf of the Oklahoma Industrial Energy Consumers.
Other items in agreement
- PSO’s local, state, and federal taxes are incorporated into the company’s rate base. The agreement approved Tuesday reflects a four percent state income tax in the base rates, since the Legislature pared the state income tax rate by one-third, from 6% to 4%, effective in January 2022.
“Companies have a constitutional right to the opportunity to earn a fair return, and taxes are part of all businesses’ cost to operate,” explained Brandy Wreath, director of the Corporation Commission’s Public Utility Division. “Failure to include taxes in the calculations would be the equivalent of a violation of the “takings clause” of the Fifth Amendment to the United States Constitution, which decrees, “Nor shall private property be taken for public use, without just compensation.”
- The commission approved the utility’s request to include an economic development rate (EDR) in its application.
When a company is considering where to locate, “it considers many factors, including local utility rates, labor force availability, local tax rates, and other factors that are important to a particular business,” said Chad Burnett, director of economic forecasting for AEP Service Corp.
Oklahoma Gas & Electric Co., Liberty Utilities, Entergy, and Southwest Electric Power Co., which cover areas in Oklahoma, Arkansas, Louisiana, Kansas, Missouri, and the regulated portion of Texas, “all have economic development rates,” which “puts PSO at a competitive disadvantage,” Burnett wrote.
PSO’s EDR would provide a limited-term credit to its billing demand charges during the first 36 months of operations, he said.
The company’s EDR would provide a slightly bigger incentive for larger employers (those that would bring 100 or more jobs to the service territory).
PSO’s economic development rate is designed for customers “whose operations will promote sustained economic development and job creation,” Burnett said. It is available only to customers who have already been offered and accepted an incentive by a local, regional, or state economic development agency to locate a new facility, or expand existing facilities, he said.
The Corporation Commission stipulated in its order Tuesday that only those PSO customers who benefit directly from the Economic Development Rider will be required to pay any portion of the EDR credit.
EV tariffs praised
The Oklahoma Sustainability Network commended PSO for proposing “three new time-of-use electric vehicle (EV) tariffs: one for residential customers and two for commercial customers.”
The tariffs “provide price signals that will encourage EV owners to utilize off-peak capacity for charging their cars and trucks, and hopefully even buses,” wrote Montelle Clark, energy policy director for the OSN. The OSN recently learned that “there are now EVs registered in all 77 Oklahoma counties.”
In addition, Anheuser- Busch “has applied, through the Association of Central Oklahoma Governments, for an EPA grant to replace 13 older diesel Class 8 trucks with new, all-electric trucks in Oklahoma City and Tulsa,” Clark reported.
Electric-powered school buses “are the other significant opportunity that OSN would encourage PSO to consider. Clark noted that IC Bus, an electric-powered school bus manufacturer, has an assembly plant in Tulsa. “They sold their first order of V2G buses earlier this year, but it was to a school district in British Columbia.”
OSN “would like to see those yellow buses on the roads in Oklahoma, full of health Oklahoma kids,” Clark wrote.
The network “encourages PSO to develop pilot programs or plans to address these types of innovative opportunities…”
Hearing slated soon on winter storm bill
A hearing is scheduled Monday at 1:30 p.m. on PSO’s application to “securitize” $732.5 million in “extreme” and “extraordinary” expenses incurred during the February 2021 winter storm.
An administrative law judge is expected to file a recommendation in that case by Jan. 10, 2022.
If PSO is granted the financial relief it has requested, a residential customer’s bill would increase by an average of $4.02 per month over a period of several years, according to the power company.)