Electric utilities, consumer groups debate rate proposal - Tulsa World

Electric utilities, consumer groups debate rate proposal

The state’s two major investor-owned electric utilities made the case to a legislative panel on Monday for a substantial change in the state’s rate-making process.

Representatives of Public Service Company of Oklahoma and OG&E want the state to adopt what is known as a performance-based rate system, which they say would provide smoother and more predictable rates and company operations but which opponents say would result in higher costs to consumers.

A performance- or formula-based system would allow investor-owned electric utilities to opt for a series of smaller annual rate reviews by the Oklahoma Corporation Commission and a major OCC rate review case every five years instead of the current individual major cases as circumstances dictate.

Natural gas utilities already use such a system.

The pros and cons of the switch were aired at length on Monday to the House Utilities Committee, which next session expects to take up legislation on the matter. Senate Bill 694, which was taken over in the House last spring, is the proposed reform’s current vehicle.

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The representatives for PSO and OG&E and former Corporation Commissioner Jeff Cloud, now executive director the industry group Alliance for Secure Energy, argued that performance-based rates create more stability for utilities and customers by substituting smaller annual rate adjustments for larger ones at irregular intervals.

Kimber Shoop, OG&E director of regulatory affairs, said the annual reviews would examine expenses, capital investment and revenue and from that the Corporation Commission would determine whether rates go up, down or remain the same.

“This bill makes us come in and prove up the prudency of our expenses and our investments every single year,” Shoop said. “This is going to increase the accountability of the utilities and increase the scrutiny of our costs.”

Opponents, which range from the AARP to the Department of Defense, questioned the likelihood that utilities are really that gung ho for more accountability and scrutiny.

“Why do utilities love and customers hate formula rates?” asked Mark Garrett, a consultant for industrial electric customers.

According to Garrett and other opponents, including Walmart executive Steve Chriss and Petroleum Alliance consultant David Dismukes, the answer is that performance/formula-based rates have always resulted in higher rates over the long term, with no clear additional benefits to consumers.

They said the annual reviews usually become perfunctory and that by the time the five-year reviews come around the annual increases are already baked into the base rates.

Dismukes presented examples from several states, including Arkansas and Louisiana, that he said showed the structure proposed by the utilities has resulted in substantial rate hikes.

Shoop and PSO Vice President Matt Horeled disputed those claims, at least to the extent that the increases were any more than they would have been otherwise, but they did have difficulty defining how customers would benefit from a change.

Shoop acknowledged that SB 694 as currently written would not require any measurable service improvements but said the Corporation Commission could.

He also noted that the commission is required only to approve a utility’s first performance-based rate plan.

“This is essentially a pilot program,” Shoop said.

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