OG&E warns rate cut could slow storm response

OKLAHOMA CITY, Sept. 12, 2002 — A rate-reduction proposal submitted by the staff of the Oklahoma Corporation Commission would impair OG&E’s ability to respond to power outages, especially after storms, OG&E’s chief financial officer said recently.

In testimony filed with the Oklahoma Corporation Commission, James R. Hatfield also said rate-cut proposals before the Commission would harm the utility’s operational strength, which in turn would almost certainly make OG&E’s electric system less reliable.

Hatfield, senior vice president and CFO of OGE Energy Corp., OG&E’s parent company, renewed his concern about rate-cut proposals before the Commission ranging from $43.2 million to more than $90 million, which he has testified previously would bring severe consequences, including layoffs.

Standing firmly by OG&E’s request for a $26 million annual rate increase for urgently needed investment in an electric system battered by catastrophic storms and carrying ever-increasing power loads, Hatfield strongly cautioned against the electric rate cuts proposed by the Corporation Commission staff. “Simply put, OG&E would be compelled to scale back all facets of its operations, which will have an adverse impact on the company’s ability to provide reliable service,” he testified.

Hatfield testified that electric rate reductions of the magnitude proposed would slash OG&E’s operating budget. “Potential actions include elimination of overtime, which would significantly slow storm response,” according to his filed testimony, as well as “deferral of preventive maintenance efforts such as tree trimming and line inspections, further compromising long-term reliability.”

Hatfield also testified about how big rate cuts would devastate OG&E in the eyes of an anxious financial community that is already nervous about energy companies. “Given the current turmoil in the energy market, investor perception is driven in no small degree by the reaction of rating agencies to adverse rate decisions affecting regulated business,” Hatfield testified.

According to the testimony of Susan Abbott, who worked for the rating agency Moody’s Investors Service in New York for 20 years, electric rate reductions such as those proposed by the Corporation Commission staff would result in “a ratings downgrade of significant proportion.” Abbott served three years as a senior analyst in Moody’s Electric Utility Group and 10 years as Managing Director of the agency’s Power Group before retiring from Moody’s earlier this year.

“I am fully convinced that should a large rate reduction be ordered, even the $43 million reduction recommended by the Corporation Commission staff, OG&E would be severely impacted,” according to Abbott’s testimony. “OG&E would suffer a diminution in their credit standing, lose their A1 rating, suffer diminished access to the capital markets, and be forced to pay significantly more for money. All of these issues are important to ratepayers, as in the end, both the ratepayers and the investors end up paying for diminished creditworthiness.”

Monday was the deadline for final rebuttal testimony in the rate case initiated by the Corporation Commission in September 2001. A hearing in the case is scheduled before an administrative law judge Sept. 24 and the judge’s report is due Oct. 14. Notice of appeals are due Oct. 24 and the case is scheduled to go before the three-member Corporation Commission Nov. 20.

OG&E Electric Services is Oklahoma’s largest electric utility, serving more than 700,000 customers in a service territory spanning 30,000 square miles in Oklahoma and western Arkansas. OGE Energy also is the parent of Enogex Inc., a natural gas pipeline and energy marketing business.

Source: OGE Energy Corp.

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