May 4 — Weeks of fact finding and public hearings kick off this month as Oklahoma Gas & Electric Co. makes its case for a $110 million rate hike the utility says it needs to upgrade its generation and distribution systems and keep up with rising customer demand for power.
But Oklahoma’s largest utility is hardly setting a new trend among the nation’s electricity generators by seeking more from its customers. Utilities in many states are asking regulators for higher rates to upgrade aging infrastructure and meet the nation’s growing need for electricity.
“Utilities across the country over the past five years have definitely been going in for rate increases,” said Ed Legge of the Washington, D.C.,-based Edison Electric Institute, the association of U.S. shareholder-owned electric companies.
“We’ve seen demand rise exponentially as Americans in general have become more wired in,” Legge said.
The rise in ownership of computers, cell phones, entertainment devices and other electronic gadgets has resulted in an explosion in demand.
Of the 70 investor-owned utilities that comprise EEI, most if not all have sought rate increases in recent years, Legge said.
In addition, long-deferred capital needs of the nation’s electric utilities are now estimated at hundreds of billions of dollars, according to Scott Hempling, executive director of the National Regulatory Research Institute, an independent, nonprofit corporation in Silver Spring, Md., that works to identify and meet regulatory challenges.
“Utility regulation has a ‘consumer protection’ component,” Hempling says on NRRI’s Web site. “Have we allowed this ‘consumer protection’ purpose to transmogrify, from protection against monopoly inefficiency to protection against high costs in general?
“Rate rankings do not equal rate appropriateness; consumer protection does not mean protection from the right rates.”
In February, OG&E, a subsidiary of OGE Energy Corp., asked the Oklahoma Corporation Commission to increase average electric rates for its residential customers in the state by about $8 per month for an annual increase of about $110 million.
In support of its request, OG&E said it has spent about $1.6 billion in new power plants and improvements to power lines, substations and other equipment since the commission authorized a $42 million rate boost in 2006. But more than $900 million of that investment is not covered in current electric rates, which are based on 2004 costs.
“We have spent a lot of money above and beyond what our prices covered in 2004. And we can’t keep doing that,” said Paul Renfrow, vice president for public affairs for the utility.
A spokesman for OG&E, Brian Alford, said it is experiencing many of the same infrastructure issues and costs associated with new technology as are other utilities.
“OG&E is not alone in the need to continue to invest. There is a need to invest to ensure long-term viability,” Alford said, adding that the utility’s distribution system “is nearing the end of its useful life.”
The largest rate increase OG&E has ever received was $141.3 million in the early 1980s. But the company said its Oklahoma rates are about 25 percent below the national average and will remain below the national average even with the proposed increase.
Last year, OG&E acquired a 51 percent interest in the 1,230-MW Redbud plant near Luther for a purchase price of about $434.5 million. The purchase followed the commission’s decision in 2007 to deny pre-approval of costs associated with building a 950-MW coal-fired plant near Red Rock in northern Oklahoma.
The Red Rock plant, a joint venture with other utilities that carried a price tag of $1.8 billion, was abandoned.
“We have set a stretch goal to defer any new fossil generation until 2020,” Alford said. “By avoiding that new construction, we help prevent the cost associated with significant investments like that.”
The utility instead plans to concentrate on helping its customers be better consumers of energy and invest in wind and other renewable energy sources, he said. OG&E also plans to spend more than $200 million to build new transmission lines from wind farms in northwestern Oklahoma to the Oklahoma City area.
The project is one of more than 30 transmission projects that have been completed, are under way or are planned by utilities across the nation to transmit solar, wind, geothermal or biomass-generated electricity as part of their overall electric load, according to EEI.
“We still need investment in our system and this technology, but it is much more economical to invest in helping our customers save,” Alford said.
Balancing the need for utilities to invest and customer demand to keep rates low puts new pressure on regulators, officials said
“Regulators will need to develop and enforce standards and measurement tools to track and improve reliability and power quality, and will have to decide how to allocate among customer classes the costs for any needed improvements,” William Steinhurst, senior consultant for Synapse Energy Economics of Cambridge, Ma., says on the NRRI Web site.
“Those years-long rate freezes lull the public into thinking rate stability is an entitlement,” said the NRRI’s Hempling. “Voters don’t offer thanks for the prior windfall; they protest the new levels, loudly.”
Dana Murphy is one of three commissioners who will decide the OG&E rate case.
“The onus is on commissioners across the United States to make sure we look closely at these rate cases,” Murphy said. “I think there’s a higher level of scrutiny in all cases.”
The commission’s staff has been researching the rate increase request since it was filed, and those involved in the case will exchange lists of what they consider to be the major issues on May 28. Public hearings, if needed, will begin July 22.
Murphy said OG&E can implement its proposed new rates after Aug. 26 even if the commission has not made a ruling, subject to refunds if the request is eventually denied.
“I think we need to do our very best job,” she said.