ELECTRIC RESTRUCTURING – BAD PUBLIC POLICY FOR THE STATE OF OKLAHOMA
What Companies are considered Regulated Electric Utilities in Oklahoma
The regulated electric utilities in Oklahoma include - Oklahoma Gas and Electric, Public Service Company of Oklahoma, Liberty Utilities and 5 electric cooperatives.
State law prevents the Commission from regulating any electric utility operated by a governmental entity, such as the Grand River Dam Authority, or cities, which are members of the Oklahoma Municipal Power Authority.
What does it mean to be a Regulated Electric Utility?
Unlike prices charged by private companies, prices that regulated utilities charge for their products and services are set by the Oklahoma Corporation Commission (“OCC”).
When a utility wants an increase in its prices/rates, the utility must first file an application with the OCC, along with substantial supporting documentation justifying the requested increase. All costs are reviewed to ensure that they were prudently incurred before inclusion in rates.
The fuel cost associated with the generation by the regulated utility is a pass-through cost. No profit is made on the fuel.
Benefits of the Regulated Model in Oklahoma
For over 100 years, the OCC has overseen electric generation that regulated utilities maintain and requires utilities to engage in Integrated Resource Planning to ensure they are properly considering all factors when planning the generation portfolios. The Commission also ensures that utilities use competitive bidding when constructing or purchasing new generation assets. All costs associated with construction and operating generation facilities are reviewed by the Commission to ensure those costs are fair, just, reasonable and appropriate for recovery through customer rates.
Oklahoma customers also receive wholesale power from the Southwest Power Pool’s competitive wholesale power market. Electric generating facilities compete in the SPP market to supply the lowest cost power within the region. Only the cheapest generation in the market is selected to run on a daily and hourly basis, which means electric utilities only purchase the lowest cost energy for their customers.
Oklahoma enjoys both the accountability and oversight that comes with regulation and the benefits of competition though the SPP’s wholesale energy market.
Facts About Electric Restructuring in Other States
If you look at the jurisdictions with the highest average retail electric rates, most of the highest priced jurisdictions are states that have undertaken some form of electric restructuring. (EIA State Electricity Profiles using 2020 Data at https://www.eia.gov/electricity/state/)
In comparison to the most expensive jurisdictions, Oklahoma has the 50th lowest average retail electricity price of all jurisdictions. However, broad brush comparisons of ALL regulated States to ALL deregulated states is not appropriate. Not all regulated states are the same and not all deregulated states are the same. The regulated utilities in Alaska and Hawaii (the 2 highest electric rate states in the US) are very different than what we have in Oklahoma.
Comparing the natural gas regulated utilities to electric regulated utilities is also not comparable. Both do pass through the fuel costs with no mark-up but where the natural gas utility adds transportation costs the electric utility adds transportation and energy conversion costs.
Jurisdictions with the Highest Average Retail Electricity Price in the United States (cents/kWh)
Other Important Facts to Remember:
A recent study concluded that Texans living in deregulated areas would have saved more than $27 billion in lower residential electricity bills from 2002 through 2016 had they paid the same average prices as Texans living outside deregulation. (See “Electricity Prices in Texas, A Snapshot Report, 2018 Edition,” at https://tcaptx.com/reports/snapshot-report-electricityprices-texas-april-2018)
In July 2020, EIA statistics confirm the kWh rate for Industrial customers is higher in Texas than in Oklahoma.
SPP Wholesale prices show Texas pays substantially more for the average wholesale price of electricity than Oklahoma. (July 2020.
ERCOT - $49.65. SPP South $30.43).
Many deregulated states (including Texas, Illinois, Connecticut, Massachusetts) have conducted studies that show that customers
would have been much better off staying in the regulated model instead of moving to deregulation.
What are the risks?
Increase costs to residential customers? Some believe that customer choice should be limited to only certain commercial and industrial customers and that residential customers should remain regulated. However, utilities simply cannot deregulate one or two customer segments. If that were to occur, costs would shift to residential customers causing residential rates to skyrocket.
It will likely cost billions of dollars to dismantle Oklahoma’s existing electricity system by deregulating. Like in other deregulated states, it would require Oklahoma’s existing electric companies to remove their generation assets from customer rates – including power plants – at a tremendous loss (stranded costs and accelerated depreciation). A restructured market in Oklahoma would be excessively expensive to set up and administer. The Electric Reliability Council of Texas (“ERCOT”) had an administrative budget alone of over $200 million in 2019. Ultimately, these costs would be paid for by all Oklahomans in the form of higher electric bills– hurting consumers, small businesses, and our state economy.
Deregulation breaks the bond between the customer and the generation. It would not be clear who would carry such responsibilities and there would less accountability to regulators leading to uncertainty and confusion. States with electric restructuring have lost the ability to control generation resource options and oversight of resource planning.
Opening Oklahoma up to retail competition would bring potential confusion between Oklahoma and SPP market practices and syphon SPP Integrated Marketplace savings away from customers and toward unnecessary third-party marketers. Third party marketers would be the entities that would profit from arbitraging between a deregulated retail market and the SPP Integrated Marketplace. The entity that created and helps fund the Alliance for Electric Restructuring Oklahoma is a natural gas marketer named Clearwater Enterprises; an entity eager to make money in electric energy retail marketing.
Bottom Line
We currently have a system that works – it keeps customer rates low, maintains reliable service, takes advantage of wholesale market efficiencies and insulates customers from dramatic price spikes. Why would this State want to rock the boat by going down the path of deregulation? What are we trying to solve by introducing deregulation and the risks it brings? It seems to be nothing more than a costly, half-baked solution looking for a problem, proposed by an entity wanting to make money on the backs of our customers.
