Ratepayer or Shareholder Protection Act? Consumer Groups, Utilities Square Off on Pending Bill
Oklahoma Corporation Commissioners (from left) Todd Hiett, Kim David and Bob Anthony listen as Sean Voskuhl, right, with AARP Oklahoma outlines his opposition to Senate Bill 1103, which would change the way electric utilities get rate increases, during a meeting Monday, March 20, 2023. (Paul Monies/Oklahoma Watch)
In an odd twist, a utility-backed bill changing how electric utilities process rate increases got a full hearing Monday in an unlikely place: the Oklahoma Corporation Commission.
Commission Chairman Todd Hiett, a former House Speaker, called the “informational meeting” to gather input for a possible vote by the three-member commission on its opposition to Senate Bill 1103. After almost three hours of discussion by utility companies, customer groups and staff for the commission’s public utility division, there was no consensus for a commission position on the bill.
The bill is officially titled the Ratepayer Protection Act, but detractors who think it helps the utilities more than customers have called it the “Shareholder Protection Act.”
Among all the groups presenting at the meeting, only electric utilities and the Alliance for Secure Energy, a group run by former Corporation Commissioner Jeff Cloud, supported the bill. Discussions were further complicated when utility representatives said a new version of the bill had been published earlier in the day.
Hiett couldn’t get the support of new Commissioner Kim David, a former Senate majority floor leader who won election to the panel in November. Commissioner Bob Anthony, who is still upset at the way the commission dealt with customer costs from the winter storm of February 2021, said it wasn’t the commission’s place to weigh in on pending legislation across the street at the Legislature. All three members of the elected commission are Republicans.
SB 1103, by Senate Pro Tempore Greg Treat and House Speaker Charles McCall, passed a Senate committee earlier this month. It could be heard on the Senate floor as soon as Wednesday. The deadline for bills to make it out of their originating chamber is Thursday.
The bill would change the way utilities get regular reviews of rates charged to customers. It would require the Corporation Commission to accept utility plans to move to what’s called performance-based rate-making. That lets regulated utilities file annual reviews to make sure profits fall within a predetermined band of earnings. Any movement above or below that band would be either charged to customers on future bills or returned to customers as bill credits.
SB 1103 also requires electric utilities to have a set amount of natural gas in storage. Electric and gas utilities in the state quickly ran through their gas storage during the winter storm in February 2021. The utilities had to purchase gas on a wildly spiking spot price market to keep the lights on and heating for homes. Utility customers will be paying additional monthly charges for decades to pay for that pricey gas under several ratepayer-backed bonds approved by the Corporation Commission.
Hiett and David said the commission already has the authority to approve performance-based rate reviews for utilities. The commission has been unwilling to approve previous requests by both Oklahoma Gas & Electric Co. and Public Service Co. of Oklahoma to move to that streamlined approach and away from full-rate cases, which can take more time and money to process.
PSO has an active case before the commission asking for performance-based rates. That contributed to David’s reticence on Monday to take a stance on SB 1103 as a commissioner.
Attorney General Gentner Drummond’s office, which represents all customers in utility cases before the Corporation Commission, also declined to take a position on SB 1103 at Monday’s meeting. Representatives of the attorney general filed a statement last week in PSO’s pending case. It said the attorney general would support the commission starting a formal study of performance-based rate-making for electric utilities.
“Regardless of any particular stakeholder’s beliefs on this topic, further study and dialogue would help to ensure that a potential Formula Rate Plan or Performance Based Rate Change Plan works to the benefit of both ratepayers and the regulated electric utility sector,” said the attorney general’s statement filed in the PSO case.
Oklahoma Natural Gas and other natural gas utilities in Oklahoma are already on performance-based rate-making plans. Most of the participants at Monday’s meeting said regulated utilities for natural gas had a different business model than vertically integrated electric utilities.
Natural gas utilities like ONG provide service at the customer level on the distribution system like a local pipeline network. They don’t provide large-scale transmission of natural gas directly from producers in the field. Other businesses provide that service. That’s different from the biggest investor-owned electric utilities, which own generating plants, transmission lines and distribution to individual customers. All of those parts of the electric utility sector get charged back to customer rates.
The Corporation Commission meeting on Monday stood in contrast to a Senate Energy and Telecommunications committee meeting earlier this month on SB 1103. Treat presented the bill, but deferred to representatives from OG&E and the Alliance for Secure Energy to answer questions on the bill from committee members. The bill passed the committee by a vote of 10-2.
Committee chairs have the discretion to allow public comments on pending bills before their committees. The Oklahoma Legislature has been criticized for having a lack of participation in the legislative process.
Monday’s meeting at the Corporation Commission included comments from AARP Oklahoma and the Oklahoma Industrial Energy Consumers group, which advocates for large industrial energy users. They were joined by the Petroleum Alliance of Oklahoma, Walmart Inc. and the federal Defense Department in their opposition to SB 1103.
Tom Schroedter with the industrial energy consumers group asked commissioners to oppose the bill, saying it usurped their existing authority to properly regulate the utilities.
“This is an end-run around you and around your authority,” he said. “The Supreme Court has given you great latitude in how you regulate utilities, but this bill would require you to approve a performance-based rate plan. It whittles away at your power and authority.”
Schroedter said no ratepayer groups support the bill and listed several companies who were also opposed. He said it was interesting that utilities would want the Legislature to mandate gas supply and storage requirements when the prevailing idea behind regulated utilities was that management has the discretion to run the business.
“Utilities are constantly telling you, ‘You can’t invade our management discretion,’” Schroedter said. “But now they’re running over across the street and asking for a mandate telling them how to manage their gas supply? That’s ridiculous. That’s incredulous. This should be named the Utility Shareholder Relief Act.”
Arkansas regulators have allowed OG&E to use performance-based rates for its 68,000 customers in that state. Utility representatives said regulators should allow it in Oklahoma.
“This bill is good for customers,” said Kimber Shoop, OG&E’s director of regulatory affairs. “It holds utilities more accountable through more frequent review of costs. It creates more efficient and effective use of regulation of electric utilities. It creates and affirms customer protections and stabilizes customer bills.”
Shoop said the annual review of customer rates doesn’t mean there will be automatic rate increases every year. Under the current rate-making process, utilities typically come in every three to five years to change rates depending on how quickly market conditions have changed.
“A final order each year by the commission will weigh the reasonableness of all costs and decide if rates should change,” Shoop said. “Rates will not change if the utility’s earnings are within a certain bandwidth set by this commission.”
If an electric utility over-earns, the excess will be returned to customers, with 75% as bill credits and 25% reinvested back into the utility’s electric grid for reliability projects, he said.
ONG’s experience with performance-based rate-making in the past five years has been a wash: There have been two increases, two decreases and one year where there were no changes to rates.
“It seems to be working well for the gas utilities, and it’s something the electric utilities should have as well,” Shoop said. “If it’s good policy for the gas utilities to have, it should be good policy for the electric utilities to have as well.”