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Business and Economy

OG&E Rate Hike And Modernization Plan Dealt Major Blow By Corporation Commission Judge

OG&E's coal-fired power plant in Muskogee.
Logan Layden
StateImpact Oklahoma
OG&E's coal-fired power plant in Muskogee.

On Monday an administrative law judge recommended Oklahoma’s oil, gas, and utility regulator reject several key components of Oklahoma Gas & Electric’s billion-dollar plan to raise rates in order to pay for efforts to comply with Environmental Protection Agency rules.

The Journal Record’s managing editor Adam Brooks says the Oklahoma Corporation Commission has been holding hearings on preapproval of OG&E’s $1.1 billion request. It’s split up into $700 million to get several plants into compliance with the EPA guidelines, plus another $400 million in upgrades to the plant in Mustang west of Oklahoma City. To pay for that, the utility would raise residential and consumer rates by about 19 percent over five years.

Read more about OG&E’s modernization plan from The Journal Record

“The administrative law judge who was looking at it said he does not recommend approving the spending on the Mustang plant,” Brooks said. “[And] only partial approval of the environmental plan - the $700 million part - he would like to see OG&E look for more wind power before approving the rest of that plant.”

StateImpact Oklahoma’s Logan Layden says OG&E is trying to comply with the EPA’s 1999 Regional Haze Rule, as well as the Mercury and Air Toxic Rules, which Oklahoma has sued to block.

“Both of these are going to require the coal plants to be upgraded or switched to natural gas, one way or the other,” Layden said. “They fought over the last 10 years or so against these rules, but finally they've come to fruition, and they're going to have to make these changes.”

The Journal Record’s Sarah Terry-Cobo reports OG&E’s request is the steepest rate hike by any utility in the state in nearly a decade, and the process is atypical.

OG&E filed a preapproval request, citing Oklahoma statutes created in 2005, which allow utilities to pass along federally mandated environmental compliance costs to consumers: The commissioners can approve a planned rate increase before a utility begins construction. A utility must still file a rate case before the agency, but the preapproval gives an investor-owned utility more assurance its costs will be reimbursed. Attorneys from OG&E argued the 2005 law, House Bill 1910, allows it to pass along the Mustang modernization costs to consumers, similar to the environmental portion of the statute. Jackson disagreed, however.

“There's always been the traditional route of they spend, and then they come back for a rate case and ask to recoup the money from the rate payers,” Brooks said. “That can still happen, but to do that they still have to pay for whatever work they want to do. They probably have to issue bonds to do that, and that puts the risk onto shareholders. Preapproval sort-of shielded them a little bit.”

Thirteen groups intervened in the case, and Layden says all but one (OG&E shareholders) want more wind power per judge Ben Jackson’s recommendation, and most don’t think the Mustang upgrades are necessary.

“It does put the Sierra Club in an interesting situation. They're obviously very anti-coal, and would love to see the Mustang plant get upgraded, but they've also been saying for the last several years that this doesn't have to cost customers that much,” Layden said. “So upgrading the Mustang plant adds more to the cost of all this. So they are in a position of opposing it, even though they want to see the upgrade.”

There’s no timeline to resolve this case, but the Corporation Commission will have to schedule a period of public comment and objection. The three member panel will then vote, and OG&E will have to react.

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

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