Oklahoma regulators and soon, Oklahoma legislators, will learn they have a fight on their hands regarding two controversial issues—Right of First Refusal for utilities to build large transmission lines and Performance Based Rating for the utilities.
Opponents have lined up against each of the issues and they have made known their stances in filings with the Oklahoma Corporation Commission. The Commission launched a Notice of Inquiry last spring to explore the two issues and since then has received filings for and against….more against than for.
Here’s how it lines up: Not surprisingly, those in support of ROFR are the utilities— Oklahoma Gas and Electric, Public Service Company of Oklahoma and ITC Great Plains, LLC.
Those against are: Oklahoma Municipal Power Authority, AARP, the Sierra Club, NextEra Energy Transmission and the Oklahoma Industrial Energy Consumers.
As for the Performance Based Rating, it is supported by: Liberty-Empire District Electric, OGE, The OG&E Shareholders Association, PSO and the Sierra Club. Those opposed are the Federal Executive Agencies which includes Tinker Air Force Base, Vance AFB and the Army’s Fort Sill. Other opponents are the Petroleum Alliance of Oklahoma, AARP, OIEC and the Oklahoma Municipal Power Authority.
Why and what do they base their stances on the two issues? Let’s begin with the Performance Based Rating or PBR.
OG&E had the most extensive of the filings in listing its support, noting it had advocated for the implementation of the PBR in recent years. The utility stated that the PBR model has been used for nearly 20 years to regulate rates for Oklahoma’s natural gas utilities.
“The successful history of PBRs in Oklahoma along with the Company’s own experience with the FRP (Formula Rate Plans) in its Arkansas jurisdiction demonstrate the Commission need not speculate to know OG&E’s customers can benefit from the implementation
of alternative ratemaking methodologies in Oklahoma,” stated the utility in its filing with the Corporation Commission.
OGE contends the PBR framework ensures utility customers are only paying the “lowest reasonable cost to provide utility service” and that under the current system, “customers cannot be assured the rates they are currently paying for utility service capture the fluctuations in the cost.”
The utility also argued that PBRs increase customer,regulator, and investor visibility of utility financial and operational performance.
OGE Shareholders filed in support of the PBR and a move away from the traditional ratemaking methodology saying PBR “provides benefits to both the ratepayer and the utility b accomplishing gradualism in rate adjustments, decreasing regulatory costs, lessening regulatory lag, providing closer supervision of utility performance through annual reviews, and reducing the need for cost recovery outside base rates.”
Public Service Company of Oklahoma argued that the traditional ratemaking practices, such as used by the Corporation Commission “result in financial under-performance of the electric utility in today’s operating environment.” PSO claimed alternative ratemaking will “only reduce, not eliminate,” the adverse impact of regulatory lag.”
The utility called Oklahoma’s existing ratemaking method “lengthy, costly and litigious” and “not conducive for collaboration or innovation.”
It pointed to other states where the ratemaking process is not so involved in lengthy hearings.
“Additionally,” wrote PSO in its argument, “pressing and volatile issues of the day can be discussed in greater detail with more scheduling efficiency when numerous base case dockets are not open in the states.”
The utility further argued, “Issues like fuel cost volatility distributed generation and new technologies, and other important technical conferences and rulemaking proceedings can occur with greater efficiency and allow all parties to more quickly get on the same page.”
Empire District, headquartered in Joplin, Missouri and with 215,000 customers in Oklahoma, Missouri, Kansas and Arkansas contended in its filing that the PBR along with Multi-Year Rate Planning and Revenue Decoupling would allow electric utilities to implement rates for three, one-year periods based on estimates of the cost of service for each of the three years.
It argued revenue decoupling is a safeguard to ensure that performance is not over-shadowed by the extreme weather conditions that can “easily sway the company’s financial outcome in a manner that is not indicative of the company’s managerial performance.”
The Sierra Club argued the Alternative ratemaking “can incentivize investment that sets Oklahoma up for success in the transition to clean energy.” It claimed through PBR, the Corporation Commission “can ensure that Oklahoma customers benefit from affordable and reliable energy for decades to come.”
Opponents to Performance Based Ratemaking argued “it is a solution in search of a problem,” a claim made by more than one group.
“We are not aware of any problems solved by alternative ratemaking,” contended AARP. “In fact, it could lead to more frequent or larger rate increases than the current system.”
The Oklahoma Industrial Energy Consumers stated the traditional ratemaking method “is not broken and does not require a fix.” It said few, if any, additional benefits would result through alternative ratemaking methods.
“Instead, utility customers such as OIEC members wold be harmed by such alternative ratemaking methods.”
The Petroleum Alliance of Oklahoma made similar arguments that the current ratemaking system is not broken.
“The Petroleum Alliance finds that alternative regulatory methods are simply a “solution in search of a problem” and will result in ratepayer harms that include higher rates, greater capital and operating inefficiencies” and with few to no improvements in environmental performance.
As a representative of the largest of the opponents, the Federal Executive Agencies, through Air Force Major Leslie Newton at Tyndall Air Force Base in Florida, supported the current method of ratemaking “as this method is shown to adequately protect the interests of all parties, both utilities and customers.”
Major Newton argued that PBR would “limit customers’ ability to advocate for reasonable rates while providing utilities with fewer incentives to efficiently manage their operations.”
The issue of ROFR or Right of First Refusal is equally a controversial issue, one that a legislative committee intends to explore at an interim study hearing to be held next week at the State Capitol.
ROFR is just what it means. It gives a utility the right to refuse competitive bidding for major transmission line projects, those at least 300 kV or more.
The question at hand, at least as raised by Corporation Commission in its Notice of Inquiry, would involve transmission lines for 300 plus kV projects versus the existing Southwest Power Pool competitive bidding Order 1000 process.
Why would utilities want the power of ROFR? Instead of going through the competitive bidding process as required under Southwest Power Pool requirements, a utility could refuse the competition and build the project itself.
PSO claimed it would help ratepayers and at the same time avoid what it called a “time-consuming bid/award process.” The utility contends an expanded ROFR in Oklahoma “would likely provide significant benefits for Oklahoma customers at this time, including reliablility benefits.”
“Eliminating the 12-month bid/award process used in competitive bidding has the potential to bring needed transmisson upgrades into service earlier,” added PSO. “The competitive bidding process is also often subject to litigation, which can create additional timing concerns and impacts.”
ITC Great Plains, owner of an 18-mile, 345 kV transmission line located at the Hugo Power plant west of Fort Towson to a substation southeast of Valliant, claimed ROFR would benefit Oklahoma ratepayers in the form of “more efficient transmission development, more reliable service and significant cost savings.”
ITC suggested the existing program involving the Southwest Power Pool exacerbates the transmission issues and results in “band-aid” short-term solutions.
“The adoption of more extensive ROFR laws removes these delays and roadblocks to collaboration among SPP stakeholders, and supports more efficient transmission investment to meet the needs of SPP customers,” stated ITC in its argument.
The Oklahoma Municipal Power Authority wants the Commission to reject the proposed ROFR . It argues the proposed expanded ROFR “would allow incumbent utilities to bypass competitive bidding for transmission projects in favor of non-competitively bid and more expensive projects and pass those excessive costs onto consumers through rate increases.”
The OMPA said any expansion of ROFR in the state would allow transmission costs to continue to increase unchecked.
“Competitive bidding allows for the best value in construction and ownership of these transmission projects, helping to ensure that Olahoma electric rates remain competitive,” it declared in the filing.
The OMPA further argued any expansion of Oklahoma’s ROFR “would provide a windfall for Oklahoma’s incumbent utilities, expanding their monopoly.”
The OIEC supports competition, stating that any expansion of the state’s ROFR law “would only protect the incumbent transmission owners such as OG&E and PSO while eiminating competition in transmission investment, thereby increasing costs to consumers.”
In short, the OIEC said expanded ROFR would erect a barrier to participate in the transmission development market as “incumbent utilities will have a monopoly on that market.”
The AARP added its opposition to a ROFR law, saying it has opposed such legislation around the country.
“Transmission competition has been proven to lower costs, and anti-competitive bills such as SB 498 last session in Oklahoma would penalize ratepayers,” stated the organization, adding that electricity construction competition has been estimated to save customers 20% or more.
NextEra Energy Transmission, the wind-power company with more than 12,600 miles of high-voltage transmission lines and 1,200 substations across North America, called ROFR laws “harmful” to electric utility customers. It contends that any change in Oklahoma law or Commission regulations in support of a ROFR on high-transmission lines “would inevitably raise costs and unduly burden Oklahoma electric utility customers.”
NextEra said such a law would not provide greater benefits to the state’s utility customers, adding, “the opposite is true.” It noted that the Justice Department and the Federal Trade Commission have even said with a ROFR, consumers will lose the many benefits that competition can bring, including lower rates, improved service and increased innovation.
Attorney General Gentner Drummond’s office filed comments in reference to both Performance Based Ratemaking and ROFR. The filing stated that the Office of the Attorney General has “historically favored the traditional rate of return model,” but at the same time said he looked forward to reviewing the comments.
“The Attorney General will support the regulatory scheme—based on the evidence/information provided and dgiscussion amongst stakeholder—that best serves the State of Oklahoma and its citizens, while promoting the public interest.”
Drummond’s filling did not indicate a stand on the Right of First Refusal.
OGE’s point of view
In recent years, OG&E has advocated for the implementation of a Performance Based Rate
plan in its Chapter 70 general rate cases1 and through its support of bills filed in the Oklahoma
Legislature, including Senate Bill 1103 and SB 694.2 For nearly 20 years, the PBR model has
been successfully used to regulate the rates of Oklahoma’s natural gas utilities. OG&E, the Public
Utility Division (“PUD”), and the Corporation Commission have recognized the alignment of
ratepayer and utility interests that results from the PBR through closer supervision and more
frequent review of utility performance. The successful history of PBRs in Oklahoma along with
the Company’s own experience with the FRP in its Arkansas jurisdiction demonstrate the
Commission need not speculate to know OG&E’s customers can benefit from the implementation
of alternative ratemaking methodologies in Oklahoma
PBR
the PBR model.15 The PBR provides a streamlined regulatory process between general rate cases
and this streamlined process allows a Company’s rates to be reviewed and adjusted more
paying the lowest reasonable cost to provide utility service, regardless of the amount of time that
has passed since its last rate case. Under the current system, customers cannot be assured the rates
they are currently paying for utility service capture the fluctuations in the cost to serv
Utility Division and the Commission itself as a system that provides numerous benefits to
Oklahoma natural gas utility customers, including: (1) balanced utility and ratepayer interests; (2)
gradualism in rate adjustments; (3) decrease in regulatory costs; (4) reduction in regulatory lag;
(5) closer supervision and more frequent review of utility performance; and (6) lesser need for cost
Arkansas 72716-0550. I am employed by Walmart Inc. (“Walmart”) as Senior4
Manager, Energy Services.5
Q. ON WHOSE BEHALF A
centers, and employs over 34,000 associates in Oklahoma. In fiscal year ending 2023,14
Walmart purchased $632.0 million worth of goods and services from Oklahoma-based15
suppliers, supporting over 23,000 supplier jobs
Liberty-Empire supports Alternative Ratemaking and would propose a combination of
Multi-Year Rate Planning (“MYRP”), Performance Based Rates (“PBR”) and Revenue
Decoupling. This combination will allow electric utilities to implement rates for three, one-
year periods based on estimates of the cost of service for each of the three years. Within
narrow limits, the revenues the utility is authorized to collect can then be adjusted during
the pendency of the MYRP due to changes in the company’s capital spending as well as
over- or under-earning based on the achievement of performance targets that are ultimately
established.
Additionally, revenue decoupling acts as a safeguard to ensure that performance is not
over-shadowed by the extreme weather conditions that can easily sway the company’s
CASE GD 2023-000005 ENTRY NO. 19 FILED IN OCC COURT CLERK’S OFFICE ON 10/02/2023 – PAGE 1 OF 40
performance
A ROFR on 300+ kV transmission projects, which enables incumbent electric
transmission owners in the State of Oklahoma to perform transmission builds, is
positive for the customers should questions from customers arise post-energization.
A readily available contact with an established presence in the state greatly improves
communication paths, remediation efforts, and resolutions should issues become
evident.
Customers associate transmission lines to the load serving entities within the state as
compared to competitive builders who do not have a vested interest in the ratepaying
CASE GD 2023-000005 ENTRY NO. 19 FILED IN OCC COURT CLERK’S OFFICE ON 10/02/2023 – PAGE 5 OF 40
There are many other examples where customers would benefit from a ROFR on 300+
transmission projects, including:
• A local presence provides a better quality of service to customers.
• Introducing transmission developers adds ambiguity into the process for the
customers and landowners impacted by transmission development. This has
been evidenced in the struggles collecting generation developer modeling data
post energization.
• Owning/operating utilities have a vested interest with customers within the
state, whereas non-vested developers, by design, have other priorities in their
respective project delivery.
• A ROFR minimizes the impacts to landowners by way of co-locating lines on
existing easements and right of ways owned/occupied by the host utility
infrastructure.
• The most efficient manner in which transmission can be built is with the
incumbent owner/operators by means of outage coordination with SPP,
affected non-member parties, and outside parties, as well as equipment
procurement and spares strategies. A recent example was a line rebuild effort
in Kansas completed by Liberty-Empire which required coordination between
SPP, AECI, TVA, and Liberty-Empire District Ops, using standardized
equipment specifications between both owner parties.
• The industry standard metric for realized cost savings identified for customers
is adjusted production costs (“APC”). To date, competition in bidding for
transmission projects has not evidenced itself as a major cost savings for
customers. APC is realized by expansion of the transmission system
capabilities to deliver low-cost generation to the load node(s), regardless of
CASE GD 2023-000005 ENTRY NO. 19 FILED IN OCC COURT CLERK’S OFFICE ON 10/02/2023 – PAGE 6 OF 40
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PSO’s response
greater benefits to Oklahoma utility ratepayers?
Extending the ROFR to 300+ kV at this time is likely to provide value to ratepayers, based on
current market and operational realities. Currently, there are significant resource adequacy
concerns in SPP, and in other regions across the United States. Extreme weather events and
the changing resource mix present significant reliability challenges. Given the time–consuming
bid/award process and the demonstrated ability of Oklahoma’s incumbent utilities to
efficiently develop infrastructure, expanding the ROFR would likely provide significant
benefits for Oklahoma customers at this time, including reliability benefits. A 300+ kV ROFR
in Oklahoma has the potential to bring a needed project into service at least a year earlier than
utilizing the RFP bid/award process. In particular, for an SPP market economic project, an
earlier completion date would begin producing customer benefits sooner. Further, industry
studies have reached different conclusions regarding whether cost savings result from
competitive bidding.1
2. Describe the benefits and implications of a ROFR for 300+ kV transmission projects versus
the SPP competitive bidding Order 1000 process.
If the ROFR is extended to 300+ kV, large regionally funded transmission upgrades in
Oklahoma that are approved by SPP would be assigned to the local incumbent Transmission
Owner rather than competitively bid. Eliminating the 12–month bid/award process used in
competitive bidding has the potential to bring needed transmission upgrades into service
1 See e.g., https://ceadvisors.com/publication/competitive–transmission–experience–to–date–shows–order–no–1000–
solicitations–fail–to–show–benefits/.
earlier. The competitive bidding process is also often subject to litigation, which can create
additional timing concerns and impacts.
CASE GD 2023-000005 ENTRY NO. 17 FILED IN OCC COURT CLERK’S OFFICE ON 10/02/2023 – PAGE 1 OF 2