By Mike W. Ray
Southwest Ledger
The state Corporation Commission authorized Summit Utilities Oklahoma to boost its rates by $11.8 million, which was $4.9 million less than the $16.7 million the company initially requested.
The average rate increase for a residential customer will be $7.61 per month, said Sheri Richard, Summit’s director of Regulatory Finance & Rates.
The compromise settlement was endorsed by the office of Attorney General Gentner Drummond, the Corporation Commission’s Public Utility Division, and Summit Utilities.
Goldie Bockstruck, director of regulatory affairs for Summit Utilities, told the commission that the adjusted earned return on equity for Summit Utilities Oklahoma (SUO) in Calendar Year 2023 was negative 4.24%.
The settlement agreement was approved in total by commission Chairperson Kim David and Commissioner Bob Anthony. Commissioner Todd Hiett concurred with most of the ruling but dissented from one provision.
The “joint stipulation and settlement agreement” does not require SUO to reduce its rate base by $15.1 million in accumulated deferred income taxes, contrary to a previous arrangement.
SC MidCo, parent company of SUO based in Centennial, Colo., acquired $113 million in assets in Oklahoma in 2021, and $865 million in assets in Arkansas in 2022, that were then owned by CenterPoint Energy Resources Corp. of Houston, Texas. SC MidCo paid $2.15 billion for those assets, a price that included a premium of approximately $1.17 billion.
In an order dated Nov. 16, 2021, the Oklahoma Corporation Commission approved the CenterPoint-to-Summit asset transfer. The commissioners also endorsed an administrative law judge’s opinion that CenterPoint’s Accumulated Deferred Income Tax (ADIT) and Excess Deferred Income Tax (EDIT) should be used to reduce SUO’s rate base “for rate-making purposes…”
But three years later, Summit attorney J. Dillon Curran and Deputy Attorney General Chase Snodgrass advised the commission to disregard the 2021 order to use the ADIT to reduce Summit’s rate base. Earlier this year the Internal Revenue Service ruled that compliance with the 2021 order would be a violation of their rules and would result in “significant consequences,” the Corporation Commission was told.
“There is disparate treatment of this issue” between Summit’s Oklahoma customers and Summit’s Arkansas customers, Hiett asserted. Those in Oklahoma “are being treated unfairly.”
Arkansas regulators “forced Summit to rebate $29.9 million in legacy ADIT in the form of a credit” to its customers over a multi-year period, Hiett said. In Oklahoma, though, the Corporation Commission’s final order on Summit’s rate hike application “results in a $15.1 million windfall to Summit,” courtesy of its ratepayers.
“We certainly share your concern,” Snodgrass said to Hiett.
“We in Oklahoma often disagree with the federal government,” Snodgrass continued. “But based on our conversations and reading IRS rulings, the Attorney General’s consideration is that even though we are not getting the ADIT, this is the best deal Oklahoma customers can get.” The agreement shaves 29% off Summit’s rate increase.
Oklahoma customers receive modest credit
On the flip side, the joint stipulation and agreement required SUO, which is based in Little Rock, Ark., to return $231,989 to its Oklahoma customers earlier this year. Those EDIT credits amounted to:
$1.84 for single-family residential customers.
$3.47 for “general” customers whose consumption of natural gas is less than 500,000 cubic feet per year.
$24.98 for commercial customers whose annual usage is more than 500,000 cubic feet but less than 36.5 million cubic feet of natural gas or of compressed natural gas that’s used as vehicle fuel.
$349.09 for large volume commercial customers whose average daily demand for natural gas is 100 million Btu’s.
Bad debts grew during transition
The joint stipulation adjusted SUO’s bad debt to $614,816 as recommended by the commission’s Public Utility Division. Consequently, the remaining balance of bad debt, almost $2.46 million, was excluded “from the calculation of [SUO’s] revenue requirement,” Ms. Richard noted.
The company’s bad debts increased during the transition in operating systems from CenterPoint to Summit, Keith Thomas testified. He is the senior director of operations for Oklahoma and for Summit Utilities Inc.’s assets in Colorado, Maine, Missouri, plus the area in and around Fort Smith, Ark.
For eight months, between Nov. 1, 2022, through June 30, 2023, SUO paused its “Disconnect for Non-Payment” policy “until systems were stabilized,” Thomas said. Not until July 2023 did the company reinstate late fees and disconnect service for accounts in arrears.
The company’s various “outreach efforts and notification initiatives” resulted in reducing the total number of delinquent customer accounts “by more than 3,000” before disconnections resumed last summer, Thomas said.
SUO has added 1,153 new residential and commercial customers to its natural-gas delivery system since its last performance-based rate case in 2022, records show.
Summit Utilities Oklahoma is expected to file another rate case no later than Aug. 30, 2025, commission records show.
Millions spent on new lines
In testimony submitted to the Corporation Commission, Chase Batson, Summit Utilities’ manager of engineering for Oklahoma and northern Arkansas, said that SUO spent $12.32 million to add or replace natural-gas distribution mains in 2022, and allocated almost $21.75 million for distribution mains in 2023.
For example, replacement of a little over 9,000 linear feet of transmission main at Fort Sill started in 2022 and was completed in 2023, Batson noted.
That project entailed upgrading a 10-inch-diameter gas line to 12 inches inside the Army post’s fence line north of Rogers Lane, Fort Sill Garrison Public Affairs Officer Marie Pihulic said. The project “is intended to increase the available supply to west Lawton,” she added.
As new distribution mains are installed, connected service lines are replaced or installed, too, Batson said. “This is consistent with industry practice to ensure service lines are replaced with the same modern materials as gas mains,” he explained.
Greater investments in replacing low-pressure systems, pre-1984 vintage plastic, bare and unprotected steel, and unknown vintage steel in accordance with specific timelines “resulted in a comparable increase” in replacement of service lines, Batson said.
In the application Summit Utilities Oklahoma filed April 30, seeking an adjustment in its rates, the company reported it “has continued to make significant investments in its Oklahoma distribution system to replace an aging infrastructure…”
In addition, material prices and labor rates increased after the COVID-19 pandemic, “resulting in a larger average cost per service line installed or replaced,” he related. The average cost per service line in 2022 was $2,012, but the price tag increased by 80% to $3,630 in 2023, he said.
The company operates almost 2,800 miles of distribution mains in Oklahoma, officials said.
Steven Birchfield, executive vice president and chief financial officer of Summit Utilities Oklahoma, told the Corporation Commission in 2022 that SUO expects its rate of capital investment to increase as pipeline replacement activities “accelerate over the next decade: from 15-20 miles per year to 25-40 miles per year.”
Therefore, SUO anticipates its capital spending will increase from $15-$20 million annually to approximately $30 million per year during the next five years, Birchfield said.
SUO customer base has been shrinking
In the asset transfer, Summit inherited 100,025 residential, commercial, and industrial customers in 91 Oklahoma cities and towns in 36 counties, records reflect. However, a company executive testified that SUO “has experienced declining customer accounts” for years.
Today the company provides natural gas to approximately 98,825 customers in those 36 counties, Thomas said. The natural-gas delivery system is “mostly rural in nature, with approximately 35 customers per mile of main,” he said.
Lawton and Duncan are the largest cities served by SUO. Other communities served by the company are Elgin, Fletcher, Sterling, Cache, Geronimo, Altus, Apache, Arapaho, Blair, Burns Flat, Chickasha, Comanche, Duke, Mangum, Marlow, Martha, Olustee, and Temple.
They also include Cushing, Ada, Blackwell, Canton, Cheyenne, Cromwell, Deer Creek, Earlsboro, Fairview, Garber, Hartshorne, Hominy, McAlester, Medford, Nardin, Okeene, Seminole, Stringtown, Talihina, Tonkawa, Vance Air Force Base, Watonga, Weatherford, Wilburton and Wynona.
SUO has 127 “team members” who have an average tenure of 10 years, Thomas said. Most of them live in Oklahoma, and all of them live within 30 miles of their reporting location, he added. “This allows the company to provide reliable response times to emergencies,” Thomas said. Last year SUO employees responded to 4,396 emergency orders and their average response time was “under 35 minutes,” he said.
