When Oklahoma Corporation Commissioners voted this week to approve the use of the controversial Construction Work in Progress method for Public Service Company to collect payments for energy projects, it raised an interesting contradiction.
Regulators also want the public to know, their hands were tied and they were forced by law to approve the utility’s request.
How could regulators deny one utility’s request for CWIP and later approve another utility’s request for the same kind of financing method?
CWIP, as it’s called, allows PSO to collect payments while three BESS or battery energy storage systems, are being constructed at the utility’s Northeast power plant in Oologah. Ratepayers will pay higher rates even though technically, they won’t be receiving the benefits of the $539,800,000 in BESS projects until they are completed. Supporters argue CWIP will actually result in lower long-term costs.
The BESS projects were among $1.255 billion in 8 expanded energy generation projects pushed by PSO.
The commission offered an explanation in its order, “CWIP treatment contrasts with AFUDC treatment. Under AFUDC (Allowance for Funds Used During Construction) treatment, financing costs incurred during construction are accrued and compounded until a project’s inservice date, at which time the accrued cost is included in the project’s principal costs. Hence, CWIP and AFUDC are two different ways of recovering the financing costs of a project: under CWIP, customers pay during construction to mitigate compounding interest and a larger in-service charge later, while under AFUDC they forego paying during construction but pay more, including compound interest, once a project enters service.”
What makes the approval an interesting study is this—last year the commissioners took a stand against the Senate Bill 998 after its introduction in the 2025 session of the legislature. The bill created the use of CWIP as long as the project or projects involved the use of natural gas for power.
HB998 became law without the signature of Gov. Kevin Stitt. During the bill’s introduction and debate in the legislature, Oklahoma Gas and Electric filed a request for a rate hike with details to follow. Then, when the bill was passed and became law, the utility withdrew its original request and refiled with CWIP intentions. OG&E asked for CWIP in its use of natural gas combustion generators at the utility’s Horseshoe Lake Power Plant in eastern Oklahoma County. The utility pointed to the state’s new CWIP law.
“The Commission shall permit an electric utility to begin to recover return on and return of Construction-Work-In-Progress expenses prior to commercial operation of a newly constructed electric generation facility subject to the provisions of this subsection, provided the newly constructed electric generation facility utilizes natural gas as its primary fuel source. The Commission shall permit a separate rate adjustment mechanism, adjusted periodically, to recover the costs described in this section for new capacity in natural-gas-fired electric generation facilities.” 17 O.S. § 286(C)(6),” stated OG&E in the filing with the Corporation Commission.
Eventually the Corporation Commission denied OG&E’s request and it led to a lawsuit by the utility with the Supreme Court and the legality of the commission’s decision has yet to be decided.
In a review of this week’s 31-page order approved by Corporation Commissioners on a 2-1 vote with Commissioner Brian Bingman in opposition, the majority found that ” PSO has demonstrated a need for additional generation capacity and that the BESS Projects and NE 5&6 represent reasonable selections when compared to available alternatives, these resources shall
be deemed “used and useful.” NE 5 & 6 are the new generators PSO plans to install at the Oologah power plant.
“Accordingly, cost recovery for these facilities “shall be subject to
cost recovery rules promulgated by the Commission.” Those rules provide the Commission with broad discretion to review proposed cost recovery mechanisms in preapproval proceedings and to determine recovery that is fair, just, reasonable, and in the public interest,” continued the commissioners in their order.
AS part of its attempt to recover the cost of the expensive project, PSO asked for approval and authorization of the CWIP treatment and it asserted that “such recovery is now mandatory under recent amendments to 17 O.S. § 286(C)(6).”
And the commission agreed, albeit with an admission it might have some questions about the law.
Here’s how they defended their approval of CWIP for PSO.
“Although members of the Commission may have preferred to retain discretion to apply AFUDC treatment, the Legislature has removed that discretion and mandated CWIP recovery under specified conditions. Nothing in the Oklahoma Constitution or the Commission’s enabling statutes authorizes the Commission to deny relief expressly required by statute unless deemed unconstitutional by the Oklahoma or United States Supreme Court.
118. The Commission is not vested with authority to determine the constitutionality of legislative enactments, nor may it disregard or alter policy determinations made by the
Legislature. Here, the Legislature has directed that electric utilities are entitled to recover CWIP costs for newly constructed generation facilities utilizing natural gas as their primary fuel source. Accordingly, the Commission is obligated to apply the statute as written.”
They went on to point out that even though some groups challenged the CWIP use in the PSO case and raised serious concerns regarding the constitutionality of SB998, “The Commission likewise emphasizes that it has constitutional duty to ensure that rates remain fair, just, and reasonable; however, through SB 998, the Legislature has significantly constrained the Commission’s ability to fulfill that duty in this context. By mandating CWIP recovery, the Legislature has effectively inserted itself into the Commission’s constitutionally established ratemaking authority and limited the Commission’s ability to reject cost recovery mechanisms, even where the evidentiary record may demonstrate hat such mechanisms are not in the best interest of ratepayers.”
Commissioners even called SB998 an “encroachment” and that it “raises substantial concerns regarding the proper balance of authority and the preservation of the Commission’s independent regulatory function.”
In other words, our hands are tied and while we don’t like the law, we have to follow it.
“Accordingly, the Commission finds that CWIP recovery is required for these facilities during the construction period,” stated their order.
It wasn’t the first time that the OCC defended its decision by pointing to the law that forced the agency to make the approval.
“Although members of the Commission may have preferred to retain discretion to apply AFUDC treatment, the Legislature has removed that discretion and mandated CWIP recovery under specified conditions. Nothing in the Oklahoma Constitution or the Commission’s enabling statutes authorizes the Commission to deny relief expressly required by statute unless deemed unconstitutional by the Oklahoma or United States Supreme Court.”
The commissioners even pointed to their legislative efforts encouraging a “no” vote when SB998 was making the rounds in the state house and senate. They included their objections raised to the legislature.
“The memo stated that SB 998 will: Increase costs to customers, who will start paying for construction costs on top of their existing utility bill before the plant is operational.
Limit the timeframe for the Commission and consumer advocates to conduct a complete audit and review (180 vs. 240 days), significantly hampering critical oversight.
Move the constitutionally created ratemaking process away from the Commission.
Produce in Oklahoma the same result Kansas consumers are experiencing-which is the lack of savings promised in similar legislation passed there last year.
Customers are currently facing an immediate significant bill increase.
Result in less utility monopoly regulatory oversight, scrutiny and transparency.
Mandate that the Commission allows utilities to charge customers CWIP costs, regardless of opposing evidence. No utility has sought a CWIP rider in any rate case in over a decade, even though it is permissible to request such treatment.”
Under the order, PSO will be able to recover the construction costs of NE 5&6 as CWIP while the facility is under construction, but the authorization will terminate once the units enter commercial service.
Despite the state mandate, Commissioner Brian Bingman voted against the three BESS projects because of their cost.
“While I agree with my fellow Commissioners that PSO has a need for additional generation and that many of the generation choices included in PSO’s proposed portfolio are reasonable, I am voting no to register my objection to the significant expenditure PSO will make toward three Battery Energy Storage System (“BESS”) Projects. Of the $1.255 billion PSO will invest and recover from customers, approximately $715 million-well over half the total investment-relates to just three BESS projects. Nevertheless,
these three projects would provide only 217 MW of accredited summer capacity, around a quarter of the summer capacity provided by all projects proposed by PSO,” he stated.
“PSO has not operated BESS facilities before, and I am concerned about customers bearing the risk of this new technology at
such a high price during this time of rising costs. Thankfully, several parties including the Attorney General, Oklahoma Industrial Energy Consumers, and the Petroleum Alliance of Oklahoma raised serious concerns about the economics of the BESS Projects in this case.”
Commissioners, in their order, also stated that PSO will have to ensure that new large loads pay their fair share of the projects. The order mandated that to make sure that PSO customers are aware of the Legislature’s mandate in SB998, PSO will have to include a separate line item on each customer’s bill the amount of CWIP paid for NE 5&6 during the previous billing cycle. And to make a final point, the Commissioners want ratepayers to know who is responsible for SB998 becoming law.
“The line item shall state, “State Legislature Mandated CWIP Recovery -$X.XX.”