Rate Case Roundup: Oklahoma

Responding to a natural gas LDC’s petition to increase its rates by $2.2 million under a performance-based rate change (PBRC) plan, the Oklahoma Corporation Commission largely affirmed a recommended decision from an administrative law judge (ALJ) and turned back challenges from the state attorney general (AG).

The commission declared equitable and appropriate the rate hike of $2.15 million signed off on by the ALJ, and to which the LDC, CenterPoint Energy Oklahoma Gas, had previously assented. The commission remarked that the company’s PBRC regimen dates back to the LDC’s last base rate case in 2004. Under the PBRC model, CenterPoint’s rates are subject to an annual review and subsequent adjustment, depending on its actual operating results, its achievement of certain service metrics, and its earnings vis-à-vis a target ROE.

According to the ALJ, PBRC plans are far less cumbersome than fully litigated base rate proceedings but are just as effective at assuring reasonable, cost-based rates, a conclusion with which the commission concurred. Looking at the utility’s financial data for the 2016 PBRC test year, the ALJ and the commission found that the company had attained a ROE of just 5.58%, far below the 9.50% lower limit of its authorized ROE range of reasonableness. Consequently, the commission endorsed the ALJ’s findings that a rate increase was in order, and it agreed that the stipulated increase of $2.15 million would help restore the company’s ROE closer to its 10.00% target. In doing so, the commission dismissed the questions raised by the AG about whether the PBRC process is adequate for looking at a utility’s costs of service.

From the AG’s perspective, the shortened annual audit protocol associated with PBRC plans is simply not sufficient to ascertain whether all of a utility’s claimed costs of operation are accurate and defensible. The AG therefore pushed for the commission to direct CenterPoint to file a formal base rate proceeding within the next year. But the commission ruled that such a proceeding was unnecessary. It told the AG that there was no indication on the record that the PBRC model was failing to accomplish what it was intended to or that the annual true-up process was somehow missing important cost elements.

Moreover, the commission cited to the fact that regular PBRC audits generally cost no more than about $176,000, a mere fraction of what a full rate case would cost, which the commission pegged at approximately $1.9 million. Given that discrepancy in cost alone, the commission held that a formal base rate case could not be justified. Indeed, the commission alluded to the ALJ’s conclusion that the AG was seeking “to harvest savings that no one else is complaining about.” Re CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Oklahoma Gas, Cause No. PUD 201700078, Order No. 669205, Oct. 19, 2017 (Okla.C.C.).