Smith Cogeneration says OG&E decision not to renew power contract

Journal Record, The (Oklahoma City), Feb 27, 2004 by Janice Francis-Smith

Oklahoma Gas and Electric decided not to renew a power contract based on outdated information, according to Don Smith, president of Smith Cogeneration.

A revised economic forecast shows that in 2005, OG&E will need power from both the PowerSmith cogeneration plant in Oklahoma City and from the McClain power plant near Newcastle, Smith said.

However, OG&E officials said the company updated the economic forecast just a few months ago.

OG&E's current contract with Smith Cogeneration expires Aug. 31.

The PowerSmith facility generates electricity, which it sells to OG&E, as well as steam, which it sells at low cost to the Dayton Tire plant on S. Council Road.

The Oklahoma Corporation Commission had ordered OG&E to contract with PowerSmith 15 years ago, basing its decision on federal energy law.

OG&E notified Smith earlier this week of the company's intent not to renew the current contract.

Officials from the two companies continue to meet in an attempt to forge a new agreement allowing OG&E to purchase the power at a lower price, confirmed OG&E spokesman Brian Alford.

According to OG&E's filings with the Federal Energy Regulatory Commission, the utility estimated that the purchase of the McClain facility would provide all the capacity the company will need for the next few years.

OG&E had planned to replace the 110 megawatts it currently buys from PowerSmith, which OG&E said is overpriced for the market, with 400 megawatts from the McClain facility.

Smith said OG&E based its estimates for future load needs on an economic forecast made in January 2003. The economy has since improved enough to justify additional capacity, he said.

Their old projection showed they only needed 400 megawatts if they terminated the contract, said Smith. That's based on the old, gloomy economics before last quarter of '03.

So we're going to have the commission review an updated economic forecast, and leave everything else the same, and I am confident it will show that there's a need for 400 megawatts in addition to the PowerSmith 400 megawatts.

We're going to ask the commission just to focus only on this issue of reviewing OG&E's economic forecast and seeing whether it does show a demand of more than 100 megawatts for 2005, said Smith.

Alford said OG&E updated the forecast in early October 2003. Yet Alford said he did not know if the update caused the utility to revise its capacity estimates.

Load forecasting is something we do on an ongoing basis, said Alford, estimating that it usually takes at least two months to collect and analyze the necessary data. OG&E's current estimate predicts growth of 2 percent, said Alford. PowerSmith's filing asserts that an updated forecast would justify an additional 2 percent, he said.

There is no data provided in PowerSmith's filing that would substantiate that number, said Alford. (Four percent) is extraordinary growth for our service area.

A hearing is scheduled on the matter for March 4.