Public Service Company of Oklahoma to defend rate hike if industrial

Journal Record, The (Oklahoma City), Feb 2, 2009 by Janice Francis-Smith

Nearly six months after Public Service Company of Oklahoma asked for a rate increase, the case is still a topic for debate. The Oklahoma Industrial Energy Consumers have asked the Oklahoma Corporation Commission for a rehearing, claiming the agency granted PSO too much of an increase - especially at a time when the economy is wreaking havoc on the budgets of the businesses in PSO's territory.

If the OIEC's request is granted, PSO has also filed with the commission for the chance to reassert its position, as well.

PSO started out on July 11 asking for a $132.6 million rate increase, but revised its request down to $126.2 million. After listening to months of testimony, the commission granted PSO a total increase of $81.4 million on Jan. 14. That amount includes $14.4 million to purchase power from other producers, and $7.7 million to bury power lines, making the infrastructure less susceptible to interruptions due to severe weather.

The commission's order also grants PSO a base-rate increase - that is, the part of customers' bills that contributes to PSO's profitability - of $59.2 million. Base rates do not include the price of the fuel used to generate electricity; fuel costs are handled separately from other costs of doing business and are passed through directly to the customer.

"While we never achieve all of the objectives we pursue in any particular case, the order today provides us with much-needed revenues and helps get us back on a more solid financial footing," said Stuart Solomon, PSO's president said when the increase was announced. PSO officials said the increase was needed to help PSO make its system more reliable.

Tom Schroedter, OIEC executive director, is not convinced the bulk of the rate increase is going toward reliability measures. OIEC is not contesting the expenditures PSO claimed for infrastructure improvements, he said. But at a time when all businesses are "tightening their belts," PSO was able to increase its guaranteed return on equity to 10.5 percent - a change that represents $10 million of the increase PSO was granted.

OIEC also contests other expenditures worked into the base rate, including the amount PSO pays its parent company, AEP, for services such as accounting.

The commission acknowledged that the return on equity granted was higher than that recommended by the attorney general's office, OIEC and others who participated in the case. But the commission wanted to ensure PSO would have the capital it needs to continue improving reliability and to institute Demand Side Management initiatives designed to promote energy conservation - which, if successful, would further cut into the company's profits.

OIEC and PSO have not found agreement in their analysis of the increase's effect. PSO's estimate that customers may experience a 4- percent increase in their electricity bills includes the effect of the season's lower fuel prices.

Schroedter claims the increase granted represents a 15-percent to 18-percent increase in the base rate when fuel prices are subtracted, though the equation that yielded that level of increase is rather complicated. PSO officials contend OIEC's estimate is much too high, but the company did not provide a comparative analysis with the fuel costs subtracted, because such a calculation is irrelevant to the amount of the increase customers will perceive on their bills. PSO's original request for $132.6 million would have resulted in a 30.34-percent increase had it been granted, commission documents show.