The events and proceedings surrounding the applications of Public Service Co. of Oklahoma and Oklahoma Gas and Electric Co. to build the Red Rock generating facility seem as tangled and confusing as “Alice’s Adventures in Wonderland.”
Under state law, electric utilities such as PSO and OG&E don’t need the Oklahoma Corporation Commission’s permission to build a generating facility, but they do need the commission’s permission to recover the facility’s costs and expenses from residential and commercial ratepayers.
Historically, these utilities have built their facilities first and then asked the commission for higher rates after they were put into operation. A law passed in 2005 now permits the electric utilities to seek prior approval from the commission to recover the cost of a new facility from increased utility rates.
In 2006, PSO and OG&E joined together to seek preapproval of the mother of all generating facilities, known as the Red Rock coal plant. Capable of producing 950 million watts of base load generating capacity utilizing the latest “ultra supercritical” technology, the proposed facility, with a price tag of close to $2 billion, most likely would have been the biggest construction project in state history.
During the proceedings, segments of the state’s natural gas industry unleashed a media blitz attacking the applicants for their planned use of coal. Their arguments centered around using Oklahoma natural gas instead of Wyoming coal because it would help Oklahoma’s economy and would be more environmentally friendly. The long-term price advantage of coal also was questioned.
The administrative law judge in the proceeding found that PSO needs an additional 450 million watts by 2012 and that OG&E needs an additional 300 million watts by 2012. Those findings were upheld by the commission in its final order.
Although the ALJ found the savings in fuel costs using coal would offset the higher capital costs of the plant in 4.18 years and would save ratepayers $5.5 billion over the 40-year life of the plant, the majority of the commission denied the applications for preapproval, primarily because of the applicants’ failure adequately to consider reasonable alternatives to coal and adequately to address programs to reduce consumer demand.
The commission’s order was based on language in the 2005 law authorizing it to consider whether there is a “need for construction” of the facility and whether there are “reasonable alternatives” to the facility before preapproving recovery of the project’s expenses through rate increases.
One commissioner pointed out that this very expensive project was developed without competitive bidding now required under the 2005 law unless the plant is “self-built.” Since PSO filed its application before the regulations requiring competitive bidding were approved and OG&E was planning a self-built plant, their joint project was not subject to competitive bidding.
Following denial of its application, OG&E announced it is dropping the project and seeking recovery from ratepayers of an estimated $18-plus million in project expenses.
It is clear that Oklahoma must develop a meaningful and thoughtful state energy plan that adequately considers and addresses economic impact, environmental issues and energy conservation to the fullest extent possible.
The three corporation commissioners and Oklahoma’s secretaries of energy and environment are all highly intelligent and thoughtful persons. Their leadership, uncorrupted by undue political influences, is vital to guide the state agencies, affected industries, user groups and public interest groups back through the rabbit hole to a rational state energy policy.
Bleakley is publisher of Oklahoma Gazette.