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Rate Matters and Regulation | 9 Months Ended
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Sep. 30, 2024
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Rate Matters and Regulation | 13. Rate Matters and Regulation Except as disclosed below, the circumstances set forth in Note 14 to the financial statements included in the Registrants' 2023 Form 10-K appropriately represent, in all material respects, the current status of the Registrants' regulatory matters. Completed Regulatory Matters Integrated Resource Plans On March 29, 2024, OG&E issued its final 2024 IRP to the OCC and APSC. This 2024 IRP identified capacity needs of 556 MWs, 431 MWs and 1,096 MWs in 2026, 2027 and 2028, respectively. The IRP assumes that Horseshoe Lake unit 7 will be retired in 2024, Tinker units 5A and 5B will be retired in 2025, and Horseshoe Lake unit 8 will be retired in 2027. As provided in the IRP, in May 2024, OG&E issued requests for proposals for resources to meet the capacity needs identified in the IRP while maintaining affordability and reliability for OG&E's customers. OG&E is currently evaluating the proposals submitted in this process. Independent evaluators have been hired on behalf of the OCC and Oklahoma Attorney General to oversee the process. APSC Proceedings 2023 Formula Rate Plan Filing On March 7, 2024, the APSC issued a final order approving the uncontested settlement agreement between OG&E and the APSC Staff related to OG&E's final evaluation report under its Formula Rate Plan. The settlement agreement included an annual electric revenue increase of $3.5 million. New rates became effective April 1, 2024. Arkansas 2024 Generation Construction Notice Filing On January 19, 2024, OG&E filed an application seeking APSC approval to begin construction of 96 MWs of combustion turbines at Tinker Air Force Base. On July 24, 2024, the APSC issued an order which states that OG&E has complied with applicable Arkansas law and may commence construction of the generating units at Tinker Air Force Base. OG&E will be required to seek a prudence determination prior to its next general rate review. Arkansas Winter Storm Uri In February 2021, Winter Storm Uri resulted in record winter peak demand for electricity and extremely high natural gas and purchased power prices in OG&E's service territory. In January 2023, the APSC issued an order authorizing OG&E to amortize the regulatory asset balance related to the extraordinary fuel costs incurred by OG&E over ten years using a pre-tax weighted average cost of capital of 6.49 percent as a carrying charge beginning March 2021. On February 2, 2023, the APSC issued an order to initiate hearings with all Arkansas jurisdictional electric and gas utilities regarding the review of Winter Storm Uri cost prudence and allocation. On August 15, 2024, a unanimous settlement was reached between OG&E and intervenors, and the APSC issued the final order on September 6, 2024, approving all costs as prudent and authorizing OG&E to continue collecting its costs at the previously approved allocation and ten-year amortization period. OCC Proceedings 2022 Oklahoma Fuel Prudency In June 2023, the Public Utility Division Staff filed their application initiating the review of the 2022 fuel adjustment clause and prudence review. The OCC issued an order on April 11, 2024 finding that OG&E's 2022 fuel costs and generation operations were prudent. SPP Proceedings Planning Reserve Margin On August 6, 2024, the SPP Regional State Committee and Board of Directors approved increases to the summer-season and winter-season planning reserve margins that each load serving entity, such as OG&E, must maintain. The summer-season and winter-season planning reserve margins increased to 16 percent and 36 percent, respectively, from the 15 percent that previously applied to both seasons. These changes will be effective for the summer of 2026 and winter of 2026/2027. As a result, OG&E is currently evaluating the impact to its capacity needs brought about by this policy change. Pending Regulatory Matters Various proceedings pending before state or federal regulatory agencies are described below. Unless stated otherwise, the Registrants cannot predict when the regulatory agency will act or what action the regulatory agency will take. The Registrants' financial results are dependent in part on timely and constructive decisions by the regulatory agencies that set OG&E's rates. APSC Proceedings Capacity Power Purchase Agreement Cost Recovery On October 4, 2023, OG&E filed an application with the APSC seeking approval of a methodology for recovery of capacity costs associated with short-term power purchase agreements entered into to meet capacity needs in each of the years between 2023 and 2027. On December 29, 2023, the Administrative Law Judge issued an order authorizing OG&E to defer to a regulatory asset its capacity costs associated with short-term power purchase agreements for 2023, along with a carrying charge at the commission-approved customer deposit interest rate. The order required OG&E and the parties to address treatment for any expenses beyond the calendar year 2023, and a hearing in this matter was scheduled for August 2024. On July 19, 2024, OG&E entered into a settlement agreement with the APSC Staff and the Arkansas Attorney General which provides that OG&E should be able to defer these capacity costs in 2024 and beyond in the same manner as 2023. The APSC has waived the hearing and is considering the settlement. FERC Proceedings Order for Sponsored Transmission Upgrades within SPP Under Attachment Z2 of the SPP Open Access Transmission Tariff, costs of participant-funded, or "sponsored," transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade. The SPP tariff required the SPP to charge for these upgrades beginning in 2008, but the SPP did not begin charging its customers for these upgrades until 2016 due to information system limitations. The FERC approved a waiver of a time limitation in the SPP tariff to allow the SPP to bill after this delay for the 2008 through 2015 period, and the SPP then both billed OG&E as a user and credited OG&E as a sponsor for Z2 charges during the period. OG&E refunded most of the net credits to customers through its various rate riders that include SPP activity with the remaining amounts retained by OG&E. Net payers of Z2 credits challenged the waiver, and the FERC ultimately reversed itself, denied the waiver and ordered the SPP to refund the payments made for 2008 through 2015 charges. OG&E and other net creditors challenged this reversal, but the U.S. Court of Appeals for the D.C. Circuit upheld the reversal in August 2021. Meanwhile, OG&E and other creditors filed complaints with the FERC against the SPP, contending that the SPP and not OG&E should bear the cost of any refunds resulting from the SPP's tariff violations and that SPP’s actions also violated its contracts. In June 2023, the FERC issued a final order granting the complaints in part but awarding no relief. OG&E and other complainants appealed this order to the U.S. Court of Appeals for the Eighth Circuit, which heard arguments on March 14, 2024. On September 16, 2024, the U.S. Court of Appeals for the Eighth Circuit issued an opinion denying the petition for review of the prior decision concerning the FERC’s rejection of the petitioners’ rehearing requests. The court found “no error” in the FERC’s decisions and held that the FERC’s failure to explain its rationale is “harmless” since the FERC’s conclusion “was required by the law” and did not result in undue discrimination. If the FERC proceeds to order refunds in full, OG&E estimates it would be required to refund $13.0 million, which is net of amounts paid to other utilities for upgrades, plus interest at the FERC-approved rate. The SPP has stated in filings with the FERC both before and after the D.C. Circuit Court of Appeals' decision that there are considerable complexities in implementing the refunds that will have to be resolved before they can be paid. Payment of refunds would shift recovery of these upgrade credits to future periods. Of the $13.0 million, the Registrants would be impacted by $5.0 million in expense that initially benefited the Registrants in 2016, and OG&E customers would incur a net impact of $8.0 million in expense through rider mechanisms or the FERC formula rate. As of September 30, 2024, the Registrants have reserved $13.0 million plus estimated interest for a potential refund. Effective July 1, 2020, the FERC approved an SPP proposal to eliminate Attachment Z2 revenue crediting and replace it with a different rate mechanism that would provide project sponsors, such as OG&E, the same level of recovery. This elimination of the Attachment Z2 revenue crediting would only prospectively impact OG&E and its recovery of any future upgrade costs that it may incur as a project sponsor subsequent to July 2020. All of the existing projects that are eligible to receive revenue credits under Attachment Z2 will remain eligible, which includes the $13.0 million related to the refunds. OCC Proceedings Oklahoma Retail Electric Supplier Certified Territory Act Causes As previously disclosed, several rural electric cooperative electricity suppliers filed complaints with the OCC alleging that OG&E, because it was providing service to large loads in another supplier's territory, had violated the Oklahoma Retail Electric Supplier Certified Territory Act. OG&E believes it is lawfully serving customers under specific exemptions under this act that allow it to serve customers having a load of one MW or greater. There were five complaint cases initiated at the OCC, and the OCC issued decisions on each of them. The OCC ruled in favor of the electric cooperatives in three of those cases under statutory interpretation and ruled in favor of OG&E in two of those cases under injunctive theory. All five of those cases were appealed to the Oklahoma Supreme Court. On April 4, 2023, the Oklahoma Supreme Court issued its opinion which vacated the OCC's injunctions with respect to four of the cases and held that the Oklahoma Retail Electric Supplier Certified Territory Act does not limit the mechanism by which OG&E may provide service to large loads in another supplier's territory pursuant to the one MW exception. The one pending legal issue left for the Oklahoma Supreme Court to resolve is a statutory interpretation on how a supplier calculates "connected load for initial full operation" for purposes of the exemption under the act. If the Oklahoma Supreme Court ultimately were to find that the customers being served in this single case are not exempted from the Oklahoma Retail Electric Supplier Certified Territory Act, OG&E would have to evaluate the recoverability of some plant investments made to serve these customers and may also be required to reimburse the certified territory supplier in this case for an amount of lost revenue. Such amounts would not be expected to be material to the Registrants' results of operations. 2023 Oklahoma General Rate Review On December 29, 2023, OG&E filed a general rate review in Oklahoma seeking a rate increase of $332.5 million and a 10.5 percent return on equity based on a common equity percentage of 53.50 percent. The rate review seeks recovery of $1.3 billion of net capital investment since the last general rate review. On June 12, 2024, OG&E entered into an uncontested Joint Stipulation and Settlement Agreement with the Public Utility Division Staff, the Oklahoma Attorney General, the OG&E Shareholders Association, Oklahoma Industrial Energy Consumers, and other intervenors. This settlement agreement, which is subject to OCC approval, includes a base rate revenue increase of $126.7 million and no change to OG&E's current return on equity or requested capital structure, among other terms. OG&E had the right to implement interim rates, subject to refund, beginning on July 1, 2024 (180 days after the filing of its application on December 29, 2023). On July 1, 2024, OG&E implemented an annual interim rate increase in line with the settlement agreement, subject to refund based on final approval by the OCC. As of September 30, 2024, OG&E has fully reserved all of the interim rate increase. On July 31, 2024, the Administrative Law Judge issued a report that recommended the OCC approve the settlement agreement. 2023 Oklahoma Fuel Prudency On June 10, 2024, the Public Utility Division Staff filed their application initiating the review of the 2023 fuel adjustment clause prudence review. OG&E filed its minimum filing requirements and direct testimony on August 9, 2024 and responsive testimony is due on February 4, 2025. Oklahoma Demand Portfolio Filing Pursuant to OCC rules, OG&E is required to propose, implement and administer a portfolio of demand and energy efficiency programs once every five years. On July 1, 2024, OG&E filed its proposed demand program five-year portfolio for the 2025 through 2029 program cycle, requesting recovery of (i) energy efficiency program costs, (ii) lost revenues associated with certain achieved energy efficiency and demand savings, (iii) performance-based incentives and (iv) costs associated with research and development investments. OG&E also requested an increase in the number of energy efficiency programs offered to customers and expansion of the programs to include additional opportunities for customers to achieve demand and energy savings. On October 17, 2024, OG&E entered into an uncontested settlement agreement for its demand and energy efficiency programs, which was recommended for approval by the Administrative Law Judge on October 29, 2024, and an order in this matter is expected in the fourth quarter of 2024. SPP Proceedings Resource Capacity Accreditation In July 2022, the SPP Board of Directors approved a new unit accreditation methodology for conventional generation which requires submittal to and approval from the FERC prior to becoming effective. On March 2, 2023, the FERC rejected the SPP’s proposed capacity accreditation methodology for wind and solar generators. Following the FERC’s rejection, the SPP began an extensive review of both the methodology proposed for thermal resources which had not yet been submitted to the FERC, and the accreditation methodology for wind and solar generators. These methodologies were reviewed and approved by both the Regional State Committee and the SPP Board of Directors in late October 2023 and were submitted to the FERC for approval on February 23, 2024. If approved by the FERC, both methodologies are expected to be effective in 2026 and may contribute to OG&E’s incremental capacity needs.

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