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Rate Matters and Regulation | 6 Months Ended
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Jun. 30, 2025
Regulated Operations [Abstract] |
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' 2024 Form 10-K appropriately represent, in all material respects, the current status of the Registrants' regulatory matters. Completed Regulatory Matters Integrated Resource Plans OG&E recently issued its 2025 IRP to the OCC and APSC. This 2025 IRP is intended to address updated planning assumptions from OG&E’s 2024 IRP and present OG&E’s current capacity needs in light of the SPP’s planning reserve margin requirements for both summer and winter seasons as well as the SPP’s revised resource accreditation methodologies and updated load projections. The 2025 IRP identified capacity needs of 221 MWs, 267 MWs, 1,083 MWs, 1,349 MWs and 1,647 MWs in 2026, 2027, 2028, 2029 and 2030, respectively, in the summer season. The 2025 IRP also identified capacity needs of 280 MWs, 371 MWs, 490 MWs, 825 MWs and 1,017 MWs in 2026, 2027, 2028, 2029 and 2030, respectively, in the winter season. OG&E has executed contracts for nearly 1,000 MWs of generation as a result of the 2024 request for proposal process, and regulatory approvals are currently being pursued, as further discussed below. OG&E intends to satisfy additional capacity needs through the request for proposal process initiated by OG&E’s 2024 IRP or future request for proposal processes, as needed. FERC Proceedings Muskogee to Fort Smith Transmission Project On May 15, 2025, OG&E filed an application with the FERC requesting CWIP incentive and abandoned plant incentive for an 80 mile high voltage transmission line project running from OG&E's Muskogee substation in Oklahoma to its Fort Smith substation in Arkansas at a cost of approximately $242 million. On July 15, 2025, the FERC issued an order approving OG&E's request. OG&E will begin construction of this transmission line once it has accepted the notice to construct from the SPP, which is expected in the coming weeks. OG&E would be allowed to seek recovery of prudently incurred costs through its formula rates should this project be abandoned for circumstances outside of OG&E's control. OCC Proceedings 2023 Oklahoma General Rate Review In December 2023, OG&E filed a general rate review in Oklahoma seeking a rate increase of $332.5 million and a 10.5 percen t return on equity based on a common equity percentage of 53.50 percent. The rate review sought recovery of $1.3 billion of capital investment since the last general rate review. Prior to the hearing on the merits, on June 12, 2024, OG&E entered into an uncontested settlement agreement, which was also executed by the OCC Public Utility Division Staff, the Oklahoma Attorney General, the OG&E Shareholders Association, Oklahoma Industrial Energy Consumers and other intervenors. This settlement agreement resulted in an annual revenue requirement increase of $126.7 million. OG&E had the right to implement interim rates subject to refund beginning 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. On November 26, 2024, the OCC issued an interim order approving the settlement agreement. In addition to the annual base rate revenue increase of $126.7 million, other key terms of the uncontested settlement agreement, as approved in the interim order by the OCC, include, among others: • All recorded plant-in-service through March 31, 2024 is prudent and should be included in rate base; • There will be no change in OG&E's current return on equity of 9.5 percent, and OG&E's requested capital structure based on a common equity percentage of 53.50 percent would be approved; • OG&E will utilize depreciation rates based on the recommendations of the Federal Executive Agencies for production plant accounts, the Public Utility Division for transmission plant accounts, Oklahoma Industrial Energy Consumers for intangible plant accounts, and no change to existing rates for distribution and general plant accounts; and • OG&E will include in expense any Oklahoma vegetation management operation and maintenance expenses up to $38.2 million annually and defer to a regulatory asset or liability the total level of expense less than or greater than the $38.2 million annual base level of expense. The regulatory asset will be up to $7.5 million in excess of the base rate level and no carrying charge will accrue on the regulatory asset/liability. The costs booked to the regulatory asset or liability will be subject to a prudence review in OG&E’s next general rate review. Due to the November 26, 2024 OCC interim order approving the settlement agreement, no refund of interim rates was deemed necessary. On March 27, 2025, the OCC issued a final order in this matter, which affirmed its previous order approving the settlement agreement and approved the ALJ report on the remaining one MW issue with one exception. The one exception stated that in its next general rate review, OG&E shall directly assign the costs of transmission radials to new competitive load customers that are added to the system after November 1, 2023. No other changes were made to rates implemented effective July 1, 2024 after the November 26, 2024 interim order. While the OCC’s final order has been appealed, the rates will remain in effect. 2023 Oklahoma Fuel Prudency On June 10, 2024, the Public Utility Division Staff filed their application initiating the prudence review of the 2023 fuel adjustment clause. The OCC issued an order on April 22, 2025 finding that OG&E's 2023 fuel costs and generation operations were prudent. 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 Arkansas Prudence of Horseshoe Lake and Tinker Generation Facilities On December 30, 2024, pursuant to orders in the generation construction notice filings, OG&E filed an application requesting a determination of prudence of action and initial contract costs for the generating units being constructed at Horseshoe Lake and Tinker Air Force Base. On May 19, 2025, intervenors, including the Attorney General, filed direct testimony and APSC staff recommended a finding of prudence of action and initial contract costs for both projects. The Attorney General recommended approval of the Horseshoe Lake project but raised concerns regarding certain elements of the Tinker Air Force Base project. On May 22, 2025, OG&E filed a supplemental application to serve as notice to the APSC of OG&E’s intent to recover the costs of these projects through a rider under the newly enacted Act 373. On June 16, 2025, OG&E filed rebuttal testimony to address concerns raised by the Attorney General in direct testimony. 2025 Arkansas Preapproval Case On July 25, 2025, OG&E filed an application requesting several approvals from the APSC relating to three capacity projects arising from the 2024 request for proposals for generating capacity: (i) the Black Kettle Battery Storage capacity purchase agreement; (ii) the Kiamichi natural gas capacity purchase agreement; and (iii) construction of two additional combustion turbines at the Horseshoe Lake generating facility. OG&E is seeking authority to begin construction of the Horseshoe Lake units, a prudency determination of those new Horseshoe Lake units, authorization to enter into the Black Kettle capacity purchase agreement and other findings needed under Arkansas law, including eligibility to recover costs of the new Horseshoe Lake units through a rider under the newly enacted Act 373. 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 and on September 16, 2024, the U.S. Court of Appeals for the Eighth Circuit denied relief and upheld the FERC's decision. If the FERC proceeds to order refunds in full, OG&E estimates it would be required to refund $14.0 million, which is net of amounts paid to other utilities for upgrades, plus interest at the FERC-approved rate. Payment of refunds would shift recovery of these upgrade credits to future periods. The SPP has submitted filings to the FERC outlining a refund process but stating some issues need the FERC's clarification before refunds can proceed. OG&E and other parties have commented on the filings and the matter remains pending before the FERC. Of the $14.0 million, the Registrants would be impacted by $4.0 million in expense that initially benefited the Registrants in 2016, and OG&E customers would incur a net impact of $10.0 million in expense through rider mechanisms or the FERC formula rate. As of June 30, 2025, the Registrants have reserved $14.0 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 $14.0 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 based on the defense of "laches," effectively determining that the plaintiff did not raise their claims in a timely manner. All five of those cases were appealed to the Oklahoma Supreme Court, with two additional appeals consolidated with two of the original appeals, so that there were five cases in total. On April 4, 2023, the Oklahoma Supreme Court issued its opinion which vacated the OCC's injunctions in one of the five 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. On March 4, 2025, the Oklahoma Supreme Court issued a decision in a second case, finding that OG&E may not “extend service” from third-party transmission facilities and also effectively reversed its decision in the prior case addressing the same claims. This ruling was prospective in nature, which means OG&E may still serve the customers subject to the ruling, but in the future, OG&E may not extend services off of third-party transmission facilities. On June 17, 2025, the Oklahoma Supreme Court ruled in favor of OG&E’s appeal in another of the cases, resolving the statutory interpretation of how a supplier calculates “connected load for initial full operation" for purposes of the exemption under the act. This will allow OG&E to continue serving one MW customers outside its certified service territory based on the ‘nameplate rating,’ of all devices connected to a distribution system. The appeals on the two claims in which the OCC ruled in favor of OG&E based on the defense of “laches” remain outstanding. However, even if the Oklahoma Supreme Court were to reject the laches defense, based on the rulings in the March 4, 2025 decision, OG&E believes that the ruling would be prospective in nature and OG&E would continue to be able to serve the customers subject to the ruling. 2024 Oklahoma Fuel Prudency On April 1, 2025, the Public Utility Division Staff filed their application initiating the prudence review of the 2024 fuel adjustment clause. OG&E filed its minimum filing requirements and direct testimony on June 2, 2025. Responsive testimony from intervenors is due to be filed on August 14, 2025. 2025 Oklahoma Preapproval Case On May 19, 2025, OG&E filed a preapproval case seeking OCC approval of three projects that will add capacity to the OG&E portfolio: (i) the Black Kettle Battery Storage capacity purchase agreement; (ii) the Kiamichi natural gas capacity purchase agreement; and (iii) construction of two additional combustion turbines at the Horseshoe Lake generating facility. OG&E seeks recovery through a rider, CWIP recovery for the Horseshoe Lake combustion turbines and a return on the Black Kettle and Kiamichi capacity purchase agreements. OG&E is seeking an expedited procedural schedule that results in a final order by November 15, 2025. 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. On January 16, 2025, the FERC accepted the SPP's proposed tariff revisions for each accreditation methodology to become effective October 1, 2025. OG&E is evaluating the impact of the FERC's acceptance of these accreditation methods, which may contribute to OG&E’s capacity needs.

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