JOPLIN, Mo. – After Oklahoma customers fought against a nearly 46 percent residential electric utility rate hike, the Empire District Electric Company is instead asking for a new rate case to increase rates up to 36 percent.
Empire’s filing on Dec. 21 came after previous efforts to raise customer rates using an Oklahoma Corporation Commission (OCC) reciprocity rule that was halted by push back from Oklahoma customers.
Empire announced late Wednesday it has now filed a request with the OCC for an increase in annual revenues of $ 3.8 million or 27.58 percent.
"Since 2011, approximately $670 million in capital improvements have been completed to serve Empire customers, which are not yet included in Oklahoma rates,” Empire President and CEO Brad Beecher said. “The largest of these investments were the Asbury AQCS and the Riverton Combined Cycle Unit. These projects were the most economic options for Empire to comply with environmental mandates related to SO2, mercury, and particulate matter. These investments also provide economic benefits for the region while lowering emissions and protecting the environment.”
If approved, Empire’s residential customers using 1,000-kilowatt hours monthly would see an increase of about $37 a month, or about a 36 percent billing increase. The rate will not go into effect unless it is approved by OCC after the six-month rate case process is completed.
“These numbers are a little bit less than the reciprocity filing,” Empire’s Director of Corporate Communications Julie Maus said.
“When we compile all of the facts and figures together for the case they’re based upon the circumstances at that particular time. They’re based on the known and measurable expenses, investments and so on and the conditions at that time, and so in compiling this case and conducting the cost of service study for customers, those numbers did come out a little less. Also, we’re quite a bit further down the road, so the way that rate base works is, particularly the Asbury project has been in service for two years now, now depreciation has occurred on that project and on other items.”
In October of 2015, Empire notified the OCC they had initiated a rate case in Missouri and planned to take advantage of the new OCC rule that would have allowed charging Oklahoma customers the rates eventually approved in Missouri for its customers there. That proposal asked the OCC to grant rate hikes for Oklahoma customers, which make up 2.7 percent of Empire's entire customer base.
OCC rules provide when an electric company serves less than 10 percent of its total customers in Oklahoma customers can be prescribed the same rates as an adjacent state.
“The whole rate case process is lengthy and expensive, and the intention of that rule was to save money for customers,” Julie Maus said. “The Commission decided not to implement those rates as filed, so they would need to set some type of a procedural schedule, some type of a review process and audit process. It was kind of breaking new ground, so once you suspend them, what’s the timeline? Given all of the uncertainty, and given the length of time that’s already occurred since the last rate case, and all of these major investments, you know the longer we put this off, it’s putting off the inevitable. So, we withdrew the reciprocity filing and made the announcement in November we would make a general rate case filing.”
Empire’s request to OCC for implementation of the reciprocity rule caused an uprising from local residential, business and industrial customers and others affected. Included in efforts to protest the rate hike, Oklahoma State Representative/ Miami City Attorney Ben Loring and Miami Regional Chamber of Commerce President and CEO Steve Gilbert at that time, invited some of the area’s largest Empire energy users impacted to a round table discussion regarding the proposal.
The Oklahoma Industrial Energy Consumers’ (OIEC) attorney Tom Schroedter and Oklahoma Lobbyist Steve Edwards, along with leaders and officials from Empire served communities including Quapaw, Welch, Wyandotte, Bluejacket, Cardin, Commerce, Douthat, Fairland, Hockerville, North Miami and Picher joined the discussion. Among them, tribal leaders, casino executives, industrial and business heads, and several school superintendents. All of them facing the potentially economically destructive effects such steep rate increases would cause.
“ I just got the documents and will be reviewing them,” Gilbert said of the new Empire filing. “We had a short call with OIEC and over the next couple of weeks they will be working closely with their members who are parties to the case. We will monitor this closely over the coming weeks and months.”
Oklahoma Empire customers complained of little to no prior notice of the first proposal.
“Given the timeframe it had been since the last Oklahoma increase it was a sizeable number, and it did seem to catch customers off guard,” Maus said. “It sounds like we could have done a better job in communicating this to our customers here in northeast Oklahoma. I can say that in hindsight.”
Maus said Empire has also spent $11 to $12 million in transmission line upgrades here in Oklahoma over the last several years. With this and other Empire projects, the company cannot always predict the amount customer rates will increase to cover these costs until the project is completed and all coast are factored in, according to Maus.
“Customers are going to hear about a rate case about five or six times as the process is going on, every single time they hear it, they think the rates have gone up, but they haven’t,” Maus said. “The rates don’t go into effect until the very end of the process, and they also don’t go into effect until a project has been completed… In the end we recover our costs in two ways, we get money from our shareholders to build the projects and then we recover the costs from customers to pay for those.”
Area school superintendents from Fairland, Commerce, Wyandotte and other districts estimated increased expenses of $25,000 to $55,000 more each year, catastrophic to budgets already tight from recent state education cuts.
Big industry electric consumers such as J-M Farms, Umicore, and Downstream Casino, said the jumped up electric rate was potentially detrimental to their bottom line, operations, future developments, economic growth, and financial well-being.
Complaints of service reliability were issued, especially with customers who are dependent for business purposes or customers on oxygen and other medical support dependent on electricity.
The Miami Regional Chamber of Commerce sent out information at that time to help spread the word and rally stakeholders to action to help fight against such a significant rate increase.
Some questioned the timing of the rate hike, with many concerned customers finding it suspect due to Empire’s pending acquisition and merger by Canadian conglomerate, Algonquin Power & Liberty Utilities.
“When we invest in projects we have to recover those costs from our customers. There’s no way to separate the timing. The merger acquisition is in process, and the projects were already completed and planned years in advance of any activity happening on the merger,” Maus said. “There’s just no basis to it at all.”
Algonquin Power & Utilities Corp. and Empire just announced Dec. 22 that the Kansas Corporation Commission had approved the unanimous settlement agreement among Empire, Liberty Sub Corp., and Liberty Utilities Co., the KCC Staff and the Citizens’ Utility Ratepayer Board. The KCC order provides, among other things, authorization to consummate the merger between Empire and Liberty Sub Corp. in accordance with the terms and conditions of the Agreement and Plan of Merger dated as of Feb.9, 2016.
Receipt of the KCC’s order completes the final required regulatory approval and accordingly, all conditions precedent to completing the Merger have been fulfilled other than the customary closing conditions. The transaction closing is expected to occur on or about Jan.1, 2017.
Empire cites in its current rate case filing that primary drivers for the increase request are the need to recover costs for the completion of capital expenditures for environmental compliance upgrades as required by the EPA. Noted are a $112 million for an Air Quality Control System at the Asbury, Missouri station and $168 million for completion of an overhaul at the Riverton, Kansas plant for a combined investment of $280 million.
The recent capital improvements at the Asbury and Riverton plants were included in Empire’s state required integrated resource plan, which determines least cost options to provide enough generation capacity to serve customers and meet regulatory compliance. As an investor-owned utility, by law, Empire isn’t allowed to recover the cost of such projects until they are complete and providing service to customers, according to the company.
“Affordable electricity is important to all of us whether you’re a school, a residential customer or a small business owner, but when we’re faced with mandates that come down from the Environmental Protection Agency we have to comply with those, “ Maus said. “We look at what is the most cost-effective way to comply with those federal regulations. The result of those years of planning and research is that these were the most cost-effective ways to comply with those mandates.”
Maus said customers have been seeing the environmental benefits of those projects for two years.
“Riverton is extremely efficient. We’re getting 100-megawatts of additional energy out of that unit with very little additional fuel costs, and those savings are passed on to customers through the fuel adjustment charge,” she said. “We are able to produce more energy with less fuel.”
In the coming months, the OCC will perform an extensive audit of Empire’s operations, hold public hearings, and conduct an evidentiary hearing. Any new rates granted would take effect at the conclusion of this process, typically in approximately six months.
“The Commission will make a determination as to the new rates that should be granted,” Maus said. “Everyone needs some certainty for the customers and for us.”
“What happens when we go in for a rate case is everything is on the table,” Maus said. “Every piece of our operation will be audited by OCC, everything, all of our costs, all of our expenses, everything. Then they are going to determine what is does Oklahoma rate base need to be, what our overall company rate base need to be, and what portion of that is attributable to Oklahoma to set our rates. Our investments are in rate base, our plants, our equipment, our pole, our lines, our substations, our trucks, everything. ”
Maus said the OCC also determines what Empire is able to collect as a rate of return for its stakeholders.
“We’re not allowed to earn more than what it costs to serve our customers plus the amount of return that they allow us to make,” she said. “We’re only allowed to pass on costs to customers for what is in place and providing service to customers today.”
There is no mechanism in place to allow Empire to build a bank of money for future project investment and is why the company depends on shareholder investors and bonds to fund improvement projects, according to Maus, in return investors are repaid through customer rate revenues.
“That’s the trade off for begin a regulated monopoly,” she said.
Oklahoma Attorney General Scott Pruitt’s office has been monitoring Empire’s case to OCC since receiving notice from the electric provider and engaged in the process once the application for approval was filed. On Oct. 6 all parties met and agreed to request an order from the OCC that rejected the Missouri rates and directed the parties to enter a procedural schedule that would require a hearing on Empire’s requested rate increase.
“The Attorney General’s Office is in the process of reviewing and analyzing Empire’s filing,” the AG’s Deputy Attorney General for Communications and Public Affairs Shelly A. Perkins said in response to Empire’s latest filing with the OCC.
Empire is based in Joplin and is an investor-owned, regulated utility providing electric, natural gas (through its wholly owned subsidiary The Empire District Gas Company), and water service. Empire serves approximately 218,000 customers in Missouri, Kansas, Oklahoma and Arkansas.