OIEC's response claims Empire's estimates for the wind projects are overstated, and the base case natural gas forecast the company used is unreasonably high.

MIAMI – Empire District Electric Company's filing with the Oklahoma Corporation Commission (OCC) potentially affecting Empire large commercial and industrial customers and small residential and business customers, has drawn response from Oklahoma Industrial Energy Consumers (OIEC).

Back in October of 2017 Empire filed a “Customer Savings Plan” with the OCC with a proposal the company claims could add up to $325 million in savings for customers over the next 20 years if approved by the commission.

OIEC takes exception to Empire's claim and request and filed an argumentative response with OCC on Feb. 15. OIEC consists of a diverse group of large Oklahoma energy consumers involved in natural gas and electric power regulatory and legislative matters.

Push

In their October filing, Empire is seeking to take advantage of what they indicate is a “limited window of opportunity” to develop up to 800 megawatts (MW) of strategically located wind generation in or near Empire's service territory using federal tax incentives in conjunction with tax equity partners.

Empire also proposes retiring the Asbury coal-fired unit before making approximately $20 to $30 million in environmental compliance upgrades required by April 2019. These are the same regulatory expenses the OCC concluded Empire could recover in a rate case decided in 2017.

In the 2017 rate case, Empire requested an approximate $3.8 million rate increase to Oklahoma which was an increase of 45.26 percent in base rates and an overall rate increase of 27.58 percent to comply with Environmental Protection Agency ( EPA) air quality regulations. Specifically, Empire investments of a bag house and scrubber system at the Asbury Plant, the retirement of two coal units and conversion to a simple-cycle gas plant to a combined-cycle plant at Riverton, an investment of about $304 million.

The OCC allowed Empire to recover the costs of the EPA-driven environmental upgrades but reserved any prudence determination on the projects to be addressed in Empire's next general rate case.

If this most recent request is approved, Empire states in the filing they could take advantage of Production Tax Credits that can only be maximized for wind projects completed by Dec. 31, 2020, which could defray as much as 60 cents on every dollar for the development of generating assets.

“Empires' Customer Savings Plan presents a unique opportunity to bring savings to Empire's customers over the next several decades,” Empire's Attorney Kimber Shoop wrote in the application filing.

Empire asks for approval of a plan through a tax equity partnership of 60 percent, and a 40 percent investment from Empire for Wind Projects capital investment, which constitutes the investment for which Empire will seek rate recovery in the form of rate base investment, that Empire has the right to purchase after 10 years.

“Customers will benefit from this ownership structure because Empire can provide lower cost generation to customers through the acquisition of Wind Projects for approximately 40 percent of their cost. More importantly, when the acquisition of the Wind Projects is coupled with the retirement of the Asbury plant and the establishment of a regulatory asset for recovery on any of its remaining plant balances, customers will achieve the identified savings over the next two decades,” Shoop writes in Empire's filing. “Empire is uniquely poised to take advantage of this opportunity given its new affiliation with Algonquin Power & Utilities Corp. which has partnered with tax equity on renewable generation projects which represent over 900 MW of capacity.”

In order to implement the Customer Savings Plan, Empire has requested the issuance of an order by May 31.

Pushback

Testimony from Mark Garrett President of the Garrett Group, LLC, an Oklahoma City firm specializing in public utility regulation, litigation and consulting services on behalf of OIEC, was filed with the OCC on Feb. 15.

Empire must prove their investment in any new generation facilities are necessary and reasonable to reliably meet the system's peak demand and reserve margin requirements, which Garrett testified Empire has not demonstrated.

The OIEC expert argues that Empire has not proven wind generation is the lowest reasonable cost alternative to serve customers or proven the impact of the proposals on Empire ratepayers both large industrial users or smaller residential customers.

OIEC's response claims Empire's estimates for the wind projects are overstated, and the base case natural gas forecast the company used is unreasonably high.

“Empire has not demonstrated that the proposed Wind Projects are necessary or reasonable,” Garrett testified. “The Company has adequate capacity to provide reliable service without acquiring the proposed wind facilities.”

Garrett argues OCC should not allow this early retirement of the Asbury plant and exclude the entire cost of the Asbury Plant from the rate base and disallow associated depreciation expense recovery as well if Empire is granted retirement of the Asbury Plant.

In his responsive testimony, Garrett says Empire has not provided the necessary information for the OCC to evaluate if the tax equity structure proposed is in the best interest of ratepayers, or if those same customers would benefit from such structure.

In regards to the Tax Cuts & Jobs Act rate changes on Empires' revenue requirement, Garrett said, “Empire's income tax rate has decreased from 35 percent to 21 percent as a result of the TCJA. I estimate that Empire's revenue requirement has decreased by approximately $418,229 for assets recovered in Empire's current base rate and $80, 790 for assets recovered through the Company's current ECP rider. “

OIEC contends these savings, and excess Accumulated Deferred Income Taxes should be passed on to Empire's ratepayers.

Empire owns and operates an electric utility system located in four states, Missouri, Kansas, Arkansas, and Oklahoma which serves a total of 172,000 electric customers. Approximately 4,700, or 2.7 percent, of Empire's customers are located in Oklahoma.

Melinda Stotts is the associate editor of the Miami News-Record. She can be emailed at mstotts@miaminewsrecord.com or followed on Twitter @MelindaStotts1.