8-K: OG&E Reaches Settlement Agreement for Rate Review, Reducing Initial Request by $205.88 Million

Oklahoma Gas and Electric Company (OG&E) has reached a settlement agreement with multiple parties, reducing its initial rate increase request by $205.88 million.

Summary

• OG&E has entered into a settlement agreement regarding its general rate review filed in Oklahoma on December 29, 2023.
• The agreement, reached on June 12, 2024, involves the Oklahoma Corporation Commission (OCC) Staff, the Attorney General's Office of Oklahoma, the Oklahoma Industrial Energy Consumers, and other parties.
• The settlement reduces OG&E's initial rate increase request of $332.54 million to a total base rate increase of $126.66 million.
• This reduction is achieved through various adjustments, including a $51.13 million reduction related to return on equity and a $74.19 million reduction in depreciation expense.
• The agreement also includes a $60 annual increase to OG&E's senior citizen discount program and maintains the residential customer charge at $13.00 per month.
• The settlement is subject to OCC approval, with a hearing scheduled to begin the week of June 17, 2024.

Sentiment

Score: 7

Explanation: The settlement is a positive development as it reduces the proposed rate increase, but there are still some uncertainties and potential future adjustments. The agreement is a compromise, and the sentiment is cautiously optimistic.

Positives

• The settlement significantly reduces the proposed rate increase, benefiting customers.
• The senior citizen discount program will be enhanced with a $60 annual increase.
• The residential customer charge will remain unchanged at $13.00 per month.
• The agreement provides clarity on various expense items and their treatment in rate calculations.
• The settlement includes a mechanism for managing vegetation management expenses, which could lead to more efficient spending.

Negatives

• The settlement still results in a base rate increase of $126.66 million, which will impact customers' bills.
• The 1MW competitive load issue will be litigated separately, potentially leading to further adjustments.
• The settlement includes a 15 year amortization of the Pension Regulatory Asset balance as of March 31, 2024, which could impact future rates.

Risks

• The settlement is subject to approval by the Oklahoma Corporation Commission, and there is a risk that the OCC may not approve the agreement as is.
• The 1MW competitive load issue, which is not part of the settlement, could lead to further rate adjustments.
• Changes in vegetation management expenses could impact the regulatory asset or liability, potentially affecting future rates.
• The settlement includes a 15 year amortization of the Pension Regulatory Asset balance as of March 31, 2024, which could impact future rates.

Future Outlook

The settlement agreement is subject to approval by the Oklahoma Corporation Commission, and the 1MW competitive load issue will be litigated separately, potentially leading to further adjustments. OG&E will file testimony to support the total amount of vegetation management spend in its next general rate case, and it shall propose an amortization period for the net regulatory asset or liability.

Management Comments

• The Stipulating Parties represent to the Commission that this Joint Stipulation represents a fair, just and reasonable settlement of all issues.
• The Stipulating Parties believe the terms and conditions of the Joint Stipulation are in the public interest.

Industry Context

This settlement is part of the regulatory process for utility companies, where rate increases are reviewed and negotiated with various stakeholders. The outcome reflects a balance between the utility's need for revenue and the interests of customers and other parties.

Comparison to Industry Standards

• Rate case settlements are common in the utility industry, with negotiations often leading to reductions in initial requests.
• The 9.50% return on equity is within the range of what is typically authorized for regulated utilities.
• The specific adjustments made to various expense items are unique to this case but reflect common areas of scrutiny in rate reviews.
• The vegetation management expense and tracker is a common mechanism used by utilities to manage these costs.

Stakeholder Impact

• Shareholders will see a reduced rate increase, which may impact their returns.
• Customers will benefit from a lower rate increase than initially proposed.
• The settlement provides clarity on future rates and expenses for all stakeholders.

Next Steps

• The settlement agreement will be reviewed by the Oklahoma Corporation Commission.
• A hearing on the merits of the settlement agreement is scheduled to begin the week of June 17, 2024.
• The 1MW competitive load issue will be litigated separately.
• OG&E will submit an annual report to the Public Utility Division detailing the Company's vegetation management spending and activities.
• OG&E will file testimony to support the total amount of vegetation management spend in its next general rate case, and it shall propose an amortization period for the net regulatory asset or liability.

Key Dates

Keywords

rate review, settlement agreement, Oklahoma Gas and Electric, OG&E, Oklahoma Corporation Commission, rate increase, vegetation management, return on equity, depreciation, pension, regulatory asset