Didn't PSO recently raise its non-fuel base rates?
Yes. On October 9, 2007, the Oklahoma Corporation Commission issued a final order which allowed PSO a permanent increase in base rates of $9.8 million. PSO had filed the case in November 2006, seeking an approximate $48 million increase.
For a residential customer using 1,000 kWh a month the increase amounted to approximately $3.81, or about 4.8 percent, over the previous OCC-approved rates. On average, commercial customers saw an increase of about .5 percent, while industrial customers saw an average decrease of about 1.3 percent.
This was PSO's first base rate increase since 1994.
Didn't PSO already raise rates in 2008?
The mid-2008 increase in customers' bills was not due to a change in base rates; it was an increase to recover the higher cost of fuel used in generating electricity.
PSO raised the fuel cost adjustment factor in customer bills, effective with June 2008 billing, primarily to reflect the impact of much higher prices for natural gas used to generate electricity.
Fuel cost adjustment is NOT the same as base rates. Through fuel cost adjustment, all PSO is allowed to do under state law is recover its actual fuel costs from customers, with no mark-up allowed. Customers, in essence, reimburse PSO for the cost of the fuel used to generate the electricity they use.
Fuel cost adjustment floats up and down as it follows increases and decreases in the average cost of fuel. Under current rules, PSO recalculates on an annual basis the amount of fuel cost being recovered from customers, and makes any needed changes in the recovery.
Why is PSO seeking a base rate increase at this time?
In short, PSO's current rates do not cover its costs.
Since the close of the June 30, 2006 test year on which current rates were established, PSO has invested hundreds of millions of dollars in its electric system, and the cost of operations has continued to climb. PSO needs to include those costs in rates and allow the company to continue to provide reliable service to customers, while earning an adequate return for its shareholders.
Significant rate relief through this case is essential to maintain PSO's financial health and its ability to provide reliable service to its customers.
What investment has PSO made that is not reflected in current rates?
PSO has made significant investments in all aspects of its business that are not currently included in rates. All of these investments have been made for the benefit of PSO's customers. Specifically, PSO has invested more than $444 million in new generation, transmission, distribution, and related equipment and facilities since the test year on which current rates were set.
All of these investments are reasonable and necessary, and provide customer benefits such as accommodating growth in electrical demand and meeting needs for increased reliability. Further, PSO will need to continue to invest at similar levels for the foreseeable future based on projections of system growth and basic infrastructure needs.
Why couldn't PSO defer some investments to later years to reduce impact on customers now?
The investments included in PSO's rate filing were necessary to make at the time each was made. These investments provide needed enhancements to PSO's electric system, provide for customer growth, and allow critical facilities, like generating plants, to continue to operate at reliable levels. Putting off these expenditures would simply result in unacceptable reliability impacts and/or hinder PSO's ability to meet increases in customer demand. Moreover, with all costs continuing to rise, deferring reasonable and necessary investments and expenses would only cost customers more in the future.
When will a decision in this case be issued?
Because PSO initiated this filing, state law allows the OCC a maximum of 180 days to issue its final order in the case.
What is PSO doing to control spending?
PSO works aggressively to contain its costs in the midst of very large increases in the costs of equipment, materials, and the other cost drivers of our business, while continuing to provide safe, responsive, and reliable service. We are very sensitive to the impacts that price increases for electric service have on our customers, who are already challenged by price increases for gasoline, groceries, and other necessities. We also are very aware of our customers' needs for continued reliable electric service. The investments PSO has made, and the increased level of spending by PSO, are reasonable and necessary for PSO to continue to provide high quality electric service to its customers.
Is this the last rate increase for PSO customers for a while?
Given the increased investment needed to continue to provide reliable, safe and efficient service to our customers and to comply with increased environmental requirements, it is likely that we will be seeking additional rate increases over the next few years. How much and when will depend upon precisely how much additional investment we will need to make to comply with environmental requirements and to continue to maintain and operate our system.
Has PSO taken into account the impact that a significant rate increase will have on low income customers?
We're sensitive to the challenges faced by lower income customers, made all the more challenging by recent price increases for other basic necessities. PSO will reach out soon to key stakeholders to develop a proposal for enhancing assistance for those customers.
What kind of progress has PSO made in reducing power outages and improving reliability?
Since PSO began its Reliability Enhancement Program in January 2005, reliability has improved significantly. In 2007, PSO experienced a 45 percent reduction in customer outage minutes due to sustained non-major event tree-related outages, compared with 2005.
Why should PSO be allowed to raise its base rates?
This case is about ensuring PSO's financial health so it can continue to meet the needs of its customers and communities for a safe, reliable and adequate supply of electricity, and to do so at a reasonable cost. To serve customers, PSO must provide an adequate electric system infrastructure, and incur reasonable levels of expenses to support its operations.
A failure to fully include these costs in rates would result in a failure to fully recover the reasonable costs of providing electric service, including earning an adequate return. Such a financial outcome would be of grave concern to PSO as it could have an impact our ability to continue to provide the service our customers need and expect, especially since our investment needs and the costs of operations will continue to increase.
