FERC Investigates Oklahoma Gas & Electric for Market Power; Oklahoma Regulator Proposes Competitive Bidding

Both Oklahoma state regulators and FERC recently indicated that changes in the way Oklahoma utilities get power be in order.  At a June 6 hearing, the Oklahoma Corporation Commission ("OCC") directed its staff to put together a notice of proposed rulemaking ("NOPR"), which would direct the state's utilities to procure power through a competitive bidding process, and convene a prudence review of the 2003 costs of the state's two largest electric utilities, Oklahoma Gas & Electric Co. ("OG&E") and American Electric Power-Public Service Co. of Oklahoma ("PSO").  The NOPR would explore a competitive bidding process for utilities as a means of maintaining the state's relatively low electricity rates.  Notwithstanding generally low rates, Oklahoma's industrial customers saw their electric bills rise from July 2003 to July 2004 at a rate well above the national average.  Not surprisingly, representatives of OG&E and PSO indicated that a competitive bidding process and prudence reviews are unnecessary and that the current rules provide customers with sufficient protection against price volatility.

FERC has likewise focused on generation issues in the Sooner State.  On June 7, FERC found that OG&E and its affiliate OGE Energy Resources failed the agency's wholesale market share screen and initiated an 206 investigation into whether the OGE Companies possess generation market power.  Echoing the OCC's concerns about Oklahoma utilities' power procurement processes, FERC noted concerns raised by intervenors that OG&E is effectively foreclosing all competing generation in the relevant market by refusing to buy power from even low-cost resources and is instead dispatching high-cost generation owned by affiliates, thus raising issues of "buyer market power" and affiliate abuse.  While FERC could not address these concerns in the instant proceedings, because buyer market power is not currently a part of its four-prong market power analysis, FERC did express concern over such practices and promised to take up the issue of buyer market power in its ongoing generic rulemaking proceeding to determine the adequacy of the four-part test (Docket No. RM04-7).  [Oklahoma Gas and Electric Company, 111 FERC ¶ 61,368 (2005)]  [NEW MATTER]