BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA
IN THE MATTER OF THE APPLICATION OF | ) |
OKLAHOMA GAS AND ELECTRIC COMPANY | ) |
FOR AN ORDER OF THE COMMISSION | ) CAUSE NO. PUD 202100164 |
AUTHORIZING APPLICANT TO MODIFY ITS | ) |
RATES, CHARGES, AND TARIFFS FOR RETAIL | ) |
ELECTRIC SERVICE IN OKLAHOMA | ) |
Direct Testimony
of
Jennifer E. Nelson
on behalf of
Oklahoma Gas and Electric Company
December 30, 2021
Direct Testimony of Jennifer E. Nelson | Page 1 of 19 |
Cause No. PUD 202100164 |
1INTRODUCTION
- Q. Please state your name, affiliation, and business address.
- A. My name is Jennifer E. Nelson. I am an Assistant Vice President at Concentric Energy
4 | Advisors, Inc. ("Concentric"). My business address is 293 Boston Post Road West, Suite |
5 | 500, Marlborough, Massachusetts 01752. |
- Q. On whose behalf are you submitting this Direct Testimony?
- A. I am submitting this Direct Testimony before the Corporation Commission of Oklahoma
- ("Commission") on behalf of Oklahoma Gas and Electric Company ("OG&E" or the
9"Company").
- Q. Please describe your education and experience.
- A. I have worked in the energy industry for thirteen years, having served as a consultant and
12 | energy/regulatory economist for state government agencies. Since 2013, I have provided |
13 | consulting services to utility and regulated energy clients on a range of financial and |
14 | economic issues including rate case support (e.g., cost of capital and integrated resource |
15 | planning) and policy and strategy issues (e.g., alternative ratemaking and natural gas |
16 | distribution expansion). Prior to consulting, I was a staff economist at the Massachusetts |
17 | Department of Public Utilities, where I worked on regulatory filings related to energy |
18 | efficiency, renewable power contracts, smart grid and electric grid modernization, and |
19 | retail choice. I hold a Bachelor of Science degree in Business Economics from Bentley |
20 | College (now Bentley University) and a Master of Science degree in Resource and Applied |
21 | Economics from the University of Alaska. A summary of my professional and educational |
22 | background, including a list of my testimonies filed before regulatory commissions, is |
23 | included as Direct Exhibit JEN-1. |
- Q. Please describe Concentric's activities in energy and utility engagements.
- A. Concentric provides financial and economic advisory services to energy and utility clients
26 | across North America. Our regulatory, economic, and market analysis services include | |
27 | utility ratemaking and regulatory advisory services; energy market assessments; market | |
28 | entry and exit analysis; corporate and business unit strategy development; demand | |
Direct Testimony of Jennifer E. Nelson | Page 2 of 19 | |
Cause No. PUD 202100164 |
1 | forecasting; resource planning; and energy contract negotiations. Our financial advisory |
2 | activities include buy and sell-side merger, acquisition, and divestiture assignments; due |
3 | diligence and valuation assignments; project and corporate finance services; and |
4 | transaction support services. Additionally, Concentric provides litigation support services |
5 | on a wide range of financial and economic issues on behalf of clients throughout North |
6 | America. |
- Q. Have you testified before any regulatory authorities?
- A. Yes, I have. A list of proceedings in which I have filed expert testimony is provided in
9 | Direct Exhibit JEN-1. |
10 | PURPOSE AND OVERVIEW OF DIRECT TESTIMONY |
- Q. What is the purpose of your Direct Testimony in this proceeding?
- A. The purpose of my Direct Testimony is to provide an assessment of the Company's
13 | proposed Performance Based Ratemaking Plan ("PBR Plan") and to evaluate whether the |
14 | PBR Plan is in the public interest. I also sponsor Direct Exhibit JEN-2 which was prepared |
15 | by me or under my direction. |
16 Q. Please summarize your conclusion regarding the Company's request for the PBR
17 | Plan. | ||
18 | A. | For the reasons explained throughout my Direct Testimony, I conclude that the Company's | |
19 | PBR Plan is in the public interest and should be approved. | As detailed in my Direct | |
20 | Testimony, my conclusion is supported by the following: | ||
21 | • The Company's proposal is substantially similar to | the PBR mechanisms the | |
22 | Commission has found to be in the public interest for natural gas utilities in Oklahoma; | ||
23 | • The Company's proposed PBR is conceptually similar to its annual rate review | ||
24 | mechanism in place in its Arkansas jurisdiction,1 which has demonstrated to have | ||
25 | produced benefits for customers; and |
1OG&E's Arkansas FRP Rider, approved in Arkansas Public Service Commission ("APSC") Docket No. 16- 052-U, Order No. 8, at 19 (May 18, 2017).
Direct Testimony of Jennifer E. Nelson | Page 3 of 19 |
Cause No. PUD 202100164 |
1 | • The Company's proposed PBR Plan is consistent with sound ratemaking principles and |
2 | regulatory objectives and will provide benefits to customers. |
- Q. How is the remainder of your Direct Testimony organized?
- A. The remainder of my Direct Testimony is organized as follows:
5 | • Section III- Summarizes the Company's proposed PBR Plan in this proceeding and |
6 | reviews PBR mechanisms approved by the Commission for natural gas utilities in |
7 | Oklahoma; |
8 | • Section IV- Provides an overview of the traditional ratemaking framework and |
9 | universal ratemaking principles, and explains how the Company's PBR Plan is |
10 | consistent with sound ratemaking principles and regulatory objectives; and |
11 | • Section V- Summarizes my conclusions and recommendations. |
12 | OVERVIEW OF OG&E'S PROPOSED PBR PLAN |
- Q. For context, what is an annual rate review mechanism?
- A. Annual rate review mechanisms are an alternative form of ratemaking that departs from
15 | the more traditional "return on rate base" cost-of-service ratemaking framework in which | |
16 | utility rates are set through general base rate proceedings that occur periodically. Under | |
17 | annual rate review frameworks, utilities make annual streamlined rate filings pursuant to | |
18 | commission-approved requirements contained within the annual rate review tariff. | |
19 | Simply, under an annual rate review mechanism, rates are adjusted to reduce | |
20 | variances between the earned ROE and authorized "target" (or "benchmark") ROE. These | |
21 | mechanisms often include a "deadband" around the target ROE in which a rate adjustment | |
22 | is not triggered. Annual rate review mechanisms may include either | a historical or |
23 | projected test year. Additionally, annual rate review mechanisms may include a customer | |
24 | protection component such as earnings sharing component outside of the deadband or a | |
25 | cap on rate increases. | |
26 | Generally speaking, annual rate review frameworks streamline the regulatory | |
27 | review and approval process, reducing both the regulatory burden and expense to | |
28 | customers relative to large complex base rate proceedings. Additionally, annual filings can | |
Direct Testimony of Jennifer E. Nelson | Page 4 of 19 | |
Cause No. PUD 202100164 |
1 | provide the regulator and stakeholders more frequent insight and greater transparency into |
2 | a utility's operations, improving regulatory efficiency. Annual rate review mechanisms |
3 | also improve the timeliness of rate changes, which better align a utility's rates with its costs |
4 | to serve. Lastly, annual rate review mechanisms can improve bill stability - and, therefore, |
5 | revenue stability - as rate changes may be smaller and more gradual over time. In other |
6 | words, the potential for rate shock is mitigated relative to base rate cases when large |
7 | amounts of capital may be added to rate base at once. |
- Q. Please summarize the Company's proposed PBR Plan.
- A. As explained in the testimony of Company witness Zachary Quintero, the proposed PBR
10 | Plan creates a streamlined, annual process through which the Company's actual |
11 | performance is reviewed and rates are subsequently adjusted. Under the proposed PBR |
12 | Plan, the Company would file an application on July 31 of each year to review the |
13 | Company's financial performance using a test period of the twelve months ending March |
14 | 31. The Company's earned return during that period would be compared to the target rate |
15 | of return, as approved by the Commission in this Cause. If the earned return is more than |
16 | 50 basis points less than the target rate of return, rates would be prospectively adjusted to |
17 | increase the Company's return to the target rate. If the earned return is at least 50 basis |
18 | points above the target rate of return, the Company would return 75 percent of the over- |
19 | earnings to its customers. |
20 | The proposed PBR Plan is consistent with the PBR mechanisms approved by the |
21 | Commission for natural gas utilities in Oklahoma, and conceptually similar to the |
22 | Company's FRP Rider approved by the Arkansas Public Service Commission and found |
23 | to be in the public interest of Arkansas customers.2 |
24 Q. Has the Commission previously authorized the implementation of PBR mechanisms
25 | for utilities in Oklahoma? |
- A. Yes, the Commission has authorized PBR mechanisms for Arkansas Oklahoma Gas Corp.,
- CenterPoint Energy Resources, and Oklahoma Natural Gas. These PBR mechanisms
28 | adjust rates annually to reconcile earned returns against the target return authorized by the |
2APSC Docket No. 16-052-U, Order No. 8, at 19 (May 18, 2017).
Direct Testimony of Jennifer E. Nelson | Page 5 of 19 |
Cause No. PUD 202100164 |
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