After failing to get pre-approval to build the $1.8 billion, 950 MW Red Rock coal-fired power generation plant in northern Oklahoma last week, the project's backers, OG&E Electric Services (OG&E), Public Service Company of Oklahoma (PSO) and the Oklahoma Municipal Power Authority, set about developing "less attractive" options to meet the state's growing power needs.
While some argued that the dispute was over the choice of fuel -- namely coal over natural gas, the real point of contention between the Oklahoma Corporation Commission (OCC) and the project's supporters centered on financing and alternatives. The OCC voted 2-1 in approving orders that deny the Red Rock applications because the applications basically asked commissioners to allow the utilities to pass on costs of the project to ratepayers before the project was built. Commissioners Jeff Cloud and Jim Roth voted for denial of the applications.
Following the ruling, the Red Rock backers jointly agreed to terminate agreements to build and operate the plant. The commission's order indicated that both PSO and OG&E will need more electric generating capacity by 2012, but also asserted that not enough consideration was given to solutions other than Red Rock. The project was first announced in January of this year.
"We continue to believe that a jointly owned Red Rock plant represented a unique opportunity for three Oklahoma utilities to maintain a balanced generation portfolio and hold down future energy costs," said OGE Energy Corp. CEO Pete Delaney. "Unfortunately, as we said consistently throughout this process, it is not feasible to construct a plant of this size without the commission's blessing. We will now turn our attention to developing alternative, albeit less attractive, baseload generation options."
OG&E estimates its share of costs in the planning phase of the Red Rock project to be between $18 million and $20 million. The company intends to seek regulatory recovery of those costs.
In his decision, Cloud stressed that the denial was not issued because of a coal versus natural gas debate, adding that the commission is unable to tell a company what type of plant to build. Instead, he stated that the denial was due to the belief that alternatives were not studied thoroughly.
"The bottom line is even with today's orders, OG&E and PSO are both free to build whatever power plant, including the Red Rock project, that they might decide they want to build," Cloud said. "To be clear, the commission orders do not tell the companies they can not build this or any project.
"Historically, electric utilities have waited until after a power plant construction project was completed and running before asking the commission for authority to pass project costs on to customers and to earn a return on that new investment," he explained. "Under a 2005 state law, however, when a regulated electric utility thinks it needs more generating capacity to meet future customer demand, the company can seek to reduce its investment risk under state law by asking the commission to pre-approve the need to build or buy a new power plant and any cost recovery available under commission rules. But that same state law requires that the commission make its determination after "notice and hearing and after consideration of reasonable alternatives."
Cloud said that the majority of the commission determined that the utilities did not put on sufficient evidence to meet their burden of demonstrating that reasonable alternatives were fully explored and that the proposed Red Rock plant was the most reasonable alternative.
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