Oklahoma Commission Investigates Possible ONG Overcharges

Oklahoma's record winter heating costs last season were caused by inadequate planning by Oklahoma Natural Gas Co., and thus customers should get some of their money back, according to witnesses testifying last week before the Oklahoma Corporation Commission (OCC). The Commission is looking into charges that ONG did not adequately prepare for the last winter season, which caused rates to escalate.

Thomas Norris, a Houston-based energy consultant, testified that ONG had failed to purchase gas "prudently," telling the commission that it was "speculating or did not care" that winter price spikes could occur. Norris was hired by the Oklahoma Public Utility Division of the Commission to review ONG's purchasing practices.

Last winter, ONG customers' heating bills more than doubled when gas prices rose to almost $10/MMcf. Ken Zimmerman, who works for the Commission on energy issues and helped to prepare a report that suggested consumers were owed a refund, said "imprudent actions" led to costs of more than $72 million, which were then passed on to the state's ratepayers. Typically, he said, natural gas is purchased in the summer months when prices are lower, he told the Commission.

However, ONG attorney Stuart Campbell claimed that the review was being performed in hindsight and reminded the commissioners that gas prices are difficult to predict. ONG bought about 60% of its winter gas supply from ONEOK Energy Marketing and Trading, an ONG affiliate. At least one commissioner, Ed Apple, is siding with ONG, calling the staff's report ambiguous and imprecise.

ONG's James Armstrong, manager of rate and regulatory affairs, testified that residential customers' bills paid over the past year "have compared favorably to the bills received by residential customers in neighboring states." He also said the OCC was premature in calling for a review on purchasing practices. Armstrong noted during testimony that of 21 gas distribution companies in the region, ONG's residential rate was the seventh lowest in the past year.

However, commission attorney Maribeth Snapp said ONG's parent company ONEOK Inc. and ONG affiliates had denied the staff request for certain data. Armstrong said that the information request was still pending, but said that if the staff didn't have the required information, "for whatever reason, I don't think the rules make an allowance and say, `well you can make partial prudency reviews or do part of a review and bring in an interim recommendations.'"

ONEOK and subsidiaries OMET and OGS were cited for contempt on May 31 for refusing to comply with the commission staff's request related to natural gas sales, and assessed a fine of $2,000 a day beginning May 8, 2001 and lasting until the companies complied with the order to surrender the documents. ONEOK has appealed to the Oklahoma Supreme Court, and Snapp said the state's high court could take two or more years to rule following appeals.

"I know there's been some cases that have gone for quite a while," Armstrong said. "We're dealing with big dollars and if that's what it takes, then I guess that's what it should take." When asked by Snapp what ratepayers could expect until the court had made a decision, Armstrong countered that "Oklahoma Natural is not going anywhere. I don't see why they think we're going to skip town or whatever."

Pete Walker, who was ONG's vice president of gas supply between 1976 and 2000, said summer gas buying does not lead to lower consumer prices in the winter, and he said the increasing volatility of today's gas market could cause higher prices.

"One can no longer count on being able to buy less expensive gas in the summer months," Walker testified. "One must make a judgment call prior to summer and prior to each heating season without knowing what many of these factors will be."

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