Oklahoma Gas & Electric Co. (OG&E) flunked its prudence review, the Oklahoma Corporation Commission (OCC) said in reducing the amount the utility may recover from customers to pay its affiliate, Enogex Inc., for gas storage and transportation to fuel its power generation plants and ordering refunds of amounts already collected from customers.

The OCC reduced the annual recoverable amount for the Enogex contract from $46.8 million to $41.9 million. Further, the Commission directed that the next time the contract came up for renewal, OG&E should establish a bidding process with consultation and oversight by the commission and the Office of the State Attorney General.

The OCC noted a provision in the company’s last rate case order required the contract with Enogex for gas transportation services be put up for competitive bids when it expired. Absent competitive bidding, the company would be subject to a prudence review, the order stated.

Since OG&E subsequently renewed its contract with Enogex for seven years, effective April 30, 2002, without competitive bidding or negotiations with any other party, the commission initiated a prudence review. It determined a benchmark for the services at $41.9 million annually and ordered refunds for any amounts collected above that level.

The OCC also ordered OG&E, in cooperation with the OCC’s Public Utility Division staff and the Attorney General, “review its fuel supply portfolio and risk management plan with respect to affiliate requirements and any sole supplier risks that result from the affiliate agreement between OG&E and Enogex Inc.”

The commission decision followed an administrative law judge recommendation, except for one exception. The ALJ would have allowed OG&E to recover fuel costs in addition to the $41.9 million, but the commission did not agree.

OG&E estimates it will be refunding $8.5 million to 10 million, and does not believe this amount will be material to its financial results based on previously-established reserves. A filing will be made to determine the exact amount of the refund, which is to be made in the form of credits on customers’ future electric bills under the Commission’s order.

“We are pleased to have an order in this case, so we can move forward with more certainty in the operation of our business,” said Steven E. Moore, chairman, president and CEO of OGE Energy Corp., parent company of OG&E and of Enogex Inc., the natural gas pipeline company that serves most of OG&E’s gas-fired power plants. “We had hoped the Commission would place a higher value on the service our electric ratepayers receive from OG&E’s contract with Enogex, which enables us to maximize the utilization of our coal-fired plants which provide significant fuel savings for our customers. But having a unanimous Commission order is a positive outcome.”

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