Oklahoma Corporation Commissioners decide electric territorial disputes, leaves natural gas cap on, for now
The Oklahoma Corporation Commission on Wednesday took up two cases of electrical service territorial disputes, taking the side of a cooperative in one case and the side of an investor-owned utility in another.
They also voted to leave a limit affecting natural gas production from Oklahoma’s most prolific wells in place, for now.
As for the electric disputes, cases the commission decided involve the Retail Electric Supplier Certified Territory Act, approved by Oklahoma’s Legislature in 1971. The law includes a “1 megawatt exception,” which allows for territorial infringements on an electric provider’s “exclusive” service territory, but only in cases where the power needs of a customer would be 1 megawatt or greater and only in cases where the energy provider extends its service to the delivery point.
A case involving that specific language and a dispute between Oklahoma Gas and Electric Co. and a customer it is serving in a cooperative’s territory is before Oklahoma’s Supreme Court, awaiting a decision.
The cases commissioners tackled Wednesday dealt with other related issues.
CKenergy Electric Cooperative vs. OG&E
In this case, the cooperative sought and won a commission order that backed an administrative law judge’s recommendation to force OG&E to quit serving saltwater disposal facilities owned by Bison and Cimarex within CKenergy’s service territory. The issue involved the amount of power each of the facilities consumes, given that the law states the 1 megawatt exception involves “connected load for initial full operation.”
A cooperative attorney argued neither facility has used a required 1 megawatt of energy that would be required for OG&E to serve those customers, while OG&E's attorney countered that the facilities’ initial designs had nameplate capacities of 1 megawatt or greater.
By a 2-0 vote, the commission ordered OG&E to quit serving those customers. Commissioner Bob Anthony did not participate.
Oklahoma Electric Cooperative vs. OG&E
Oklahoma Electric Cooperative unsuccessfully sought a commission order reversing an administrative law judge’s recommendation to dismiss its challenge.
Arguments centered on whether the cooperative should have more quickly raised objections to OG&E’s plan to provide electric service to a natural gas compression facility built within its service territory by Blue Mountain Midstream.
Attorneys for OG&E and Blue Mountain argued the cooperative waited too long to object to its plans, given that it didn’t challenge the deal until after service to the 40 megawatt consumer had been activated. Cooperative attorneys countered that OG&E and Blue Mountain hadn’t been forthcoming about their plans.
Commissioners, by a 2-0 vote (with Anthony not participating) took OG&E’s side.
Natural gas proration
By a 2-1 vote, commissioners opted to leave in place a proration formula that limits natural gas production from some of Oklahoma’s most prolific wells.
It requires well operators to limit an unallocated gas well’s absolute open flow to 50% of its potential, or to cap its maximum allowable production at 2 million cubic feet per day (mmcf/d), whichever is greater.
The order is effective from Oct. 1 through the end of March.
Commissioner Dana Murphy and Commission Chairman Todd Hiett included language in the order that directs the agency’s staff to explore whether or not proration, a regulatory step the agency is authorized to take in order to conserve natural resources, should somehow be modified or done away with entirely.
Oil and gas operators in Oklahoma are divided on the issue, with some favoring a substantial use of the tool to limit natural gas production in an attempt to help boost its price. Others oppose its use, maintaining that the larger market ably handles supply and demand issues that impact the commodity's price without the need of government control.
Anthony, who cast the dissenting vote in the decision, agreed with those who believe in market forces.
A short-term energy forecast issued by the U.S. Energy Information Administration (EIA) earlier this month predicted total consumption of natural gas will average 82.4 billion cubic feet per day (Bcf/d) in 2020 in the U.S., down 3% from 2019.
While it observed that the average spot price for the fuel at the Henry Hub in July averaged $1.77 per million British thermal units (MMBtu), it expects its average price will increase to $2.11 in September and $3.14 in February because of increased demand and reduced production.
Anthony said he believes Oklahoma already protects correlative rights held by mineral owners through a variety of other steps it requires operators to follow to ensure natural gas and oil isn’t overproduced.
“With today’s threat from Hurricane Laura to U.S. off-shore natural gas production, Oklahoma should let markets work and allow wide-open production for its gas wells,” he said.
While supporting the current formula for another six months to generate more data, Hiett and Murphy said Wednesday they support a closer look at whether it remains needed, given that some well operators don’t report well production capabilities like they should.
“This process really needs to be re-evaluated,” Murphy said, noting the statute never envisioned complicated horizontal well developments that produce oil and gas from a pooled resource using multiple wells. “I think it is a very antiquated statue that we are trying to apply as best we can. We really need to look at just what we are doing and work with the stakeholders who are interested in this to see if there is a continuing need for it, or, if there is a different way this could be done.”