Court ruling confirms earlier decision — even big businesses have to stick with their electrical provider
Electrical service territories inside of Oklahoma matter, three judges on Oklahoma’s Court of Civil Appeals have ruled.
In a decision handed down this week, judges making up one of the court's four panels upheld an Oklahoma Corporation Commission order issued two years ago requiring a customer of an electric cooperative to continue using that provider to power one of its wells.
The decision is just one salvo in an ongoing battle happening inside Oklahoma right now as part of a debate that pits economic development efforts against the well-being of rural Oklahomans who rely on nonprofit cooperatives to supply the energy they need to live their lives.
On one side of the lines are large, investor-owned utilities like Oklahoma Gas and Electric (OG&E), which can supply a lot of energy to a new customer much cheaper than a cooperative can. Regulatory changes on regional and federal levels have slashed investor-owned utilities' costs to provide that power further, and they argue that resulting lower electricity rates they can offer helps boost economic development efforts in rural parts of Oklahoma.
Cooperatives, meanwhile, are engineered to share costs and revenues among all members equally. Users pay fixed costs for their energy set by cooperative boards, and each time a cooperative loses a new large, industrial customer to a competitor, it loses revenues that could be used to upgrade its distribution system or could be shared with its members.
This particular legal challenge was brought by a customer that wanted to add a well powered by the cooperative to an energy supply it receives from OG&E. The well in question is used in a large part of the customer's operations.
And while debate in this case covered topics beyond the scope of the issue at hand, technically, this week’s ruling doesn’t specifically address broader questions related to state law that could make or break numerous other territorial disputes between electrical cooperatives and OG&E.
This week’s ruling
Judges Thomas E. Prince, Brian Goree and E. Bay Mitchell ruled the commission was right to require IOCHEM, an iodine manufacturer that operates a plant near Vici in northwest Oklahoma, to keep Northwestern Electric Cooperative as the power provider to a brine well it operates as part of its production facilities.
The law that influenced commissioners’ decision is a 1971 measure approved by Oklahoma’s Legislature that is called the Retail Electric Supplier Certified Territory Act.
Primarily, the act sets out service territories for electric cooperatives and for investor-owned utilities in unincorporated parts of Oklahoma (incorporated municipalities either own their own power systems or provide residents the right through routine elections to approve service agreements with one or more energy suppliers).
The act also includes a 1-megawatt exception, which allows major power consumers who expect to use that much power or more to choose where they obtain their energy before services are initially established.
Customarily, those customers make that decision based upon the prices they can get for the energy they need.
IOCHEM's operation uses multiple wells to draw brine from the ground that is sent through a process to harvest iodine. Leftover brine is pumped to other wells that inject it back underground.
While IOCHEM was building its entire operation within Northwestern’s service territory, it used the 1-megawatt exception in 1987 to secure the future energy it would need from OG&E to run 17 brine wells and to power its manufacturing plant.
Through that arrangement, OG&E has delivered power to a single point at the IOCHEM facility, with IOCHEM then using its own distribution system of poles and lines to send that power to various points within its operational facilities.
In 1997, IOCHEM added an additional nine brine wells to its operations, choosing at that time to use Northwestern lines and poles to get energy delivered to those operations.
Then in 2018, IOCHEM sought to move one of those nine additional wells from Northwestern's system to its own in-house distribution system, still powered by OG&E.
It requested approval of that plan from the commission, arguing a contract it had executed with Northwestern gave it the right to make the switch.
But Northwestern disagreed, prompting it to file a case of its own that asked the commission to require IOCHEM to continue using its power to supply the well.
Northwestern Electric serves about 5,934 customers in a six-county area of western Oklahoma through a network of poles that carry more than 5,000 miles of line, and each of those customers matter, attorneys for the cooperative argued before commissioners.
"It is a very uncomfortable situation for the cooperative because its members are important to it," argued attorney Deborah Thompson, who represented the electric cooperative before commissioners. “But when you have a really small cooperative, losing a revenue source like that creates a severe impact on ranchers, rural residential and business customers.
"State law is very clear. We don't have customer choice in Oklahoma. There's no switching."
Commissioners consolidated the cases and ruled in Northwestern’s favor through an order signed in January 2019 by Commissioners Todd Hiett and Bob Anthony. Then commission-Chairwoman Dana Murphy recused herself because she's a customer of Northwestern Electric.
Judge Prince, in writing for the court, said the well in question clearly was outside of OG&E’s certified service territory and that it by itself didn’t use enough power to qualify for the 1-megawatt exception.
“The OCC acted within its authority and did not exceed its jurisdiction,” he wrote.
The broader issue
The broader issue revolves around the Retail Electric Supplier Certified Territory Act and its 1-megawatt exception rule.
In 1971, legislators approved the law as a way to promote orderly extensions of electric service across the state by preventing duplicative facilities and fights between cooperatives and utilities over service rights.
As part of the law, legislators allowed 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 extended its distribution service to the delivery point.
For decades, the law worked well.
But during the past several years as some oil-field and commercial class electrical customers aiming to build in electrical cooperatives’ service territories have used the 1-megawatt exception provided for in the law to obtain their energy from OG&E, debate about the legality of those agreements has surfaced.
Changes made over time in federal and regional oversight rules have given power providers a way to pull needed energy from transmission systems outside of their service territories that are owned by third parties and to drop that power to a substation to supply a new customer.
Cooperative representatives argue OG&E is taking advantage of those rule changes and the 1-megawatt exception rule to pull power from transmission outside of its service territory and provide new services without building out its distribution system, cherry picking potential cream-of-the-crop cooperative customers.
That hurts the nonprofits’ customers, they say, because that robs them of revenue cooperatives could be using to keep services more reliable and affordable for all of their customers.
Attorneys representing OG&E, meanwhile, have maintained the utility is following the law. At the same time, its executive leaders repeatedly have talked about how the utility’s ability to provide affordable energy services across Oklahoma has boosted economic development efforts that create jobs to build and operate new oil and gas, manufacturing and entertainment facilities here.
There are at least a half-dozen other cases where commissioners have issued orders that are being litigated that are related to the Retail Electric Supplier Certified Territory Act, the 1-megawatt exception rule and related issues.