May 1997
Oklahoma: Restructuring Legislation Calls For Retail Competition By July 1, 2002
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 05/98)

On April 25, 1997, the Oklahoma Legislature enacted the "Electric Restructuring Act of 1997" (the "Act"). The Act delegates most of the details of electric utility restructuring to the Oklahoma Corporation Commission (the "Commission") and a joint legislative task force known as the Joint Electric Utility Task Force (the "Task Force").

The Act requires the Commission to study all issues relating to electric utility restructuring and to develop a framework for the implementation of retail competition. In developing this framework for the transition from a regulated to a competitive marketplace, the Commission is required to act under the direction of the Task Force and is expressly prohibited from promulgating any rules or issuing any orders relating to restructuring without the prior approval of the Oklahoma Legislature.

The Act requires that competitive power suppliers meet certain undefined minimum standards to ensure reliability and financial integrity. The Act also states that suppliers must register with the Commission, but the Act does not include any details on the registration process. Rather, the Act requires the Commission to begin a study of licensing requirements for competitive power suppliers by July 1999. In addition, the Act states that a utility's generating assets must be functionally separated from its transmission and distribution assets and requires that such generational services be subject to minimal regulation.

The Act also states that a transition period from a regulatory to competitive model shall be established which will enable the parties involved to fully comply with requirements of a restructured industry. During this transition period, electric rates for all consumers shall not rise above existing levels.

Regarding stranded costs, the Act provides that a procedure shall be established for identifying and quantifying stranded costs and that mechanisms shall be proposed for the recovery of prudently incurred, unmitigable, verifiable stranded costs. The Act also states that as part of this process, utilities must establish the level of their unmitigable and verifiable stranded costs and that such costs should be recovered in expeditious fashion. The Act, however, imposes the following limits on the recovery of stranded costs: First, the stranded cost recovery charge cannot cause the total cost of electric power, including transmission and distribution costs, to exceed the present cost of electricity and second, utilities will only be permitted to recover stranded costs for a period of not less than three nor more than seven years.

The Act requires the Commission to engage in a series of studies regarding the restructuring of the electric utility industry. The Commission is required to study the use of a statewide independent system operator and to report to the Task Force by February 1, 1998. In addition, by January 1, 1999, the Commission is required to examine the financial issues related to electric utility restructuring, including stranded cost recovery, and to report to the Task Force.

The Act directs the Oklahoma Tax Commission (the "Tax Commission") to study the impact of restructuring on state tax revenues and examine the feasibility of establishing a uniform tax system. The Tax Commission is directed to report its findings to the Task Force and is prohibited from issuing any rule or order applicable to restructuring without the prior consent of the Oklahoma Legislature or the Task Force. The Act states that unless a uniform tax policy is developed which permits all power suppliers to be taxed on a fair and equal basis prior to July 1, 2002, retail competition shall be delayed until such uniform policy is established.

Pursuant to these timetables, Oklahoma ratepayers should be able to select a competitive power supplier by July 1, 2002.

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716