Okla.'s Two Largest Electric Utilities Try to Convince State to Add Another Coal-Fired Power Plant

Article excerpt

In Oklahoma, utilities have few fuel choices when it comes to generating electricity. Natural gas and coal are by far the two most prevalent fuel choices. And that choice has some of the state's most powerful corporations fighting about power.

The state's two largest electric utilities - Oklahoma Gas and Electric Company and Public Service Company of Oklahoma - say the best way to ensure the lights stay on is to diversify, balancing the use of the state's two main fuel sources. But the utilities face a challenge in convincing the state that their plan to add another coal-fired power plant to the mix is the best choice.

Hurricanes, train derailments, embargoes, pipeline failures and other disasters both natural and manmade can cut off the supply of a particular fuel without warning - and without a means to estimate the duration of the shortage. Price fluctuations and political forces can make a particular fuel source considerably more or less attractive in a short period of time. PSO and OG&E officials contend the best way to mitigate the state's risk against the unexpected is to avoid over-reliance on any one type of fuel.

PSO and OG&E have partnered on a plan to build a 950 megawatt coal-fired power plant in Noble County, a project known as Red Rock that is estimated to cost $1.8 billion. The plan is opposed by natural gas company Chesapeake Energy and others who have a stake in the natural gas industry, and point to the environmental drawbacks of coal.

Oklahoma's electric utilities are barred from making a profit on the fuel used to generate electricity. The cost of fuel used in generation is passed through to the customer. But while the price of fuel makes no difference on the utilities' bottom line, the utilities have to answer to the Oklahoma Corporation Commission regarding whether they've made the best decisions for ratepayers. And when customers notice their monthly bills rising or disruptions in service, they aren't likely make a distinction between the utility and its fuel suppliers when calling to complain.

On the other hand, utilities are allowed to make money on their power plants. If the utilities can justify the need for a new power plant to the Corporation Commission, the cost of building the plant, as well as the cost of operating and maintaining the plant over an estimated 40-year lifespan, can be factored into the utility's rate structure. When deciding how much a utility may charge its ratepayers, regulators factor in all of the utility's assets and allow the company to collect an established return on equity, usually of about 10 percent.

Oklahoma's energy options

In Oklahoma, natural gas and coal are close competitors in the field of electricity production. The Energy Information Administration, part of the federal Department of Energy, reported that in May, 2.6 million megawatts of electricity were generated using natural gas, accounting for 3.9 percent of the U.S. natural gas supply, while 2.7 million megawatts was generated using coal, accounting for 1.7 percent of the U.S. coal supply. The EIA showed more than 20 major natural-gas-fired electric power plants in the state and six major coal-fired plants.

Very little electricity is generated in Oklahoma using other fuels. In May, just 3,000 megawatts were generated in the state from petroleum-fired plants, 357,000 megawatts from hydroelectric plants, and 171,000 megawatts from other renewables, including wind power. No nuclear power plants operate in Oklahoma.

Though Oklahoma has made great strides in the area of wind- generated power in recent years, wind is one resource for which no accurate predictions can be made. Utilities are allowed to use wind power to meet peak demand, but regulators do not permit utilities to rely on wind as part of their base load, the minimum level of generation capacity the utilities are required to keep at the ready at all times. …