OGE Energy : PUD 2021-00164 - Direct Testimony of Jennifer Nelson

BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

IN THE MATTER OF THE APPLICATION OF	)
OKLAHOMA GAS AND ELECTRIC COMPANY	)
FOR AN ORDER OF THE COMMISSION	) CAUSE NO. PUD 202100164
AUTHORIZING APPLICANT TO MODIFY ITS	)
RATES, CHARGES, AND TARIFFS FOR RETAIL	)
ELECTRIC SERVICE IN OKLAHOMA	)

Direct Testimony

of

Jennifer E. Nelson

on behalf of

Oklahoma Gas and Electric Company

December 30, 2021

Direct Testimony of Jennifer E. Nelson	Page 1 of 19
Cause No. PUD 202100164

1INTRODUCTION

1. Q. Please state your name, affiliation, and business address.
2. A. My name is Jennifer E. Nelson. I am an Assistant Vice President at Concentric Energy

4	Advisors, Inc. ("Concentric"). My business address is 293 Boston Post Road West, Suite
5	500, Marlborough, Massachusetts 01752.

1. Q. On whose behalf are you submitting this Direct Testimony?
2. A. I am submitting this Direct Testimony before the Corporation Commission of Oklahoma
3. ("Commission") on behalf of Oklahoma Gas and Electric Company ("OG&E" or the

9"Company").

1. Q. Please describe your education and experience.
2. A. I have worked in the energy industry for thirteen years, having served as a consultant and

12	energy/regulatory economist for state government agencies. Since 2013, I have provided
13	consulting services to utility and regulated energy clients on a range of financial and
14	economic issues including rate case support (e.g., cost of capital and integrated resource
15	planning) and policy and strategy issues (e.g., alternative ratemaking and natural gas
16	distribution expansion). Prior to consulting, I was a staff economist at the Massachusetts
17	Department of Public Utilities, where I worked on regulatory filings related to energy
18	efficiency, renewable power contracts, smart grid and electric grid modernization, and
19	retail choice. I hold a Bachelor of Science degree in Business Economics from Bentley
20	College (now Bentley University) and a Master of Science degree in Resource and Applied
21	Economics from the University of Alaska. A summary of my professional and educational
22	background, including a list of my testimonies filed before regulatory commissions, is
23	included as Direct Exhibit JEN-1.

1. Q. Please describe Concentric's activities in energy and utility engagements.
2. A. Concentric provides financial and economic advisory services to energy and utility clients

26	across North America. Our regulatory, economic, and market analysis services include
27	utility ratemaking and regulatory advisory services; energy market assessments; market
28	entry and exit analysis; corporate and business unit strategy development; demand
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	Cause No. PUD 202100164

1	forecasting; resource planning; and energy contract negotiations. Our financial advisory
2	activities include buy and sell-side merger, acquisition, and divestiture assignments; due
3	diligence and valuation assignments; project and corporate finance services; and
4	transaction support services. Additionally, Concentric provides litigation support services
5	on a wide range of financial and economic issues on behalf of clients throughout North
6	America.

1. Q. Have you testified before any regulatory authorities?
2. A. Yes, I have. A list of proceedings in which I have filed expert testimony is provided in

9	Direct Exhibit JEN-1.
10	PURPOSE AND OVERVIEW OF DIRECT TESTIMONY

1. Q. What is the purpose of your Direct Testimony in this proceeding?
2. A. The purpose of my Direct Testimony is to provide an assessment of the Company's

13	proposed Performance Based Ratemaking Plan ("PBR Plan") and to evaluate whether the
14	PBR Plan is in the public interest. I also sponsor Direct Exhibit JEN-2 which was prepared
15	by me or under my direction.

16 Q. Please summarize your conclusion regarding the Company's request for the PBR

17		Plan.
18	A.	For the reasons explained throughout my Direct Testimony, I conclude that the Company's
19		PBR Plan is in the public interest and should be approved.	As detailed in my Direct
20		Testimony, my conclusion is supported by the following:
21		• The Company's proposal is substantially similar to	the PBR mechanisms the
22		Commission has found to be in the public interest for natural gas utilities in Oklahoma;
23		• The Company's proposed PBR is conceptually similar to its annual rate review
24		mechanism in place in its Arkansas jurisdiction,1 which has demonstrated to have
25		produced benefits for customers; and

1OG&E's Arkansas FRP Rider, approved in Arkansas Public Service Commission ("APSC") Docket No. 16- 052-U, Order No. 8, at 19 (May 18, 2017).

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Cause No. PUD 202100164

1	• The Company's proposed PBR Plan is consistent with sound ratemaking principles and
2	regulatory objectives and will provide benefits to customers.

1. Q. How is the remainder of your Direct Testimony organized?
2. A. The remainder of my Direct Testimony is organized as follows:

5	• Section III- Summarizes the Company's proposed PBR Plan in this proceeding and
6	reviews PBR mechanisms approved by the Commission for natural gas utilities in
7	Oklahoma;
8	• Section IV- Provides an overview of the traditional ratemaking framework and
9	universal ratemaking principles, and explains how the Company's PBR Plan is
10	consistent with sound ratemaking principles and regulatory objectives; and
11	• Section V- Summarizes my conclusions and recommendations.
12	OVERVIEW OF OG&E'S PROPOSED PBR PLAN

1. Q. For context, what is an annual rate review mechanism?
2. A. Annual rate review mechanisms are an alternative form of ratemaking that departs from

15	the more traditional "return on rate base" cost-of-service ratemaking framework in which
16	utility rates are set through general base rate proceedings that occur periodically. Under
17	annual rate review frameworks, utilities make annual streamlined rate filings pursuant to
18	commission-approved requirements contained within the annual rate review tariff.
19	Simply, under an annual rate review mechanism, rates are adjusted to reduce
20	variances between the earned ROE and authorized "target" (or "benchmark") ROE. These
21	mechanisms often include a "deadband" around the target ROE in which a rate adjustment
22	is not triggered. Annual rate review mechanisms may include either	a historical or
23	projected test year. Additionally, annual rate review mechanisms may include a customer
24	protection component such as earnings sharing component outside of the deadband or a
25	cap on rate increases.
26	Generally speaking, annual rate review frameworks streamline the regulatory
27	review and approval process, reducing both the regulatory burden and expense to
28	customers relative to large complex base rate proceedings. Additionally, annual filings can
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1	provide the regulator and stakeholders more frequent insight and greater transparency into
2	a utility's operations, improving regulatory efficiency. Annual rate review mechanisms
3	also improve the timeliness of rate changes, which better align a utility's rates with its costs
4	to serve. Lastly, annual rate review mechanisms can improve bill stability - and, therefore,
5	revenue stability - as rate changes may be smaller and more gradual over time. In other
6	words, the potential for rate shock is mitigated relative to base rate cases when large
7	amounts of capital may be added to rate base at once.

1. Q. Please summarize the Company's proposed PBR Plan.
2. A. As explained in the testimony of Company witness Zachary Quintero, the proposed PBR

10	Plan creates a streamlined, annual process through which the Company's actual
11	performance is reviewed and rates are subsequently adjusted. Under the proposed PBR
12	Plan, the Company would file an application on July 31 of each year to review the
13	Company's financial performance using a test period of the twelve months ending March
14	31. The Company's earned return during that period would be compared to the target rate
15	of return, as approved by the Commission in this Cause. If the earned return is more than
16	50 basis points less than the target rate of return, rates would be prospectively adjusted to
17	increase the Company's return to the target rate. If the earned return is at least 50 basis
18	points above the target rate of return, the Company would return 75 percent of the over-
19	earnings to its customers.
20	The proposed PBR Plan is consistent with the PBR mechanisms approved by the
21	Commission for natural gas utilities in Oklahoma, and conceptually similar to the
22	Company's FRP Rider approved by the Arkansas Public Service Commission and found
23	to be in the public interest of Arkansas customers.2

24 Q. Has the Commission previously authorized the implementation of PBR mechanisms

25	for utilities in Oklahoma?

1. A. Yes, the Commission has authorized PBR mechanisms for Arkansas Oklahoma Gas Corp.,
2. CenterPoint Energy Resources, and Oklahoma Natural Gas. These PBR mechanisms

28	adjust rates annually to reconcile earned returns against the target return authorized by the

2APSC Docket No. 16-052-U, Order No. 8, at 19 (May 18, 2017).

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