OGE Energy : PUD 2021-00164 - Direct Testimony of Shelby Norton

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

Shelby L. Norton

on behalf of

Oklahoma Gas and Electric Company

December 30, 2021

Direct Testimony of Shelby L. Norton	Page 1 of 7
Cause No. PUD 202100164

Shelby L. Norton

Direct Testimony

1. Q. Please state your name and business address.
2. A. My name is Shelby Norton. My business address is 321 North Harvey, Oklahoma City,

3	Oklahoma 73102.
4

1. Q. By whom are you employed and in what capacity?
2. A. I am employed by Oklahoma Gas and Electric Company ("OG&E" or "Company") as a

7	Senior Regulatory Accountant.
8

1. Q. Please summarize your educational background and professional qualifications.
2. A. I earned a Bachelor of Accountancy degree, with a minor in Finance, from the University
3. of Oklahoma. I am also a Certified Public Accountant licensed by the Oklahoma

12	Accountancy Board. I joined OG&E in October 2016 as a Senior Regulatory Accountant.
13	During my time at OG&E, I have been involved in rate cases and rider applications in both
14	Oklahoma and Arkansas jurisdictions. Prior to joining OG&E, I was employed by Enable
15	Midstream Partners LP (formerly Enogex LLC) from 2008 to 2016, where I held roles as
16	Senior Revenue Accountant, Senior Financial Analyst, and Senior SEC Accountant. My
17	responsibilities included variance analysis, monthly revenue margin reporting, budgeting
18	and forecasting operating costs, and preparing quarterly and annual filings with the
19	Securities & Exchange Commission. From 1998 to 2008, I was employed by Chesapeake
20	Energy as an Accounting Coordinator responsible for account analysis, reviewing and
21	posting general ledger journal entries, and quarterly reporting. From 1995 to 1998 I was
22	employed by Arthur Andersen LLP as an In-Charge Staff Auditor, where I was responsible
23	for preparing financial statements for public and nonpublic companies, variance analysis,
24	and running benefit plans and internal control audits.
25

1. Q. Have you testified previously before this Commission?
2. A. No. I ask that the Commission accept my credentials.

Direct Testimony of Shelby L. Norton	Page 2 of 7
Cause No. PUD 202100164

1. Q. What is the purpose of your testimony?
2. A. The purpose of my testimony is to sponsor pro forma adjustments to the test year expenses

3	in this Cause and explain why these adjustments are appropriate. The Company utilized a
4	historical test year ending September 2021 with pro forma adjustments through March
5	2022.
6

1. Q. What Pro Forma adjustments will you discuss?
2. A. Chart 1 shows each of the expense pro forma adjustments and gives a description of each
3. one.

Chart 1 - Pro Forma Adjustments to Operating Expense

Pro Forma Adjustment	Operating Expense Description
WP H 2-20	Insurance Expenses
WP H 2-22	Payroll Expense & Related Taxes
WP H 2-23	Other Compensation Expense
WP H 2-25	Regulatory Expense
WP H 2-26	Bad Debt Expense
WP H 2-27	Storm Rider Expense Removal
WP H 2-32	Long-Term Incentive Expense
WP H 2-33	Fuel Adjustment Clause (FAC) Rider Expense Removal
WP H 2-34	Non-recoverable Expense Removal
WP H 2-36	Customer Deposit Interest
WP H 2-37	Advertising Expense
WP H 2-40 & WP H 2-41	Vegetation Management Distribution and Transmission Expense
WP H 2-42	Wind Power Expense Removal

1. Q. Please explain WP H 2-20,pro forma adjustment to insurance expense.
2. A. The Company compared test year insurance expense to actual insurance expenses for

12	policy period 2021/2022 using information provided by the Company's insurance brokers.
13	The difference between the test year and projected levels were recorded as a pro forma
14	adjustment to increase expenses by $1,041,123.

Direct Testimony of Shelby L. Norton	Page 3 of 7
Cause No. PUD 202100164

1. Q. Please explain WP H 2-22,pro forma adjustment to payroll expense.
2. A. This adjustment is designed to capture employee compensation levels at the end of the pro

3	forma period. This adjustment consists of three parts. First, payroll expense was
4	annualized based on the number of employees and their associated wage levels as of the
5	end of the test year. To accomplish this, the Company calculated the hourly rates of each
6	individual employee at OG&E, and multiplied those hourly rates by the number of hours
7	worked per year. This adjustment has the effect of capturing a full year of payroll for the
8	additional employees hired into the Company during the test year and eliminating the
9	payroll of employees who left the Company during the test year. For the second part, this
10	adjustment increased payroll to account for projected raises employees will receive at the
11	end of 2021. This amounted to an approximate 2% increase in salaries. For the third part,
12	a calculation was made to estimate changes to payroll expenses occurring from the end of
13	the test year to the pro forma period resulting from hires and retirements. The result of all
14	the calculations mentioned above is an increase to payroll expenses of $1,573,686. An
15	additional adjustment of $125,002 is also made for payroll taxes related to the additional
16	expense level, resulting in a total pro forma adjustment of $1,698,688.
17

18 Q. Will this adjustment be updated with actual payroll information through the end of

19		the pro forma period?
20	A.	Yes. The Company will update this adjustment with actual payroll information as of March
21		2022. By utilizing March 2022 information, the projections for salary increases as well as
22		hires/retirements would no longer be necessary since the actual employee levels and actual
23		salaries will be available.
24

1. Q. Please explain WP H 2-23,pro forma adjustment to other compensation.
2. A. The Company averaged four years of short-term and other compensation to arrive at a level

27	of other compensation that captures both upward and downward swings in incentive and
28	other compensation related costs. To arrive at the expense level, the ratio of expense to
29	total payroll was applied in order to remove the capitalized amount. When payroll taxes
30	are included, this results in a decrease to operating expenses of $4,632,716. Please see the

Direct Testimony of Shelby L. Norton	Page 4 of 7
Cause No. PUD 202100164

1	direct testimony of OG&E Witness Donald Rowlett for further discussion on short term
2	incentive compensation.
3

4 Q. Should the adjustment be updated using actual incentive compensation information

5		for the 2021 level used in the average?
6	A.	Yes. The Company will update the four-year average calculation with actual incentive
7		compensation amounts in 2021 when this information becomes available. Updating the
8		four-year average to include the most recent incentive compensation amounts has been
9		accepted in past rate cases, including Cause Nos. PUD 201700496 and 201800140.

10

1. Q. Please explain WP H 2-25,pro forma adjustment to regulatory expenses.
2. A. This adjustment has two components. First, the Company normalized regulatory expenses

13	using a two-year average for various expenses in the Oklahoma jurisdiction excluding rate
14	case expenses. This decreases operating expenses by $159,536. Second, the Company
15	removed the Annual Public Utility Assessment Fee ("APUAF") in the amount of
16	$2,108,193 since the APUAF fee is recovered through a surcharge on customers' bills. The
17	total for both adjustments results in a decrease to operating expenses of $2,267,730.
18

1. Q. Please explain WP H 2-26,pro forma adjustment to bad debt expense.
2. A. The bad debt pro forma adjustment includes cost for uncollectible revenues the Company

21	will experience, net of the fuel component of the customer's bill. This adjustment is made
22	to reflect the expected change in bad debt not associated with fuel. The fuel component of
23	bad debt flows through the Fuel Adjustment Clause ("FAC"). The Company used a four-
24	year average uncollectible rate and multiplied it by the pro forma revenues net of fuel to
25	arrive at a new bad debt expense level. This adjustment increases operating expense by
26	$231,435.
27

1. Q. Please explain WP H 2-27,pro forma adjustment to storm amortization.
2. A. The Company removed all storm amortization expenses included in the test year. These

30	storm amortization expenses resulted from prior storm expenses that were deferred to a
31	regulatory asset account and are currently being recovered through the Storm Rider. The
	Direct Testimony of Shelby L. Norton	Page 5 of 7
	Cause No. PUD 202100164