In a unanimous decision, the Oklahoma Corporation Commission has literally rewritten the rules by which utilities can purchase natural gas and other fuels on a long-term basis, increasing the likelihood that consumers will benefit from locking in natural gas supply at historic low prices.
The OCC adopted new rules detailing the process for natural gas procurement for periods of five years or more. That is a huge step forward for all Oklahomans, as natural gas drives our economy.
The discovery of vast natural gas resources in the past decade has transformed America’s energy outlook. Many scientists, policymakers and economists predict that America’s onshore natural gas production has a 100-plus-year supply.
America’s public utilities and electric generators are beginning to realize the economic and environmental advantages of this abundant clean resource. Natural gas is the cheapest fossil fuel, and it burns much cleaner than coal in the electric generation process. It makes sense that our policymakers work to ensure that modern rules fit the modern natural gas largesse.
While the marketplace has rapidly changed as a result of the infusion of natural gas, policymakers and regulators are beginning to catch up.
The OCC, however, recently approved a new competitive procurement rule for long-term supply purchases. Oklahoma has responded to the modern market in a way that allows utilities to purchase long-term contracts in a clear, transparent way. Traditionally, these types of rules have not existed in a way that makes sense for utilization of previously volatile natural gas.
By rewriting the request for proposal, or RFP, process, the OCC has provided clarity to the utilities seeking to purchase the fuel and the bidders or producers seeking to sell it. The process allows the OCC to fully vet the RFP process before the bids take place. Bidders and producers will know what the details of that RFP process is before the transaction happens. This allows predictability, transparency and certainty in a marketplace that has previously been uncertain and volatile.
Likewise, the OCC created a new process that allows bidders and producers to keep their bid information current, fresh and confidential. This allows those parties seeking to sell natural gas to the utilities the ability to be competitive without fear of price gouging or market manipulation.
Perhaps the most innovative process of the new rules is the recognition of financial hedging as a market component. As a former regulator, I was always concerned with making sure that utilities could lock in a price for their fuel so that the utilities weren’t always coming back to the commission and asking for a price increase every two years. It is also important to provide procurement assurances so the utility is not in the spot market on a short-term basis.
Now, with financial hedging as a consideration, utilities can lock in a long-term contract at a fixed price in a way that makes sense in the marketplace. This allows a utility to move in the direction of cleaner natural gas for the sake of all environmental compliance purposes, as well.
These rule changes can and likely will result in greater procurement of low-cost natural gas by Oklahoma’s utilities, which can translate to cheaper electricity costs.
Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah P.C. in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.