Oklahoma Proposes Letting Gas Utility Charge A $1,400 ‘Exit Fee’ To Go Electric

Source: By Alexander C. Kaufman, Huffington Post • Posted: Monday, November 8, 2021

The fee could give the fossil fuel industry a new tool to slow the energy transition.

Oklahoma’s biggest natural gas utility could soon charge customers who switch to electric stoves and heating systems an “exit fee” of nearly $1,400 to disconnect service, HuffPost has learned, setting a precedent that could help the industry lock millions of Americans into fossil fuel use for decades.

The proposal is part of a larger bid by Oklahoma Natural Gas to sell off debt it incurred when fuel prices skyrocketed during a historic cold snap last February. It is currently being negotiated before a judge at the Oklahoma Corporation Commission. The provision, which would apply only to customers who terminate service specifically to go electric, could be approved as early as December and come into force no later than June.

The fee could more than double the cost of swapping a gas stove for a new electric appliance, forcing homeowners offloading their last gas appliance to not only purchase the new one but also to bid the utility farewell by paying out the remainder of their share of the company’s debt. The fee is also a flat rate for virtually all customers, so the cost does not reflect the amount of gas the household used during last winter’s deep freeze.

If greenlighted, the measure would likely become a model for gas-friendly regulators across the country, advocates say, providing a new tool to prevent consumer transitions from fossil fuels to zero-carbon alternatives. Texas and Kansas are already considering their own proposals, according to one source who spoke on condition of anonymity because they were not authorized to speak publicly on the plans.

The Sooner State had already helped pioneer a similar policy when it approved one of the nation’s first “preemption laws” barring its cities and towns from banning new gas hookups in buildings. Oklahoma enacted the legislation last year, shortly after Berkeley, California, became the first U.S. city to require all new construction to go electric.

Since then, more than 20 states, most of them Republican-controlled, have passed similar laws banning bans on natural gas, while cities including San Francisco, Seattle and Brookline, Massachusetts, have barred new or renovated buildings from installing gas appliances. The effort comes as cities and states rush to cut climate-changing pollution, roughly 13% of which in the U.S. comes from buildings. Electrification poses an existential threat to gas utilities, which have responded with aggressive lobbying for preemption laws and with misleading advertising campaigns featuring Instagram influencers.

“Exit fees are just one more example of barriers being put in place to make it more difficult for customers to electrify their homes and cut greenhouse gases,” said Charlie Spatz, a researcher who tracks preemption laws at the watchdog group Energy and Policy Institute. “As gas prices rise and consumers are more concerned about their carbon footprints, this exit fee could become a serious financial hurdle locking customers into the gas system.”

Paramedics in Oklahoma City treat Eugene Rich for frostbite amid record-breaking cold and snow on Feb. 16.
Paramedics in Oklahoma City treat Eugene Rich for frostbite amid record-breaking cold and snow on Feb. 16.
The Washington Post via Getty Images

Unlike the state’s preemption law, which Oklahoma Natural Gas lobbied for, the utility serving roughly 90% of the state did not initially request the exit fee. The issue stems from the brutal winter storm that sent temperatures in Oklahoma, Texas and neighboring states plummeting below freezing for two weeks last February. Across the region, gas pipelines froze just as ratepayers were cranking up their heat while power plants were also using more natural gas to meet soaring electricity demand. With demand high and supply low, the price of natural gas spiked. To cover the cost of buying fuel, Oklahoma Natural Gas brokered a hasty deal to borrow $1.5 billion from Bank of America.

The utility, owned by the publicly traded $4 billion giant ONE Gas, did not want that debt on its books, where it could incur extra fees and affect the company’s credit rating. Oklahoma Natural Gas’s allies in the state legislature stepped in to help. While residents were still freezing to death in the state, lawmakers introduced a bill to allow the company to convert its debt to public bonds, a process called securitizing. Republican Gov. Kevin Stitt signed the legislation into law in April.

Sooner after, Oklahoma Natural Gas applied to the Oklahoma Corporation Commission to propose converting its debt into bonds. Once Wall Street bond buyers purchased the debt, the company asked the state for permission to charge about an extra $8 each month to the vast majority of its ratepayers. The charge and the exit fee would be the same for small customers and large ones, regardless of how much gas they used during the winter storm, and the levies would last for the full 25 years the bonds were in place. Ratepayers’ monthly payments would essentially serve as collateral.

But those payments are not guaranteed to continue for that long. Electric stoves and geothermal heat pumps are becoming increasingly popular as technology improves and climate policies provide incentives to make the switch. Concern over global warming is hardly the only motivation. Mounting research indicates that gas stoves produce dangerous amounts of indoor air pollution, and the rising cost of natural gas means going electric is, in many places, simply the cheaper option.

This reality puts the future of gas utilities as a business in jeopardy.

“This shameful proposal would penalize customers trying to move away from the risky, costly, dirty fuel of fracked gas that caused energy prices to skyrocket and led to this securitization docket in the first place.”

– Cheyenne Skye Branscum, Sierra Club’s Oklahoma chapter

Fearing that a looming exodus of gas ratepayers would render Oklahoma Natural Gas’s bond debt so risky that the interest rates would become astronomical, a staffer at the Oklahoma Corporation Commission’s Public Utility Division proposed the exit fee.

In testimony submitted in the case in response to Oklahoma Natural Gas’s application, Isaac Stroup, a regulatory coordinator at the commission, warned that the growing number of cities banning gas “could lead to natural gas being viewed as more uncertain than electricity, at least over the long term” even though he believed “natural gas in Oklahoma should be viewed differently than natural gas is viewed from a national perspective.” Citing the state’s preemption law, he said the “industry is an integral part of Oklahoma’s economy, and the chances of it being banned in Oklahoma are extremely small.”

Still, he said, “with the securitization of costs being recovered over many years, some investors could be concerned about the ability of a natural gas utility to recover the total costs over the life of the bonds.”

“This, in turn, could lead to a lower bond rating and therefore higher interest rates.”

Oklahoma Natural Gas and its parent company said in the proceedings that it did not oppose the measure.

“This fee is intended only as a funds recovery mechanism and not as a hindrance for customers who would seek to leave the natural gas system,” Lizaimee Steger, a spokeswoman for ONE Gas, said in an emailed statement. “The fee is one small part of the securitization process designed to minimize impact to all our customers.”

The company is one of just four parties to the case. The other three are the Public Utility Division, which proposed the fee, the state attorney general and retail giant Walmart, which said in a filing that it joined the case as a matter of routine monitoring to assess its interests as a major gas buyer.

Oklahoma Corporation Commission spokesperson Matt Skinner declined to comment on the specifics of an ongoing case but said “it is a normal part of the negotiation process” for regulators to propose solutions the companies did not request.

Because the exit fee did not appear in Oklahoma Natural Gas’s initial application, environmental groups and consumer watchdogs said they were blindsided and unable to mount an early opposition to the proposal.

“This shameful proposal would penalize customers trying to move away from the risky, costly, dirty fuel of fracked gas that caused energy prices to skyrocket and led to this securitization docket in the first place,” Cheyenne Skye Branscum, the chair of the Sierra Club’s Oklahoma chapter, said in a statement. “Trapping ONG customers in a financial vice runs counter to the freedom narrative we regularly hear from fossil fuel utilities and corporations.”

Amy Turner, a senior fellow at Columbia University’s Sabin Center for Climate Change Law, said the proposal was “consistent with efforts to protect natural gas’s favored status in our home energy markets.”

“Whether through legal protection of their ability to serve customers, preemption of pro-electrification local policies, or financial incentives and disincentives, the gas industry pushes for, and often gets, legal protection against a waning customer base,” she said.