When power systems failed across the southern U.S. last month because of winter storms, it didn’t just impact Texas and surrounding states. Minnesota’s heat and electricity stayed on, but utility companies and state regulators say the chaos that drove up natural gas prices will spike customers’ heating bills in the state anyway.
With Minnesotans already struggling economically during the COVID-19 pandemic, state lawmakers are now considering intervention to prevent higher utility bills since Minnesotans aren’t at fault for the natural gas problems.
To learn more about what went wrong and how to fix it, legislators held a hearing Friday that brought together top officials from the state DFL-led House, GOP-controlled Senate, Minnesota Public Utilities Commission (PUC) and Attorney General Keith Ellison. Xcel Energy and the natural gas utility CenterPoint Energy also testified.
Here’s what we learned from the hearing:
What happened anyway?
When unusually severe cold weather rolled into Texas, it caused two problems. Demand for energy shot up, as people tried to warm their homes and businesses; and power supply nosedived, as the freezing cold choked off the production and delivery of natural gas and other energy sources via infrastructure that wasn’t properly weatherized.
Brad Tutunjian, Vice President of Minnesota Regional Operations at CenterPoint Energy, said the U.S. experienced the largest weekly decline in natural gas output since Hurricane Ike in 2008.
CenterPoint, and most utilities, buys a substantial amount of their natural gas in advance with pre-negotiated prices, but the companies do need to make short-term purchases, especially during extreme cold or heat like much of the U.S., including Minnesota, faced in mid-February. Those purchases are made on what’s called the “spot market.” Joe Sullivan, a commissioner on the PUC, said gas bought ahead of time on fixed contracts brings security, but is often more expensive than gas on the spot market. Regulators allow utilities to buy on the spot market because it’s cheaper for the utility and leads to less expensive power bills.
In this case, however, the scarcity of natural gas and rising demand drove prices sky-high. Typically, natural gas prices have been stable at around $3 per million British Thermal Units (BTU), a measure of energy, Tutunjian said. But on Feb. 12, the cost spiked to more than $100 for the same gas, Tutunjian said, and stayed near that price for roughly four days.
How it could impact customers
About 90 percent of Minnesotans heat their home with natural gas, and the year-round average monthly bill is $57, said Katie Sieben, who chairs the PUC. The jump in costs in the spot market, however, will translate into higher bills for customers.
Tutunjian noted CenterPoint and other utilities don’t mark up gas prices. They’re not in the business of selling natural gas, only delivering it, he said. But higher prices for a utility means higher prices for customers.
The PUC estimated on average, each residential CenterPoint customer could face a one-time increase of $300 to $400 over what typically would be expected. That is not $300 or more per month, but the total cost of the price spike. For Xcel Energy customers, the bill could be $250, and for the Minnesota Energy Resources Company, it could be a fee increase of $200 to $225. Commercial and industrial customers face heating bill increases, too.
“Our electric utilities bought gas to meet the needs of Minnesota customers to heat their homes,” Sieben said. “But the economic fallout of that severe weather, means that instead of further investments in infrastructure that would help buffer Minnesotans from future storms, ratepayers will likely need to swallow a bitter pill. They will have to pay hundreds of dollars of more to pay a gas surcharge that was brought on through no fault of their own.”
Just how big of a price spike is this?
Sullivan, the PUC commissioner, said regulators in January let CenterPoint increase power rates about 4 percent, at a cost of roughly $43 million. CenterPoint has said the cost of the February spike could be as high as $500 million in total.
Sullivan, the PUC commissioner, said regulations on utilities governed by the PUC — which together serve about 1.6 million natural gas customers and include Xcel and CenterPoint — mean the higher costs will be spread out to customers of companies between September of this year and August of 2022. The bulk of the costs will be recovered when customers are using the most gas, Sullivan said, which is usually in winter.
Customers of the 33 smaller, municipal-run gas utilities also face price increases. Jack Kegel, CEO of the Minnesota Municipal Utilities Association, told lawmakers there will be a wide range of impact.
Some utilities had spent their entire budget for buying gas for the year by the time the severe cold weather had passed. Others will face more modest problems. Kegel said the typical residential customer will see added costs of $250 to $500.
Unlike PUC-regulated utilities such as CenterPoint, municipal utilities will start billing customers soon, but Kegel said they expect those costs to be spread out over many months.
The largest municipal utility, ComfortSystems in Duluth, said it had bought enough natural gas ahead of time that residential customers shouldn’t see higher heat bills, the Star Tribune reported.
What state officials are doing in response
There are some ways for state officials and utilities to handle or blunt the impact of the price spikes without lawmakers intervening.
Kent Sulum, government relations director for the municipal utilities organization, said city utilities whose reserves have been drained can borrow money through emergency “certificates of indebtedness,” but it’s a paperwork-heavy process that relies on banks having enough money to float them and may be too slow.
Sullivan said the PUC can review gas purchases for prudency, and the commission is already investigating the price spikes. The commission could create “long-term surcharges” to spread out costs, he said, and ensure utilities have adequate reserves of fixed-price gas. Existing state programs that conserve energy also help bring down prices during huge supply shortages, Sullivan noted.
The state Department of Commerce received $106 million from the federal government in November for a program that helps low-income people pay heating bills, and the department plans to double the maximum award under that program from $600 to $1,200. Grace Arnold, the state’s interim Commerce Commissioner, said the agency can also use some remaining federal money in the heating assistance program and could get more if President Joe Biden’s proposed $1.9 trillion stimulus package is approved by Congress.
Commerce will also review utility actions to ensure they were prudent or if expensive gas purchases could have been avoided in any way. Attorney General Keith Ellison said his department can also review price spikes to see if they’re higher than are allowable under executive orders from the governor; he also argued Minnesota should pass a new law aimed at preventing price gouging.
Lawmakers considering action too
Many at Friday’s hearing also urged action from the federal government and state lawmakers.
Kegel, from the municipal utilities organization, said federal protection is needed against a future surge. “In our view, like the stock markets, gas markets need a mechanism to put a break on runaway prices,” he said. Arnold said the price spikes were also a national issue with a federal solution.
Tutunjian said the Legislature should approve a bill that aims to help CenterPoint Energy deliver alternative gas that, unlike natural gas, can be produced in Minnesota. One such gas is made primarily by capturing methane from food waste and other organic matter.
Sullivan, the PUC commissioner, said the Legislature should consider giving money directly to state residents to help with heating bills. Sieben, the PUC chair, said despite the commission’s efforts to help smooth impact of bill increases, “financial assistance will be needed to help dig out of this deep hole that quite honestly is a nationwide problem brought on by the arctic air that covered most of the United States over the president’s day weekend.”
Sulum said he’s had early conversations about a potential state emergency loan program for municipal utilities with Rep. Jamie Long, DFL-Minneapolis, who chairs the House Climate and Energy Finance and Policy Committee, and Sen. Dave Senjem, R-Rochester, who chairs the Senate’s Energy and Utilities Finance and Policy Committee. He’s also talked to state agencies about whether they could stand up a state program in time to help the utilities.
Long said on Friday before the hearing that he has been workshopping ideas with Commerce and others to help but said he wanted to learn more about the issue.
He said the Legislature may have to act quickly to help municipal utilities that have less flexibility in paying bills over a period of time and said he’s open to using state money to help customers, particularly people with low income. “Many of them have just come through one of our toughest economic years with the pandemic and now are getting doubly hit with the once-in-a-generation price spike,” Long said.