More price hikes ahead for natural gas customers as Kansas joins pipeline settlement
The hits just keep coming for Kansas natural gas consumers.
The Kansas Corporation Commission has joined a federal pipeline rate-case settlement that is nearly certain to raise the price of gas in the not-too-distant future.
In addition, a top staff official reported in another gas case that nothing much appears to be happening at the federal level to prevent financial disasters like the one from February of last year, when gas prices reached previously unimaginable highs during a prolonged winter freeze. Those extra costs total hundreds of millions of dollars, which customers will likely be paying in monthly installments for as much as 10 years to come.
The pipeline settlement, if approved by the Federal Energy Regulatory Commission, would allow the Southern Star Central Pipeline system to collect nearly half a billion dollars more over four years to operate and modernize its lines.
Increases in Southern Star rates will filter through to retail customers who buy their gas from local gas companies that are fed by the pipeline, which provides an estimated 50% to 60% of the natural gas used in Kansas.
It works out to about $1.60 more a month for the average customer of Kansas Gas Service, the state’s dominant gas company, according to its spokeswoman, Dawn Tripp.
Other companies’ prices will vary, depending on how reliant they are on Southern Star for their gas supplies.
An invisible increase
The sprawling 5,800-mile pipeline system provides gas to hundreds of thousands of consumers through investor-owned and municipal utilities in Kansas and northern Missouri, including Wichita and the Kansas City area. It has smaller presences in Texas, Oklahoma, Colorado, Wyoming and Nebraska, and also serves industrial and commercial users who buy their gas directly from the pipeline.
In April of last year, Southern Star requested a rate increase of nearly $1.4 billion over six years, including a $141.9 million annual increase in gas delivery charges and an $88 million a year surcharge for pipeline modernization, said KCC litigation counsel Michael Neeley.
In the negotiated settlement joined by the KCC, Southern Star’s delivery increases will be $88 million in the first year and $50 million a year for the next three years. The modernization charge will be $238 million, also spread over four years.
That works out to about $476 million over four years, slightly more than half the $919 million for the first four years of Southern Star’s original request.
“While this is a significant increase in Southern Star’s rates, it is a significant reduction from their filed request,” Neeley said. “The KCC staff believes this settlement is in the best interest of Kansas.”
Commissioners unanimously approved joining the settlement after Neeley’s report.
“While the settled increase is still sizable, it’s much smaller than what was initially proposed,” said Commissioner Andrew French. “And I think it’s also important to recognize that this carries a lot of benefits for Kansas.
“We are relying more and more on intermittent natural resources (primarily wind energy) and those resources are backed up and supported by natural gas, largely flowing through this pipeline.”
In recent years, new oil and gas pipeline projects have faced a variety of environmental and economic hurdles across the country, which French cited in explaining his support for the rate increase.
“We all know the struggles there have been with building new natural gas infrastructure,” French said “Obviously, that creates a need to support the infrastructure that we have.”
The increase in pipeline rates won’t be directly visible on your bill.
When ratepayers buy gas from the local gas company, they pay the same price that the company paid to buy it. That’s unregulated, based on market prices and varies month to month. Pipeline charges are baked into that part of the bill.
Local gas utilities make their money on service and delivery charges for running the system that delivers the gas from the pipeline to the customer. In the case of investor-owned utilities, including Kansas Gas Service, Black Hills Energy and Atmos Energy, those delivery rates are regulated by the KCC.
Bad time for a price hike
An increase in pipeline rates couldn’t come at a worse time, as the commission moves toward payment plans on customer bills to pay back extraordinary costs of gas from the February freeze in 2021, a nine-day emergency that sent gas prices spiraling upward to 100 to 200 times normal levels.
In late January, the KCC approved a plan for Black Hills Energy customers to pay off nearly $88 million in extra gas costs through a bill charge of $11.47 cents a month for the next five years. Black Hills serves 115,000 Kansas customers, including areas of northwest and central Wichita.
Last month, the KCC approved a KGS plan to recoup $366 million of winter storm costs. The biggest gas company serving Kansas and Wichita, it has 640,000 customers and they’ll likely have to pay a flat charge between $5 and $9 for five to 10 years, depending on the financing terms the gas company can secure.
The commissioners held a hearing last week on a similar plan for customers of Atmos Energy, which serves 165,000 customers in southeast Kansas and Kansas City suburbs including Olathe and Kansas City, Kan.
The settlement in that case proposes charging customers $3.75 to $5.19 a month for an unspecified period of time.
Of Atmos’ $102.5 million hit from the storm, $9.56 million is gas that was purchased by KGS for its customers, which Atmos took without replacing it from its own sources, according to testimony in the commission case.
“Atmos was short on its gas deliveries to KGS over the course of the Weather Event,” said the written testimony of Joshua Frantz, regulatory analyst for the Citizens’ Utility Ratepayer board, the state agency that represents residential and small-business utility customers.
But Atmos customers are benefiting from a penalty settlement that was approved by the commission on March 3. It waives fines and reduces gas costs for 28 companies that took gas that didn’t belong to them.
“The gas Atmos received from KGS is valued at a much lower price, via the penalty (settlement), than the market price Atmos would have likely paid had Atmos purchased gas from other sources,” Frantz testified. “Atmos sales customers will actually benefit from Atmos being short on its gas deliveries to KGS at a cost to KGS sales customers.”
Despite the disparity, CURB opted not to oppose the penalty settlement and signed off on Atmos’ payback plan to avoid potentially lengthy litigation that would likely cost consumers more than they would gain.
Investigation stalled
In the commission hearing on Atmos, KCC rate accounting chief Justin Grady updated commissioners on FERC’s investigation into whether gas prices charged during the freeze were justified.
It was not good news for the average gas customer.
Spot gas purchase prices are based on pricing indexes that average out transactions on the open market on a daily basis.
And the February storm coincided with the President’s Day holiday weekend, when gas trading markets were shut down.
That froze gas rates for four days of the emergency period at $329 per million British Thermal Units, about 100 times the price of gas at the beginning of the month. That spiked a day later at $622 as gas companies and electric power plants engaged in a bidding war to secure new supplies after the long weekend.
Grady said there’s not much going on to fix that at the federal level.
“This was obviously such a perfect storm when you had the coldest days and the highest demand days were in the middle of a four-day weekend in which financial markets were closed; that certainly exacerbated it,” he said. “I know that there is a FERC docket open on the transparency and the effectiveness of price indexes, but I don’t think that there has been any movement in the last six months, at least that’s been public . . . so I don’t know if there are any national reforms, honestly, that are under way that would improve the situation.”
For now, about all Kansas utilities can do to try to keep prices down is diversify supplies so they’re not as exposed to price swings on any one pipeline or storage system, and try to work more price caps into their contracts.
“It’s all of those kinds of things that sort of deal with the risks that now have been exposed as being very realized in the natural gas market,” Grady said.
Kansas Attorney General Derek Schmidt is investigating whether there was price gouging during the winter storm that violated the anti-profiteering provisions of the Kansas Consumer Protection Act. In September, he put out a request for proposals to hire counsel with expertise in natural gas marketing.
On that investigation, Grady said “I don’t have any updates.”
