Six days of frozen weather likely to cost Kansans billions on future energy bills
Kansas now has some rough estimates of the cost of last month’s Arctic blast and the numbers look financially disastrous for gas and electric customers going forward.
“The extraordinarily high wholesale natural gas and electricity prices (in February) cost Kansas jurisdictional utilities billions of dollars,” says a report by state regulatory staff released late Monday.
Eventually, those costs will flow through to customers’ bills. The Kansas Corporation Commission and the utilities they regulate are already planning to spread them out over time in an effort to soften the blow as much as possible.
While small municipal utilities had already reported ruinous increases in fuel costs that would have been unimaginable a month ago, Monday’s report is the first to put some numbers on the damages to come for customers of the state’s largest utilities, which are privately owned and managed.
During the winter storm emergency that started Feb. 15 and ended Feb. 20, the state’s major gas utilities reported unprecedented costs, in some cases multiples of what those companies usually would spend all year buying gas for their customers.
“For example, One Gas, Inc., of which Kansas Gas Service (KGS) is a division, incurred $2.2 billion in gas purchase costs for just the month of February, four times the level of natural gas purchase costs incurred for the entire year of 2020,” the KCC report said. “Similarly, Atmos Energy reported that it incurred costs of $2.5 to $3.5 billion for the month, a level that is two to three times an annual level of purchased gas expense.
“Black Hills energy reported $600 million higher than normal purchased gas costs for the month of February (company-wide).”
Although the rates to deliver gas are regulated in Kansas, gas companies buy the actual gas in unregulated markets and that cost is passed straight through to consumers.
All the gas companies cited in the KCC staff report are multi-state entities and it wasn’t immediately clear exactly how much of their costs will ultimately be attributed to the Kansas customers.
The pain doesn’t stop with gas.
Evergy, the regional electric utility straddling the Kansas/Missouri border, purchased about $300 million extra in power during the cold spell, the report said.
As with the gas companies, it hasn’t been determined how much of the extra cost will be borne by Kansas consumers and how much by Missourians.
In the KCC report, the staff is asking the commission to open seven separate, company-specific investigations into how we got here and how to sort out the costs going forward.
The request includes Kansas Gas, Black Hills and Evergy, which all serve customers in the Wichita area.
Also, the KCC staff is seeking investigations of Atmos, which serves the Kansas City suburbs and other, more sparsely populated regions across the state; Liberty Empire Electric in southeast Kansas, Southern Pioneer Electric in western Kansas and American Energies Gas Service in McPherson County.
The new report outlines some of the factors that contributed to the unprecedented price spikes that took place in February, including “record demand” as subzero and freezing temperatures spread from the Dakotas to south Texas, and supplies that dropped by as much as 45 percent as Texas gas wellheads froze.
Gas that usually sells for about $3 per million British Thermal Units sold for as much as $1,000 per mmBTU, the report said. The price for a megawatt-hour of electricity averaged $17.81 in 2020; at the height of the cold spell it reached an all-time high of $4,274 per MWh, the report said.
The KCC staff also listed topics to be explored in the investigation, to determine whether the utilities and their suppliers acted prudently during the cold crisis. They include:
▪ Are there indications or concerns about natural gas price gouging or market manipulation during the crisis?
▪ Did utilities engage in hedging strategies to limit the prices they pay for fuel, and were those strategies effective?
▪ Was the performance of the electric companies’ generating plants adequate?
▪ Were there equipment and systems failures that contributed to the crisis and if so, where and when?
▪ Did the companies adequately communicate to customers about the elevated prices and the need to conserve energy?
The state investigations, if granted, will dovetail with broader investigations planned by the Federal Energy Regulatory Commission, the North American Electric Reliability Corporation and the Electrical Reliability Council of Texas, better known as ERCOT.
This story was originally published March 2, 2021 at 5:01 AM.
