Deferred costs from the February 2021 winter storm
You may have heard reports that deferred energy costs from last February’s winter storm will soon be appearing on your monthly utility bill. The monthly amounts, payoff term and start dates vary by utility. At this time, some utilities have a Commission approved plan to recover costs, while other utilities are still working through the regulatory review process.
It is understandable that utility customers may have questions and concerns. To help explain the deferred charges and how they are determined, we have compiled the information below to answer the most frequently asked questions.
Why did gas prices jump so high?
Last February, prolonged arctic weather caused record demand for natural gas and electricity. At the same time, production declined creating a supply shortage. In Texas alone, production was down 70% due to wellheads freezing and lost electricity. Due to supply shortages, wholesale natural gas prices began to rise sharply – 100 to 300 times higher than normal. Kansas was not alone in facing these price increases. Large parts of the central and southern United States experienced the extremely high prices.
It is important to note that gas prices are not regulated by the KCC or any other government entity. The U.S. Congress deregulated prices back in the mid-1980s. Prices are market driven by supply and demand. However, there are investigations currently underway at the State and Federal level to determine whether these prices were the result of market manipulation, price gouging, etc. Any proceeds recovered as a result, will be passed on to utility customers.
Don’t utilities have contracts for gas and use storage to prevent situations like this?
Yes, in fact, all gas distribution utilities regulated by the KCC are required to file an annual Gas Purchase and Hedging Plan with the Commission. Additionally, each of the companies are required to meet with Commission Staff to discuss the contents of the plan, review the results from the previous year, and discuss any concerns Staff may have with the plan. However, the conditions experienced in 2021 were unprecedented. Natural gas prices have never before reached these extreme highs.
While the gas utilities all used storage and long term stable prices to supply about 2/3 of the gas used during February 2021, the 1/3 that they bought on the short-term wholesale market was priced at 100-300 times the normal price, leading to the extraordinary purchased gas costs.
Gas usage during Winter Storm Uri was 100% higher than a normal February. Considering that February weather in Kansas can swing from -20F to 70F, it is difficult to predict exactly how much natural gas customers will use and then purchase that gas in advance at stable prices. While weather/demand variability is taken into consideration, it would not be economical to arrange storage for that amount of gas when a storm of this magnitude occurs no more frequently than once in thirty years.
Using information gained from this event, KCC staff has worked with the utilities to significantly mitigate exposure to these kind of wholesale natural gas cost increases in the future.
How did the deferred costs come about?
As the severe weather situation began to unfold, the top priority for the Kansas Corporation Commission was to help ensure Kansans had sufficient heat for their homes amid sustained subzero temperatures. On February 15, 2021, the Commission directed utilities to do all things possible and necessary to provide customers with lifesaving utility service during the extreme winter weather. The order authorized regulated utilities to defer extraordinary costs for future review rather than immediately passing them on to ratepayers.
How are the deferred costs to ratepayers determined?
Each utility is responsible for filing a plan to recover the extraordinary costs from its customers over time to lessen the financial impact. Each plan will include documentation of costs and a proposal for recovery. All documents submitted are carefully audited by KCC staff and several interveners in the case, including the Citizens Utility Ratepayer Board. Testimony is filed by all parties and an evidentiary hearing may be held so all parties involved can ask questions. After an independent and careful review, the Commission issues an order.
Links to additional information:
Presentation to Kansas Legislature: Energy Infrastructure Impacts from Winter Storm Uri—Feb 2021 Causes, Cost, Response, prepared by Justin Grady, KCC Chief of Revenue Requirements, Cost of Service and Finance.
Approved Deferred Cost Plans by Company:
Click on links below to view the plans
- Atmos Energy
- Southern Pioneer Electric
- Kansas Gas Service
- Black Hills Energy
- American Energies Company
- City of Eskridge
Plans are currently pending for the following companies:
Click on links to view the dockets for latest status