Between Feb. 11-20, 2021, Arkansas experienced extreme weather resulting in sub-zero temperatures, the accumulation of ice and record snowfalls across the state. The deep freeze caused by the polar vortex caused a huge disruption in natural gas supplies at the same time that demand increased dramatically. Prices skyrocketed.
The resulting cost for natural gas used by gas and electricity utilities regulated by the Arkansas Public Service Commission was $935,752,570, according to APSC Executive Director Donna Gray. The impact to CenterPoint Energy (recently acquired by Summit Energy) was about $336 million, Black Hills Energy natural gas costs were $137 million and American Electric Power Southwestern Electric Power’s costs were $113 million.
The situation was even more extreme in Texas with the cost for power generation alone during the ‘21 polar vortex estimated by Bloomberg at $8.1 billion — 75 times normal levels. San Antonio Mayor Ron Nirenberg called the energy cost associated with the weather event “the most massive wealth transfer in Texas history.”
The wealth transfer in Arkansas was also eye popping, something businesses and residential customers could be paying for as long as 20 years. The APSC has recommended utilities spread out the increased costs over a period of years. It ordered impacted utilities to propose procedures for cost recovery which avoid rate shock to customers. Those procedures should protect the right of the utility for an opportunity to recover costs while balancing the impact on the utility’s customers, it said.
An example of how one business was impacted was the Hot Springs Convention Center. CEO Steve Arrison said he nearly passed out at his desk when he got a bill for about $238,000.
“We barely had any heat turned on in the building — just enough to keep the pipes from freezing,” Arrison said. “So, imagine our surprise when we got that bill. Thank goodness we had money in our reserves. Right in the middle of COVID, it was not a good time to receive a bill for a stupid amount of money for something that cost a mere fraction of that a month earlier.”
Arrison said the city had an agreement with Symmetry Energy Solutions, a Texas company not regulated by the APSC, and that there had never been a problem in the past.
“I thought they were regulated,” Arrison said. “Obviously, I was not correct.”
The Hot Springs Convention Center hired attorney Randal Bynum with Wright, Lindsey & Jennings of Little Rock to work with the Arkansas Attorney General’s Office and investigate alleged price gouging. Bynum said that Symmetry contends it was paying market prices for natural gas and passing the costs along to customers.
“There are price gouging laws when the governor declares an emergency,” Bynum said. “Somewhere down the line, someone was jacking up the prices based on the fact there was an emergency going on. The attorney general is trying to investigate that. Ultimately, someone made a lot of money. It is just tracing who it went to.”
Bynum said the issue is complicated because Arkansas law might not pertain to out-of-state gas companies.
Meanwhile, some large Wall Street traders reportedly made hundreds of millions off the polar vortex. Gray said the APSC is continuing to work with regulated utilities “to make plans to ensure that utilities are doing all they can to ensure its systems are resilient, services are safe and reliable, and customers do not experience preventable loss of power or are saddled with exorbitant utility costs.”
The final commission decisions on the appropriate length of time for recovery through fuel riders and the appropriate carrying charges as requested by the utilities, as well as investigation of securitization, are pending before the commission.
Justina Waller Pimentel, manager of sustainability & communications strategy for Summit Utilities Arkansas (which finalized its acquisition of CenterPoint Energy assets Jan. 20), said the cost of natural gas is a passthrough, meaning the company does not profit from charges for gas costs.
“Our customers pay exactly what we pay,” Pimentel said. “When weather and market conditions result in higher natural gas costs, we adjust our rates. When weather and market conditions reduce costs, we pass the savings on to our customers.”
To limit impact to customers’ bills, Summit has proposed recovering the costs over a period of five years. A typical Arkansas residential customer would pay an extra $11.90 per month rather than an increase of $52.22 a month if they chose to collect the cost of the winter storm over one year. That puts the total cost for a residential customer at about $626 for the storm event. Bills will also be higher this winter because natural gas prices have increased, along with costs for electricity, propane and gasoline.
“This is being driven by increased demand and decreased production caused by recent extreme weather events and the COVID-19 pandemic,” Pimentel said. “While the cost of natural gas has increased recently, it is still less expensive than other alternatives like electricity and propane.”
Summit is trying to keep energy affordable with efforts such as purchasing natural gas at the lowest possible price through competitive bidding and by using tools such as long-term contracts, short-term contracts and storage.
“Though last February’s winter storm presented a number of unprecedented circumstances beyond any utility company’s control, we are reviewing additional supply sources and storage options to further diversify our portfolio so we have more buying options in the event of another unprecedented event like the one that occurred in February 2021,” Pimentel said.
Mississippi had polar vortex weather similar to Arkansas but didn’t see huge price increases, said Mississippi Public Service Commissioner Brandon Presley.
“Price gouging didn’t happen in Mississippi,” Presley said. “We didn’t have anything of that magnitude. We put in place long-term pricing agreements to have our bases covered. We were fortunate to have a good bit of ours locked down.”
Presley said the Mississippi commission has encouraged gas companies to invest in underground storage facilities and in improvements to pipelines to prevent the kind of problems that led to well heads freezing in areas like Oklahoma that supply natural gas to Arkansas.
The nonprofit Arkansas Electric Cooperative Corp. board approved billing the severe weather-related costs across nine equal payments to its 17-member distribution cooperatives. AECC estimated polar vortex costs at $100 million.
Andrew Lachowsky, vice president of planning and market operation for AECC, said icing and freezing of gas infrastructure in the Oklahoma producing areas caused supply shortages. This also happened at a time peak energy usage was just shy of 3,000 megawatts, a record amount.
While the hope is a polar vortex won’t become a common event, companies are working to learn their lessons and make sure customers are protected from those kinds of high energy prices again. One way to do that is to have more fuel stored at the facilities that generate electricity, Lachowsky said.