February’s energy crisis has natural gas companies searching for future preventive solutions as customers are upset over exorbitant bills.
Natural gas is purchased by companies at a fixed rate, but the supply ran dry as people used more to heat their homes and businesses during the crises — natural gas withdrawals were 67% higher for the week than the five-year average, according to the U.S. Energy Information Administration — forcing them to purchase more on the spot market.
Prices were so steep at the time, it forced South Dakota’s three investor companies — MidAmerican, NorthWestern and Montana-Dakota — and the Public Utilities Commission to decide in the aftermath to spread costs over a 12-month period rather than a one-month bill.
In a memo sent to the PUC, NorthWestern reported a natural gas cost of $2.9 million between Feb. 13-18 and an under-recovered total balance of $11.3 million. Beginning May 1, the anticipated fuel rate will be $0.02513 kilowatt-hour, compared to $0.02048 in May 2020. MDU, meanwhile, had an increase of $35 million in costs during February.
“Customers are going to pay for it one way or another, it’s just a question of whether we want folks to pay for it all very quickly and have very large bills or do we want to spread it over a period of time so bills don’t get too high,” PUC Commissioner Chris Nelson said. “Our choice and the preference of everybody was to spread it out rather than to have to bill it up front.”
While South Dakotans are impervious to cold temperatures in February, it is a rarity in Oklahoma and northern Texas, where much of the state’s natural gas is produced. Record-low temperatures wreaked havoc on Texas’s power grid and caused freezing on some gas wells, which limited production.
As demand for gas increased throughout the Midwest, cost for gas on the spot market increased by 900% from the previous month during that time period.
“This was cold from the top of the United States to the bottom, which is the entire footprint of the Southwest Power Pool,” said Tom Glanzer, NorthWestern community relations manager. “We’re a regulated utility, we have to belong to the SPP and everybody in the SPP is experiencing the same thing. That’s when the shortages start to happen.”
The EIA estimated withdrawals were 829 billion cubic feet in February, the largest withdrawal for a February on record and nearly double the five-year average from 2016-2020.
“Spot-market natural gas might be $2.50 on average. That week it was going up $400 and over $1,000 in certain places,” Nelson said. “During that week, people were consuming huge amounts of natural gas. Couple those things together and the impact is very, very significant.”
As customers deal with increasing gas bills, companies are left to figure out how to avoid such an occurrence in the future. Prices on the spot market leveled out during the ensuing week, but the EIA has predicted lower usage the remainder of the year because of the spike.
The EIA projects consumption of natural gas in the United States will average 82.9 bcf per day, a 4% drop from 2020 and the cause is customers using less natural gas to offset bill increases stemming from the February cold snap.
Nelson, who received reports businesses that purchase gas on the spot market sent employees home during the February cost increases rather than paying increased prices, also says local companies will have to find solutions in pre-purchasing plans moving forward.
“They don’t want to purchase too much,” Nelson said. “If they over-purchase that’s going to cost customers also. It’s a balancing act, but I think they will certainly take a look at that knowing a circumstance like that can happen.”