CUB fighting rate hike for February 2021 winter storm costs
Published November 2, 2021
Many Minnesotans have recently seen, or will soon see, their natural gas bills dramatically increase. This presents a huge concern for many households – particularly those already struggling to make ends meet in the midst of an ongoing global pandemic.
There are a few reasons for these bill increases.
First, natural gas prices have shot up in recent months as demand outpaces available supply. The wholesale price of natural gas in the U.S. is currently at its highest point since 2014. As a result, Midwesterners who heat their homes with natural gas could see an estimated 49% bill increase this winter, as compared to the winter of 2020-21.
Second, most Minnesotans who receive natural gas from CenterPoint Energy, Xcel, Minnesota Energy Resources (“MERC”), or Great Plains Natural Gas Co. are now seeing an extra line-item on their gas bills. These extra charges are a result of extraordinary costs the four utilities incurred over the President’s Day holiday weekend in February 2021, when Winter Storm Uri caused gas infrastructure to freeze and gas prices to spike to historic levels. Though utilities’ recovery of those costs has begun, the question of whether the utilities will be permitted to collect the full amount of their storm-related extraordinary costs remains unanswered. This question is the subject of an ongoing contested case proceeding at the Minnesota Office of Administrative Hearings (“OAH”) (the “contested case”). (Most Minnesotans who receive gas service from municipal utilities also face similar costs, but municipalities are passing the costs to customers using varying methods and timelines.)
CUB Intervenes in the Gas Price Spike Contested Case
CUB has intervened in the contested case to evaluate the “prudency” of unusual costs the utilities incurred during Winter Storm Uri. (In a nutshell, “prudency” is a legal standard applied to determine whether utilities acted reasonably when incurring costs they want to recover from their customers.) The utilities have the burden of demonstrating that the costs they incurred while procuring and delivering gas during Winter Storm Uri – though unusually high – were nonetheless incurred prudently. CUB, on the other hand (along with the Office of the Attorney General, the Minnesota Department of Commerce, and the City of Minneapolis), will be arguing that some of those costs were incurred imprudently and that, therefore, the utilities should not be permitted to recover them from ratepayers.
This is a very complex, resource-intensive endeavor – particularly considering there are four separate utilities involved in this contested case. Our intervention in the contested case is possible, in part, thanks to the Minnesota Public Utilities Commission (the “Commission”) ordering impacted utilities to look into providing assistance to CUB to support our intervention. In the hearing where the Commission decided to include this requirement, the Commission highlighted the need for consumer advocates like CUB to remain part of the price spike discussion. The Commission acknowledged the difficulty small organizations like ours face when intervening in resource-intensive proceedings against large utilities, as well as the limitations of the existing “intervenor compensation” statute that authorizes the Commission to order utilities to refund qualifying intervenors for the costs (up to a maximum cap) of their intervention. After careful consideration, CUB decided to work with the utilities to accept assistance that will cover the costs of expert witness(es) who will provide testimony in support of our intervention. (That assistance does not impact our independent analysis of the utilities’ actions.) Meanwhile, we intend to continue our push for the Minnesota legislature to amend the intervenor compensation statute in its next legislative session to provide a more efficient avenue for participating in these types of proceedings in the future.
Frequently Asked Questions About the Storm-Related Surcharges
I thought it would be helpful to address some frequently asked questions about, and reactions to, the storm-related surcharges.
Minnesota’s gas distribution system is built for cold weather. Why do we have to pay for Texas’s problems?
To Minnesota utilities’ credit, the supply of gas to the vast majority of Minnesotans was uninterrupted during Winter Storm Uri – even when temperatures were well below zero in much of the state. This is because our infrastructure is built to withstand severely cold temperatures. Unfortunately, as we all saw in the news last February, gas infrastructure in southern states – particularly Texas – was not built to withstand extreme cold. Some of this infrastructure froze during Winter Storm Uri, choking the available supply of natural gas. Meanwhile, the demand for gas during this time was very high, as cold weather across much of the country meant many households were burning gas at higher-than-normal levels to heat their homes. And finally, all of this occurred over a Presidents Day weekend, which meant utilities had to lock in gas purchases to cover the full holiday weekend before knowing exactly what the price of that gas would be. In addition to the winter storm, this created a perfect economic storm that caused gas prices to spike to historic levels.
Minnesota’s utilities were prepared for the extreme cold and were able to deliver gas despite the weather. But, they were less prepared for the economic storm that arose alongside the cold weather. This economic storm is ultimately what created the extraordinary costs the utilities are now passing through to their Minnesota customers: Minnesota’s utilities purchased gas at very high prices to meet demand. Though this kept us warm during the storm, the utilities now want to retroactively pass the costs they incurred to meet Minnesotans’ demand through to their customers.
This is so unfair. Someone is exploiting us to get rich just so we can heat our homes.
We agree. This IS unfair. It is deeply troubling to us that some companies made enormous profits off of the inflated gas prices last February at the expense of ordinary people, especially knowing: (1) millions of everyday Americans are already struggling due to the ongoing pandemic, and (2) over 200 people died in Texas alone due to the storm. We hope that federal investigations, along with other lawsuits and investigations, will uncover any price gouging, market manipulation, or other illegal activities surrounding this event and that those who perpetrated such actions will be held accountable.
Importantly, we also think it is important for regulators, consumers, and advocates like us to push the utilities to participate in these regulatory investigations and pursue available legal remedies they have against gas suppliers or others in the gas supply chain that charged exorbitant costs that utilities are now passing through to their customers.
Low-income consumers are exempt from paying the surcharge. Does that mean I am paying more to cover their costs?
In short, yes. Customers who qualify for Low Income Home Energy Assistance (LIHEAP) are exempt from paying the extraordinary cost surcharge and, as a result, other customers will pay a slightly higher surcharge. However, the additional costs passed on to other customers to facilitate this exemption are pretty small. For example, we determined (working with CenterPoint) that most non-exempt CenterPoint customers would see their surcharge amount increase by $0.29 – $0.85 per month over 27 months. Our conversations with Xcel suggest Xcel’s non-exempt customers will see a similarly modest increase to their surcharge with the low-income exemption in place. Also, to be clear, this exemption for low-income customers only applies to the extraordinary cost surcharge added onto the typical charges on customers’ bills. All customers, including low-income customers, will otherwise remain responsible for paying for their own gas usage, subject to any energy-assistance programs they may qualify for.
But I just moved into the impacted utilities’ service territory. Why do I have to pay the surcharge for costs incurred before I even lived here?
Some consumers are understandably frustrated (or likely will be frustrated) to learn that their gas utility is charging them for extraordinary gas costs the utility incurred before the consumer even lived in their current home. Commission-approved “true-up” mechanisms typically allow regulated utilities to balance over- or under-collected costs the utilities incur throughout the year. In a typical year, these true-up mechanisms automatically cause an additional charge or credit to be applied to a customer’s bills in the fall of each year – regardless of whether that customer was living in their home earlier in the year. Such charges or credits are normally small enough to not be noticed by individual customers. This year, the utilities’ under-collected costs are far more significant than a typical year. Unfortunately, the same general true-up principle applies, and all customers (other than those who qualify for the low-income exemption described above) who live in the impacted utilities’ service territory will see surcharges added to their bills as the utilities seek to recover their under-collected costs.
Had the Commission not intervened, these under-collected costs would have automatically passed through the true-up mechanism, meaning many Minnesotans would have seen a huge additional charge hit their bills this fall. The Commission ordered the utilities to extend their recovery over a 27 month-period (beginning in either September or October 2021) to reduce the immediate bill impact on customers and to allow additional time to evaluate whether the utilities will be able to recover the full amount of their storm-related extraordinary costs.
It is unfair that my extraordinary cost surcharge is higher than other customers’ surcharge.
Specific extraordinary cost surcharge amounts are calculated using a rate per therm of gas used. This means that, the more gas a consumer uses in a given month during the 27-month recovery period, the higher the customer’s additional surcharge will be that month. We have heard some complaints from people who believe this is unfair – particularly for consumers who proactively conserved gas last February when the extraordinary costs were actually incurred, but who have used relatively high levels of gas in subsequent months.
On the other hand, we also heard from consumers who thought recovering extraordinary costs via a fixed charge (as some of the utilities had originally proposed) would also be unfair. Under a fixed recovery model (where all customers would see the same monthly surcharge regardless of their usage) consumers who consistently use less gas than average would pay the same as consumers who consistently use more gas than average. This means that consumers who have invested in energy-efficient technology and/or consumers who live in smaller homes would pay proportionately more than consumers who have not invested in such technologies and/or who choose to (and can afford to) live in larger homes.
We understand the frustration on both sides of this equation. In short, there may not be a perfect recovery model that is 100% fair to all customers 100% of the time.