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. 

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Author: Brian Edstrom

7 Responses to "CUB fighting rate hike for February 2021 winter storm costs"

  1. Deb mueller Posted on November 15, 2021 at 1:50 pm

    How do companies expect people living on social security pay for all these rate hikes? Taxes go up 56%, gas 46% and electric 10%, medicare $22!

  2. Stephen R Willing Posted on November 15, 2021 at 2:29 pm

    We live on $741 per month from SSA. Even though our gas usage was down from the previous month and also less than Feb 2020, we had to pay $600 something in Feb 2021, or our gas would have been turned off as soon as the cold weather rules came to an end. We both have medications needed every month, (one of mine is over $1300 before ins) so we were forced to cut down on food, (and still are), which was higher priced because of COVID, and help from family, who had higher food costs themselves. We ate once a day (and still are) sometimes the ‘meal’ was a sandwich because that’s all we had. So I DO NOT see where the ‘low-income people’ were exempt from paying helped. It certainly didn’t work or help us.

  3. Gene Baum Posted on November 15, 2021 at 3:19 pm

    We should not have to pay extra cost because another state was relying on solar and wind and not using their other energy suppliers/ sources, especially when it is known that wind and solar only work when the wind doesn’t blow or the sun doesn’t shine and or that the temperatures can cause disruption. Do other states pay a higher rate because Minnesota has colder temps???

  4. Brian Edstrom Posted on November 16, 2021 at 3:43 pm

    Thank you to those of you who have commented on this blog post. Deb and Stephen, your comments exemplify why we think it is important to push back on utilities’ efforts to recover from customer the extraordinary costs they incurred last February. Many customers, as you note, are really struggling right now just to make ends meet – let alone pay even more on their energy bills. Please know that you can always contact CUB to learn more about what energy assistance or affordability programs you qualify for, and to learn about other strategies you could pursue to lower your energy bills. You can reach us at 612-300-4701.

  5. Brian Edstrom Posted on November 16, 2021 at 4:02 pm

    Gene, thank you, too, for your comment. You are not alone in expressing concern over the performance of Texas’s renewable energy resources (like wind and solar facilities) during the winter storm last February. That said, I hope I can help clear up a couple misconceptions about how those issues interplay with the issues discussed in this blog post.

    First, the gas price spike event  described in this blog post is somewhat distinct from the disruption to Texas’s electrical distribution system that your comment references. Both events relate to and arose out of Winter Storm Uri, the weather event that spread across much of the country in February 2021. Texas, indeed, experienced widespread power outages during that event. To be clear, though — Minnesotans are not being asked to pay for the electrical outages experienced in Texas.  Rather, Minnesotans are being asked to pay for natural gas procured by gas utilities at very inflated prices in order to provide gas to Minnesota households during Winter Storm Uri. To put that another way, Minnesotans are only being asked to pay for gas actually delivered to and used in Minnesota. The problem is, the utilities that provided gas to Minnesota during that event had purchased gas at FAR higher prices than normal. Some gas utilities are now retroactively passing those higher prices through to their customers — despite customers having had little to no control over how to avoid those costs. Customers in certain other states are facing similar price increases as gas utilities in their states are passing through extraordinary costs to their customers.

    Second, your concern about wind and solar freeze-offs may be based on an incomplete story about Texas’ power outages. During and immediately after the storm, some faulted inoperable solar and wind facilities as the primary cause of Texas’s energy outages and related, very serious problems. However, as additional details emerged about the event, it became clear that many of Texas’s energy facilities and related infrastructure (including, but not limited to, wind and solar facilities) were ill-equipped for the cold. The root causes of Texas’ power outages, from my perspective, is more a lack of planning for severe cold temperatures in Texas as opposed to an over-reliance on renewable energy facilities. If you are interested in reading further on that topic, this article may interest you: https://www.reuters.com/article/uk-factcheck-texas-wind-turbines-explain/fact-check-the-causes-for-texas-blackout-go-well-beyond-wind-turbines-idUSKBN2AJ2EI

    Thanks again for your comment.

  6. Bill Hoadley Posted on December 5, 2021 at 12:56 pm

    I’d be interested to know whether Centerpoint, being a major Texas company, exerted any effort to avoid the freeze-ups of the Texas energy infrastructure that occurred during the Feb. 2021 cold snap. Did they lobby the Texas legislature and governor to require adequate weatherization of the wellheads and distribution infrastructure since the last freeze-up about 10 years ago? No? Did they make it a part of their supply contracts that their upline gas suppliers would be required to improve their reliability of gas delivery during cold spikes? No? Then it sounds like they made a strategic business decision to place themselves at risk during events like these, the consequences of which ratepayers shouldn’t be required to bear.

  7. Brian Edstrom Posted on December 7, 2021 at 4:05 pm

    Good points, Bill. Those questions are the types of questions now at issue in the contested case proceeding examining the prudency of CenterPoint’s (and other MN gas utilities’) decisions before and during the Feb 2021 weather event. I think those types of questions should also be part of ongoing evaluations of this event to be sure utilities (and utility regulators) are doing all they can to ensure utilities are better prepared for future, similar events. Thanks for commenting.

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