Minnesota utilities have fired back at a state analysis faulting them for inadequate gas management during a historic February freeze that will cost consumers $800 million.
The Minnesota Department of Commerce earlier this month said about $90 million of that tab stemmed from the utilities' failure to withdraw enough natural gas from storage during a severe supply crunch.
Therefore, state staff said, the utilities should not be able to recover the $90 million from ratepayers.
Specifically, the state said CenterPoint is overcharging ratepayers by $47.8 million, Xcel by $20.5 million and MERC by $21.2 million.
The utilities said they acted prudently, maximizing their storage withdrawals while also buying gas heavily in spot markets — a delicate balance given interstate gas pipeline rules, according to regulatory documents filed late last week.
MERC, Minnesota's third largest gas utility, said the Commerce Department's recommendation "assumes that MERC did have that proverbial crystal ball on the morning of Feb. 12."
Other utilities said essentially the same.
Feb. 12 was the day gas utilities faced a historic cold snap in much of the country, but particularly in Texas and other natural gas-producing states. Supply was cut off as natural gas equipment froze, and Midwestern wholesale gas prices soared at least 4,500%.
In Minnesota and many other states, wholesale natural gas costs are passed on directly to consumers,
CenterPoint, the state's largest gas utility, expects to charge about $500 million in storm-related gas costs, or $354 per average household. Xcel, Minnesota's second largest gas provider, is passing on $215 million; MERC, $75 million; and Great Plains Natural Gas, a small utility in rural Minnesota, $11 million.
The Minnesota Public Utilities Commission (PUC) launched an investigation of the gas costs in February.
Storing natural gas is a hedge against rising prices. So utilities buy gas in the summer when prices are cheaper and inject it into underground storage spaces for winter use. For instance, storage accounted for 26% of CenterPoint's supply plan for last winter.
The Commerce Department, serving as a research arm for the PUC, said the utilities turned to an overheating natural gas spot market too soon in February instead of using up their stores — to the detriment of Minnesota rate payers.
The utilities say they planned for maximum storage withdrawals while at the same time buying a large amount of spot market natural gas on Feb. 12 to cover the entire weekend and Monday, which was the President's Day holiday.
U.S. natural gas markets are all but closed on the weekends, forcing utilities to grab as much at they can on a frozen Friday in hope they will cover their needs. It's a marketplace oddity noted both by regulators and the utilities themselves.
The gas utilities said in the filings that if customer demand for gas outstripped their supply over the frozen weekend, they would have been subject to tens of millions in fines from interstate pipeline operators.
Spot market gas must essentially be used immediately to keep the gas transmission system in balance. (For pipeline systems to operate properly, the amount of natural gas put into them must equal about the amount taken out over that same time).
So, while the utilities maximized storage in their gas deployment plans during the freeze, some storage gas was effectively unavailable because of pipeline balancing, the utilities said.
"Contractual and operational limitations impacted the amount that could be withdrawn from storage on individual days, without incurring significant imbalance penalties," CenterPoint said in its filing.
