Did Minnesota's gas utilities mishandle an epic natural gas price spike that's costing Minnesota consumers $660 million?

That was the question Thursday before the Minnesota Public Utilities Commission (PUC), which is completing an investigation of the $660 million natural gas bill that came from how they handled energy needs stemming from a February 2021 winter storm in Texas.

The PUC heard arguments on whether it should disallow at least $179 million of the costs utilities incurred after the storm ignited natural gas prices in the Midwest. The PUC is slated to make a decision next week.

"The point here — and why this proceeding is so difficult — is that the costs being passed down to Minnesotans are really unbearable," said Katie Sieben, the PUC's chair.

The Minnesota Department of Commerce and the state Attorney General's Office — which represent the public interest in front of the PUC — argue that the utilities mismanaged the gas cost crisis, and therefore the PUC shouldn't allow them to collect the full $660 million.

CenterPoint Energy, the state's largest gas utility, "had the tools to mitigate costs for consumers and didn't use them," said Katherine Hinderlie, an assistant attorney general representing the Commerce Department.

She said the same of Xcel, the state's second largest gas provider, and the Commerce Department has made similar arguments in PUC filings about MERC and Great Plains Gas, other utilities that are part of the investigation.

The gas companies said they were acting reasonably — given the information they had at the time of the storm — and followed good utility practices.

"The extensive record developed here shows that [CenterPoint's] actions were prudent," said Kristin Stastny, an attorney representing CenterPoint. Representatives for other utilities echoed those sentiments.

Wholesale gas prices in Minnesota rose to unprecedented heights from Feb. 13-17, 2021. As temperatures plunged in the nation's gas-producing hub, unwinterized gas field equipment froze. Supply cratered just as demand soared.

Minnesota, like many states, allows utilities to directly pass wholesale gas price swings to ratepayers. Many Minnesotans will pony up 50% more than they pay annually for their heating bills just to cover the storm's gas costs.

Joseph Meyer of the AG's Office said the cost pass-through allowed utilities to essentially conduct business-as-usual during the big price spike. "Do you think the utility would have behaved differently if it was on the hook for the expenses?"

The PUC last year allowed utilities to begin collecting the $660 million over 27 months. Later, the commission extended CenterPoint customers' pay-back period to 63 months. Xcel's residential customers got the same extension.

But the PUC's investigation has continued.

The Citizens Utility Board of Minnesota (CUB), a ratepayer advocacy group, is one group pressing the PUC to reject full repayment of the $660 million.

CUB, along with the AG's Office and Commerce Department, say the utilities did not withdraw enough gas from storage depots, miscalculated gas supply forecasts and — for CenterPoint and Xcel — failed to adequately use backup gas reserves known as peaker plants.

Instead, the utilities spent millions of dollars more than necessary buying high-priced gas in an overheated spot market.

But two state administrative law judges this spring rejected the watchdogs' contentions, saying the utilities acted "prudently" in managing all aspects of the gas price spike and should receive the entire $660 million from ratepayers.

Such administrative law proceedings are held to sort out contentious issues before the PUC. The utilities often cited the judges' decision Thursday to buttress their arguments.

The Commerce Department has recommended the PUC disallow up to $179 million of $660 million tab.

The AG's Office recommended that all of the utilities' costs be rejected, but short of that, it supported Commerce's recommendations plus disallowances for allegedly faulty hedging practices by the utilities.

Houston-based CenterPoint has the largest share of the gas tab: $409 million. Minneapolis-based Xcel has $179 million; MERC, an arm of Milwaukee-based WEC Energy Group, $65 million; and Great Plains Gas, a small gas utility in western Minnesota, $8.8 million.

Xcel appears to have the most to lose from the PUC investigation.

The Commerce Department wants the PUC to disallow up to $122 million — or 68 % — of Xcel's storm-related gas costs. That disallowance would be $45 million for CenterPoint; $10.7 million for MERC; and $845,000 for Great Plains.

Just over half of Commerce's recommended disallowances for Xcel concerned the unavailability of its "peaking" plants, which provide gas reserves during emergencies. Commerce says Xcel should have used them during the price spike.

But Xcel's largest peaking plant in Inver Grove Heights was idled six weeks before the storm after it malfunctioned and twice leaked gas. A cautious Xcel then closed two smaller peaking plants.

Xcel "failed to prudently maintain" the Inver Grove Heights plant, Hinderlie said.

Xcel maintains it would not have used the peaking plants anyway because they are reserved for severe gas shortages, not a pricing crisis like the February storm.

CenterPoint used its peaking plant during the February storm — but due to a gas-supply crimp, not because prices were high, the company said.

The Commerce Department says the PUC should disallow $12.7 million of CenterPoint's costs because it didn't use its peaking plant enough. The department rejects the utilities' arguments that peaking plants shouldn't be used during pricing emergencies.