photo by: Charlie Riedel/Associated Press

A man walks along a snowy path Friday, Feb. 12, 2021, as temperatures hovered close to zero degrees at Shawnee Mission Park in Shawnee. Winter storms in the region brought subzero temperatures for days on end as power companies struggled to keep up with demand.

You thought your natural gas bill was bad following last month’s arctic blast. Just try paying the one sitting on the desk at the Tulsa headquarters of One Gas Inc.

One Gas is the parent company of Kansas Gas Service, one of the largest gas utilities in the state. To meet its customers’ gas needs during the polar vortex, the company spent $2.2 billion on natural gas purchases in February. That’s approximately four times more than the company spends on natural gas in an entire year.

To put that another way, one nasty, approximately two-week weather event caused a company to make the equivalent of four years worth of natural gas purchases.

Something stinks in the natural gas industry.

“This whole episode should be giving the entire country a gut-check moment,” said David Springe, a consumer watchdog who leads the National Association of State Utility Consumer Advocates. “We should back up, look at our assumptions and look at how we have planned for the future.”

Ultimately, consumers are likely to pay for that very high-priced gas. The numbers were nearly as eye-popping for several other natural gas utilities that serve Kansas. Atmos Energy, which has territory in parts of Douglas County, spent $2.5 billion in February, which was about three times its typical spend for an entire year. Black Hills Energy, which is the major gas provider for Lawrence, reported to Wall Street and state regulators that it had about $600 million of unexpected natural gas expenses for the month.

Part of the huge increase in cost simply is a result of people using more gas than normal to keep their homes and businesses warm during the severe cold. But a big part of the increase is that natural gas prices soared. If you have been following along even casually over the last month, you know that natural gas prices hit new highs.

What isn’t known yet is why they got this high. But lots of people are now investigating, and that includes the Kansas Corporation Commission, which is the chief utility regulatory board in the state.

The KCC last week agreed to open investigations on seven different utilities — four natural gas companies and three electric utilities — to determine whether utilities did everything they could during the winter storm to control costs, which ultimately will be paid by customers.

Not all news from the industry is bad, though. Natural gas providers are winning plaudits from some watchdogs and regulators. Springe said the system “proved pretty robust” in a highly stressed environment. Kansas’ top consumer watchdog agreed.

“In Kansas, unlike some other states, we kept the heat on,” David Nickel, consumer counsel for the Citizens’ Utility Ratepayer Board in Kansas, said. “They did a really good job of keeping the heat on.”

Indeed, Kansas’ natural gas utilities didn’t have the equivalent of rolling blackouts like the electric industry, and thus haven’t received as much criticism in the wake of February’s deep freeze.

Regardless, the problems of the natural gas industry should be closely studied, Springe said. After all, natural gas problems ultimately were a big reason why so many people were frustrated with electric utilities, which use natural gas to produce electricity. As has become clear, supply and price problems with natural gas were a prime reason electric companies struggled to efficiently meet electric demands during the winter storm.

“All of this really points out the challenges and vulnerabilities of the network system that we live under now,” Springe said. “We live in an incredibly complicated network system.”

Consumer impacts

Residents who heat their homes with natural gas should expect their February bills to be higher than normal. But they also should know those February bills aren’t likely to be the last of the higher than normal bills.

The higher bills will be a result of the fact that most households used more gas than normal to keep their homes warm. You use more, you pay more. That’s straightforward.

What’s more complicated is how residents will be expected to pay for the extraordinarily high price of gas during February. The February bills won’t reflect those high gas prices, only the high amounts of usage. In essence, residents are being charged old, cheaper gas prices. But someday, customers likely will be asked to make up the difference between those old, cheaper gas prices and the much more expensive prices that actually existed in February.

State regulators at the KCC currently are trying to figure out how that will happen. They are optimistic a plan can be created that makes it fairly painless for most customers.

“The KCC will look at plans that would be a slight increase on bills over a longer period of time rather than a huge bill that would be due all at once,” Linda Berry, a spokeswoman for the KCC, said. “We want to alleviate as many fears as we can about a big bill coming due unexpectedly.”

For consumers, that is. Make no mistake that utilities have a huge bill coming due very soon. For example, the bill on the $2.2 billion in natural gas purchased by One Gas is due at the end of this month, the company has said in regulatory filings. One Gas has taken out a $2.5 billion loan to pay for the bill.

Other natural gas utilities are facing the same types of scenarios. Black Hills has taken out an $800 million loan, according to regulatory filings, and Atmos indicated in filings it also plans to issue debt to pay its bills.

Those same filings gave another clue of how significant these unexpected costs were to the companies. Just this one month’s worth of natural gas purchases would have nearly wiped out all the cash reserves of the utility companies.

One piece of good news for Kansas customers is they won’t be expected to pay for all — or perhaps even most — of the gas purchases made by these companies. All three companies operate in other states. As such, some of the gas purchases were made to serve customers in other states. Atmos, for instance, has estimated about 95% of its $2.5 billion in purchases were made to serve the Texas market. Black Hills has estimated that about $100 million of its $600 million in purchases were made for Kansas, a spokesman told the Journal-World. A spokeswoman for One Gas said that company hasn’t yet determined its Kansas-specific costs.

Who is on the hook?

It is possible that Kansas customers might get one more break. As part of its investigation, the KCC will be looking to ensure that all of the gas purchases were reasonable. If the KCC rules a portion of the gas purchases weren’t reasonable, the utilities won’t be allowed to pass those costs along to customers.

There are some questions about whether customers ought to be fully responsible for the higher gas prices. Many customers have assumed that gas utilities were more protected from sudden spikes in gas prices. Gas utilities often tout that they purchase large amounts of their gas on long-term contracts. The beauty of those contracts are that prices are locked in, providing protection against price increases.

If that’s the case, why did utility companies get hit with such large price increases? It could be that the demand for gas outstripped the amount of gas the companies had under contract. Without a doubt that was the case to some degree. But were gas utilities really unprotected to the tune of more than $2 billion in many cases?

Another possibility is that the wholesale gas providers — think of huge companies like Exxon Mobil — weren’t able to deliver on those contracts because well heads in Texas froze up, making less gas readily available. Did utilities have to go out and buy much more expensive gas to make up for gas they were supposed to get but didn’t?

“Those are very good questions, and those are the questions I think the KCC really will need to determine some answers to,” Nickel said. “These investigations are a prudent way to proceed, a fair way to proceed. We are on the right path, but we are just not very far along it yet.”

Natural gas utilities largely didn’t provide specific answers to whether they had some contracts go unfulfilled during the arctic blast.

“Our natural gas supply portfolio consists of diversified market-based pricing with various terms for storage, short-term, long-term and spot purchases,” Dawn Tripp, manager of public relations for Kansas Gas Service, said via email. “Due to the historically low temperatures that remained below freezing over an extended period of time, we experienced much higher natural gas demand that resulted in a significant increase in natural gas market prices on a portion of the supply purchased during this period.”

James Williams, a spokesman for Black Hills Energy, said the company is reviewing multiple issues related to the polar vortex, but is pleased that the company did not have to reduce gas flows to homes in Kansas.

“We’re going to continue to work with our suppliers and regulators on evaluating what happened in the market during the polar event,” Williams said. “At Black Hills Energy, we’re a data-driven organization that utilizes historical information and analytics to be prepared for the future.”

The KCC as part of its order last week agreed to investigate whether companies were using appropriate hedging strategies, including long-term contracts. It also will look at whether gas utilities had adequate amounts of gas in storage, which would alleviate the need to purchase high-priced gas during the middle of the crisis. The order also will investigate multiple issues related to the rolling blackouts by electric companies, including whether companies adequately communicated with customers about how long the blackouts would last. The investigations will look at actions by natural gas utilities Kansas Gas Service Co., Atmos Energy, Black Hills Energy and American Energies Gas Service. Electric utilities Evergy, Empire District Electric, and Southern Pioneer Electric also will be investigated.

The investigations could be for high stakes. If the KCC finds some of the costs during the winter storm were inappropriate and does not allow the utilities to pass them along to customers, that could have major impacts on the finances of the utility companies. Springe said he doesn’t know if gas suppliers failed to deliver on contracts, but it is important for consumers to be protected if that is the case.

“If a contract says a supplier will provide a firm amount of gas, it seems like the first obligation should be for the utility to go after the supplier rather than go to the consumer,” Springe said.

The next one

Consumers, though, likely will play a role in helping prevent the next energy crisis, Springe said. Consumers need to be prepared to use less energy — both electricity and natural gas — during certain times of crisis for energy providers. Springe said politicians and regulators are starting to recognize that part of the problem in February was that utilities perhaps didn’t do enough to ask customers to cut back energy use.

“Let’s not overlook this secondary piece, which is curtailment plans,” Springe said. “Colorado’s governor is very concerned about whether utilities gave appropriate warnings because, if done well and properly, that would have reduced the need for those utilities to be in the market when gas and electricity were so expensive.”

The KCC’s recent report notes that units of natural gas were selling for as much as $1,000 during the crisis, compared with a more normal price of less than $4. A unit of electricity on the wholesale market was selling for about 11,000% more than normal prices during certain periods.

Part of the reason why is because weather was creating supply problems for energy providers, but too few people were voluntarily doing things to reduce their demand for electricity or gas.

“Everything was melting down,” Springe said. “Everybody was scrambling and everybody was trying to get gas, and that is what caused the spike.”

The next time — and Springe notes we certainly will have another polar vortex at some point — needs to go smoother.

“We rely on our gas system so heavily now, not just for heat but also for generation of electricity,” Springe said. “If the gas system really isn’t capable of delivering during these cold events, we obviously have to account for that.”