February freeze fallout: Brace yourself for the biggest Kansas gas rate increase ever
Utility regulators have made a key decision that clears the way for customers to start paying the largest natural gas rate increase in state history — the hangover from an unusually cold couple of weeks last February.
The Kansas Corporation Commission has decided it can’t investigate whether natural gas utilities were price-gouged by interstate suppliers during the deep freeze, instead concentrating its efforts on creating payment plans to spread out the extraordinary costs for customers.
Wichita-area households will each pay from $600 to $750 of additional costs for natural gas for about a one-week period in February when gas prices shot up overnight to unprecedented levels, according to documents filed with the KCC.
Utilities are proposing to spread those costs over a five-to-10 year span, with interest, which the state has favored to avoid even more massive rate shock that would result from having to pay it back in the short term.
In an order issued last week, the commission denied a request by a group called the Natural Gas Transportation Customer Coalition, which was seeking subpoenas for information from S & P Global Platts Gas Daily, which publishes data used to set gas prices on the spot market.
James Zakoura, the lawyer representing NGTCC, said that information would be critical to any serious investigation into whether suppliers artificially inflated prices for gas during the emergency, when temperatures dipped below zero and stayed around that level for a solid week, forcing residents to run their furnaces overtime.
“They (the KCC) have abandoned the ratepayers,” Zakoura said.
The KCC commissioners said it’s not their job.
“The Commission shares NGTCC’s concerns regarding the wholesale natural gas markets and potential market manipulation,” the commission order said. “However . . . the power to investigate wholesale market behavior relating to the data reported to S & P Global and take corrective action where a market participant behaves inappropriately rests with the FERC (Federal Energy Regulatory Commission), not the (KCC). “
The commission order noted that Attorney General Derek Schmidt is also investigating whether the prices during the emergency — which at one point were over 200 times normal — violated the Kansas Consumer Protection Act. The act generally limits price increases during a disaster to 25% more than normal.
On Monday, Attorney General Derek Schmidt announced that he has begun steps toward hiring outside council to review what happened and determine if the state can sue to recover losses.
“State law prohibits ‘unjustified’ price increases for ‘necessary’ goods and services during a declared state of disaster emergency, and on their face these increases appear to violate Kansas law,” Schmidt said in a statement. “Our investigation has reached a point where additional resources and expertise in the complicated natural gas marketplace are required.”
But that won’t happen right away.
“Kansas law establishes a multi-step procedure to approve the hiring of specialized legal counsel in a situation such as this, so the timeline for obtaining assistance may be lengthy,” Schmidt said.
He had to get authorization from the Legislative Budget Committee to issue a request for proposals. Bids aren’t due until Oct. 28, and Schmidt will have to go back to the committee after selecting a winner to have the actual contract approved..
In a news release explaining the KCC order, the commission signaled it’s ready to go forward with customers paying the extra costs on a payment plan while others conduct any investigations.
“All regulated Kansas utilities are required to work with the KCC to determine how the February gas prices will be passed on to ratepayers,” the release said. “While Federal and State investigations into the matter continue, the Commissioners emphasized their expectation that Kansas natural gas consumers will be compensated in the future if price gouging or market manipulation is uncovered.”
At the height of the freeze, natural gas was selling for as much as $622 per million British Thermal Units, the standard measure of gas.
At the beginning of February, that same amount of gas cost less than $3 and following the emergency, it rapidly dropped back into the single digits.
Zakoura said the commission has failed its duty to protect consumers.
“Nobody can look at what happened in February — with a $2.54 price on Feb. 1, a $329.59 price on Feb. 13 and a $622.78 price on Feb. 17 — and say that that’s anything but price gouging, profiteering and unconscionable piracy,” Zakoura said. “They’re going to charge $451 million with no (KCC) investigation.”
The $451 million is the amount of additional revenue being sought by Kansas Gas Service, the state’s dominant gas company, for extra spending because of the big freeze.
The extra charges include:
▪ $373 million for the extra cost of gas.
▪ $70 million in carrying charges to spread the cost out into monthly payments.
▪ About $7 million in finance fees.
▪ About $1.1 million in legal and consulting fees.
About 79% of the money is to be paid by residential customers.
“That’s 79% of $451 million for seven days of gas,” Zakoura said. “It’s outrageous.”
Kansas Gas has presented four scenarios to the KCC for how to spread the extra costs out in payments by its customers, looking at three-, five-, seven- and 10-year paybacks.
Doing it in three years would mean an additional charge of $17.51 per month for each customer. The 10-year payment plan would mean $5.10 to $6 a month per customer.
Depending on which plan is used, the cost ranges from about $610 to slightly over $700 per household.
Wichita’s No. 2 gas company, Black Hills Energy, is proposing a slightly different plan, but with similar effects.
That company would index the extra charge to the amount of gas a customer uses in a year.
Their average customer would pay an additional $12.23 a month for five years to cover the February price spike, a 22% increase.
That works out to a total cost of $733 per household.
Overall, Black Hills is seeking to recover $87.9 million in winter storm related costs.
In testimony, officials of both gas companies have said they didn’t have a choice but to buy gas at whatever price they could get it because if they ran out, it would have been a disaster for residents who needed heat. If the system was allowed to run out, service couldn’t have been restored for days, they said.
“KGS in my experience and to my knowledge has never experienced circumstances like the Winter Event,” Matt Robbins, Kansas Gas Service’s supply director, testified. “KGS’s customer base is 91 percent residential throughout the state, and these customers depend on KGS for the gas necessary to heat their homes and to operate gas-fired appliances. KGS had to find a way to maintain service to human needs customers, and we understood that our actions could affect whether customers survived the storm.”
David Nickel, the chief consumer counsel for the Citizens Utility Ratepayer Board, said he agrees that whether wholesale gas suppliers gouged the utilities — and ultimately the public — is a matter to be investigated by the FERC and the attorney general, not the KCC.
CURB is the small state agency that represents residential and small business utility customers. Nickel said the KCC does have a duty to ensure that the utilities buying the gas acted prudently when they did it.
“If (the costs) were prudently incurred, I don’t see any argument that could be made that prudent and lawful costs caused by consumers should not be paid by consumers,” he said. “The alternative (making the gas companies bear some of the cost) is probably unlawful, one, and two, it would have draconian consequences on the ability of our utilities to operate soundly.”
He also said it’s better to start collecting the money now and refund it if the gouging investigations ever bear fruit, because the carrying costs to be paid by consumers will only go up the longer the current situation drags on.
This story was originally published September 13, 2021 at 11:25 AM with the headline "February freeze fallout: Brace yourself for the biggest Kansas gas rate increase ever."
