Minnesota regulators scold natural gas providers for cost run-up during February storm

Minnesota utility regulators Thursday approved a plan that would give consumers extra time to pay a colossal $660 million natural gas tab stemming from a historic February storm — while ripping the gas industry's role in the fiasco.

In fact, the Minnesota Public Utilities Commission (PUC) indicated that some of that $660 million could eventually be recouped by consumers as an investigation continues into how the state's utilities might have mishandled the February gas-supply crisis.

Several PUC commissioners Thursday questioned the functionality of a market that allowed Midwest wholesale prices to spike at least 4,500% — and saddle some Minnesota consumers with extra charges amounting to 50% of their annual gas bill.

"This kind of behavior in the marketplace is inappropriate in a regulated industry," said Commissioner John Tuma, pointing out reports of price gouging by gas industry middlemen during the storm. "We need to figure out what happened and figure it out quickly."

Then, talking specifically about Minnesota's utilities, Tuma said: "I don't think you realize how significant this was and how it will move us away from gas. ... It has changed my worldview as to how natural gas fits into our energy [system] in Minnesota."

Commissioner Joe Sullivan concurred, saying the gas system "is extremely vulnerable."

Sullivan noted that the PUC granted around $50 million to gas providers altogether in their last rate increases — a fraction of the February freeze's costs. "But unlike those rate increases, we are not getting anything out of this. There is no new infrastructure, no jobs — nothing."

The PUC voted 5-0 to accept a repayment plan agreed to by the state's investor-owned utilities, ratepayer advocacy groups and the Minnesota Department of Commerce. It spreads payments for most of the gas price spike over 27 months instead of 12 months as would be customary under PUC regulations.

Under the plan, over 122,000 low-income Minnesotans will be exempted from paying extraordinary storm costs of over $32 million. Customers must be 60 to 120 days behind on their gas bills or if they are receiving state energy assistance now or received it in recent years.

The cost of those exemptions will be picked up generally by all ratepayers.

In Minnesota, like most states, wholesale commodity gas costs are passed through directly to consumers, without a markup from the utility. Consumers benefit when the market rate is lower, but in a case like in February, are hit with higher bills.

"I don't think it is fair that this is just a pass-through cost," Sullivan said. "It really stinks. ... The companies are doing very well, and they need to be sharing the pain."

The PUC also voted unanimously Thursday to hold a "contested case" to further its investigation of the utilities' prudency during the price spike. The contested case, a trial-like proceeding before an administrative law judge, should take about a year.

The Minnesota Attorney General's Office has concluded that the state's gas utilities mismanaged the February freeze. Therefore, they should not be able to collect $380 million of the $660 million in costs they have claimed.

The Department of Commerce made a similar conclusion as far as management of gas storage and says the utilities should discount $90 million of the costs.

Utilities dispute the agencies' conclusions.

Katie Sieben, the PUC's chairwoman, said she thought "there were some pretty good justifications for a lot of the disallowances" proposed by the Attorney General's Office.

If the PUC ultimately decides to disallow costs, the commission could order utilities to refund money already paid by consumers to the utilities. "There is a process for a clawback," Tuma said.

Wholesale gas prices in Minnesota and many other states soared in February when a huge storm hit Texas and other natural gas-producing states. Temperatures plunged, gas field equipment froze up and supply cratered just as demand soared.

At the same time, the Upper Midwest was locked in its own deep freeze.

Minnesota gas utilities together first reported around $800 million in excess costs from the February freeze, a number cut to $770 million after CenterPoint lowered its estimate.

About $110 million of that will be collected over one year — starting in September — under the PUC's normal procedure to reconcile utilities' wholesale gas cost forecasts with their actual expenses.

The rest will be collected in a separate surcharge that also commences in September — October for Xcel — and will last 27 months. The special surcharge, based on a customer's gas use by volume, covers the Feb. 13-17 time period.

Also, the gas companies will apply that charge for winter during the summer months — when gas demand is lowest — to ease the burden on ratepayers. Higher costs will backloaded in the last 12 months of the repayment period.

CenterPoint, the state's largest gas utility, had first estimated it would pass down roughly $500 million in storm-related gas costs, or $354 per average household. That number has been revised to $470 million, which means the household effect should be less.

This spring, Xcel, Minnesota's second-largest gas provider, estimated ratepayers' tab to be $215 million, or $270 per household; MERC, the third-largest gas utility, $75 million for $225 to $250 per household; Great Plains Gas, a small western Minnesota utility, $11 million or $310 per household.