Arkansas utility companies plan to spread the costs they incurred from the huge spikes in natural gas and power prices during February’s historic winter storm over multiple months to several years on customer utility bills, according to utility spokespeople and documents filed with the Public Service Commission.
Sharp increases in customer power consumption because of the arctic cold created gas supply shortages that left many generating units unable to operate at their full capacity, according to utility documents filed with the commission. Market prices for natural gas spiked during the period, causing similar increases in power prices in many markets.
For example, the daily average Henry Hub price — widely used as a source of natural gas spot pricing — was a normal $2.67 per million British thermal units on Feb. 1 but more than double by Feb. 13, spiking up to $23.61 per MMBtu on Feb. 18.
This hit not only gas but electric companies hard. Natural gas is the largest energy source of power consumed and produced and is the leading source of electricity generation in Arkansas as of 2020, accounting for almost one-third of the state’s net generation, according to the U.S. Energy Information Administration.
In a March 3 order, the Public Service Commission urged utilities to develop procedures for cost recovery that would avoid rate shock to customers. This order was made to investigate the operations, procedures and performances of the regulated utilities during the winter weather event of February 2021, stating:
“Although many of the state’s regulated utilities performed admirably during this unprecedented weather event, the loss of power, entreaties to customers to conserve natural gas and electricity, and rolling blackouts point to a need for the Arkansas Public Service Commission (Commission) to ensure that utilities are doing all they can to ensure its systems are resilient, services are safe and reliable, and customers do not experience preventable loss of power or are saddled with exorbitant utility costs.”
A procedural schedule for conducting the investigation has yet to be set as of Sunday.
Electric companies filed plans in mid-March to spread out the costs over differing timetables, with many beginning cost recovery efforts in April.
The gas companies — CenterPoint Energy, Arkansas Oklahoma Gas Corporation and Black Hills Energy — have yet to file their plans with the commission and are still evaluating the impact and cost recovery options, spokespeople said. However, they have been keeping the commission up to date and will likely stretch out cost recovery in a similar manner to the electric companies, commission Executive Director Donna Gray said.
Brandy Johnson, with Black Hills Energy, said, “Our Arkansas Gas team and system performed very well during the extreme winter event in which our system experienced a new peak demand day during the weather event that exceeded the previous peak by more than 10%.”
On March 24, Arkansas Attorney General Leslie Rutledge requested clarification involving the investigation, which stated that any such costs collected through energy cost recovery should be collected subject to possible refund or adjustment because any determinations regarding recovery related to the winter weather costs are premature until the commission’s investigation is concluded.
“Utilities are required to plan to meet their customers’ needs in peaking conditions. Ensuring that utilities have done so is the responsibility of the PSC, and it is the role of the Attorney General to represent ratepayer interests,” Stephanie Sharp, spokesperson for the Attorney General’s office, said in an email.
The request for clarification also stated that the commission should enact a general policy of allowing recovery of no more than 10% of the costs per year.
“It is obviously unknown when another storm like this will occur, so for planning purposes it is reasonable to look at how often similar storms have happened in the past,” Sharp said.
“Similar winter weather events include the ice storms of 2000, 2009, and 2014. So, ten years is a rough average of how often storms like this happen in Arkansas.”
It’s important to note, several utility spokespeople said, that the price a utility pays for natural gas is the same price that it charges to customers. There is no mark-up on the cost of natural gas.
Also, while customers probably already saw an increase in their bills after the winter weather, utilities said this is most likely because of their individual increased usage.
The Arkansas Electric Cooperative was hit with a total of $93 million above normal fuel costs, spokesman Rob Roedel said. It’s board voted to disperse those fuel costs over a nine-month period to its 17 cooperatives to reduce the financial impact. The cooperatives, in turn, will pass those costs on in the same time frame to customers.
Tonya Sexton, First Electric Cooperative Corporation spokesperson, said it’s impossible to forecast the future bills for members. However, using the average residential customer’s usage of 1,000 kilowatt hour per month as an example, it would average approximately $9 per month for a total of $81.00 over the nine bills, she said.
Entergy Arkansas, which serves around 722,000 customers in 63 counties across the state, is spreading costs out over a 21-month period, spokesperson Brandi Hinkle said. Because of a past over-collection that the company used to help balance the costs incurred by February’s severe weather, customers won’t see a large impact on their bill.
The average residential customer is going to see a decrease of 93 cents per month but an increase of $3.52 for the formula rate plan, so they are going to have a net increase of about $2 each month, she said.
SWEPCO decided on a five-year recovery period and Empire Electric went with four years, according to documents filed with the commission. While Gray said the commission did not object to their proposals, both are being challenged by the attorney general’s office and other parties. SWEPCO and Empire have public evidentiary hearings set for July 8 and July 16, respectively.
In SWEPCO’s proposal, the typical residential customer’s bill would increase an average of about $8.66 per month. Without the lengthened recovery period, this customer’s bill would have increased by an additional $33.64 per month for the storm costs.
For a typical Empire customer, the company’s proposed total rate would be $23.15 per month.