Minnesota utilities fell $90M short in protecting customers from February storm costs, agency says

Steep bills for natural gas customers during a crippling winter storm in February could end with some changes in what's allowed for Minnesota utilities if two state agencies have anything to say about it.

The Minnesota Department of Commerce says consumers are being socked with $90 million in extra natural gas costs because utilities failed to draw enough gas from storage during the supply crisis that stemmed from the storm, which paralyzed the nation's gas-producing regions.

Meanwhile, the state Attorney General's Office has called for limits on how much utilities can automatically charge consumers when gas prices skyrocket, as they did in February.

The two agencies, which represent the public's interest in regulatory matters, weighed in as the Public Utilities Commission investigates the debacle.

With supply constricted and demand soaring, Midwestern wholesale gas prices rose at least 4,500%, leaving the average Minnesota household with extra gas charges ranging from $225 to $354, depending on their utility.

After reviewing utilities' explanations, the Commerce Department said that outside of Xcel's response, it was "disappointed with the general lack of creativity and appreciation for the scale of the impact the [price spike] will have on Minnesota ratepayers."

CenterPoint, the state's largest gas utility, expects to pass down roughly $500 million in storm-related gas costs, or $354 per average household. Xcel, Minnesota's second largest gas provider, estimates ratepayers' tab to be $215 million Minnesota; MERC, the third largest gas utility, $75 million; and Great Plains Gas, a small utility in rural Minnesota, $11 million.

The Department of Commerce found that while Minnesota utilities' gas supply plans have "generally been adequate" in the past, the February storm proved they are not adequate in protecting consumers against price surges from extreme weather.

Storing natural gas is a hedge against rising prices. Utilities buy gas in the summer when prices are cheaper and inject it into underground storage spaces for winter use. For instance, storage accounted for 26% of CenterPoint's supply plan for last winter.

The Commerce Department said the utilities turned to the natural gas spot market too soon in February instead of using up the stores. "The fact that Minnesota utilities did not maximize storage withdrawals was detrimental to Minnesota ratepayers," the report said.

So the department recommends that the PUC disallow $90.2 million of the roughly $800 million in extra gas costs claimed by the utilities.

MERC said in a statement that it maximized its use of stored gas. "We started each day during the February cold period withdrawing our full storage rights."

CenterPoint said in a statement that it's evaluating the Commerce Department's report. "Storage contracts can be complex and include different provisions for how storage may be used."

Xcel said it would be filing specific answers about storage and other gas cost matters with the PUC, adding: "We believe we operated our system prudently during the cold spell."

The wholesale gas cost on a consumer's monthly bill is based on a forecast. Every September, the monthly differences between forecasts and reality are "trued-up" by the utilities. The true-up is then either added or subtracted from customers' bills, spread out over the next year.

In Minnesota and many other states, wholesale gas costs are simply passed through to consumers. That reduces the utility's "commodity price-related risk."

The Attorney General's office recommended that in the future utilities be allowed to automatically pass on only a portion of the true-up to consumers. After the true-up amount rises past 10% of a utility's commodity gas costs, the PUC should undertake a "prudence" review for any further cost recovery from consumers.

CenterPoint said it has no control over wholesale gas prices and any type of policy changes such as the Attorney General's Office recommended should be coordinated across the natural gas industry and its regulators and stakeholders.

Under PUC regulations, gas companies recover the true-up amount from consumers over 12 months beginning in September. CenterPoint, Xcel and Great Plains have proposed that to cushion the blow to consumers, gas charges from the big freeze be recovered over at least 24 months.

The Attorney General's Office and the Commerce Department both agree, though they oppose some of CenterPoint's proposed methods, particularly its imposition of a finance fee.

The utility first proposed a finance charge of $40 per month for the average household to cover its own financing costs, but recently reduced it to $4 per month.

In a PUC filing Monday, two consumer energy watchdog groups — the Citizens Utility Board of Minnesota and Energy Cents Coalition — slammed the proposed fee. They noted that CenterPoint's CEO raised the company's 2021 profit guidance in February, specifically saying the February storm wouldn't affect the company's earnings growth.

Katie Sieben, PUC chairwoman, said at a Thursday meeting that there is "a pretty steep hill the company has to climb" to prove the finance charge is needed.