It’s been almost two years since a massive winter storm blanketed the central United States with record low temperatures that caused hardship for customers across Oklahoma’s utility and natural gas systems.
That extreme weather has pushed energy bills higher as regulated utilities passed billions of dollars from record natural gas prices on to consumers.
As Oklahomans head into the coldest part of winter, are utilities ready if another “once-in-a-generation” storm like Winter Storm Uri hits again?
About this story
This is a collaboration between Oklahoma Watch and KWTV-News 9, the CBS affiliate in Oklahoma City owned by Griffin Media. Oklahoma Watch reporter Paul Monies and Dana Hertneky, special projects reporter for News 9, reviewed public documents, regulatory filings and interviewed customers, regulators, utility experts company executives to find out why Oklahoma customers are paying so much more for their electricity and natural gas bills.
Electric utilities said they’ve upgraded equipment and changed how they buy natural gas. Producers said they’ve winterized more equipment and established plans to maintain power to critical infrastructure at the wellhead, compressor stations and pipelines. Natural gas and electric utilities have put more gas into storage. Regulators have asked utilities to investigate the affordability of financial and physical hedging for fuel purchases.
But as in most extreme weather events that hit utility and energy infrastructure, those costs are borne largely by the consumer. Higher fuel costs have pushed deregulation of the state’s monopoly electricity market back to the forefront, a generation after the fall of Enron Corp. bottled up discussions at the Legislature.
“Every three to seven years, you have these unexpected events where prices skyrocket and companies lose millions of dollars,” said Guy Sharfman, vice president of market analytics for Intelometry, a Houston-based energy consulting firm. “In a competitive state, it’s the energy companies and their shareholders that essentially take the hit. In monopoly states, all the utility does is ask for a rate increase. You’ll hear words like ‘securitization,’ but at the end of the day, they’re just going to their customers and they’re saying, ‘You’re on the hook for making us whole.’”
State lawmakers are hearing about higher energy bills from constituents. One proposal would force utilities to better protect their infrastructure if they took advantage of a new law allowing them to issue bonds for the natural gas costs and charge customers monthly surcharges lasting decades.
Most of Oklahoma’s electricity customers get power from investor-owned, regulated utilities like Oklahoma Gas & Electric Co. or Public Service Co. of Oklahoma. The other one-third are customers of co-operatives, which are owned by their members, or municipal electric companies like Edmond Electric.
What made Winter Storm Uri so devastating was the high demand for natural gas for electricity generation and for heating by natural gas utilities like Oklahoma Natural Gas. That led to record prices for natural gas on the pricey spot market. Suppliers encountered frozen wellheads and drops in pressure to natural gas pipelines that supply both power plants and the natural gas distribution networks to homes and businesses for heating.
In Oklahoma, fuel costs at regulated utilities are passed along to customers. Though utilities can’t make a profit on fuel, the incentive to hold down fuel costs is lacking, especially in emergency situations. Utilities said they’re at the mercy of the natural gas market, which was deregulated in the late 1970s, removing price caps.
‘Unprecedented Spike’
OG&E executives said they felt prepared for the winter storm in February 2021 after encountering problems a decade earlier. Those included using an incident-command system to proactively stage materials and supplies and erecting protective enclosures around some equipment. The utility also installed a cold-weather package in 2018 when it completed a $400 million natural gas plant in western Oklahoma City.
But electricity demand during Winter Storm Uri caught OG&E officials by surprise, since their peak demand usually comes in the summer months. Some natural gas generating units were on planned winter maintenance and were unavailable for electricity generation. The utility also encountered icing on its wind generating units and freezing to some coal piles.
“What we were not prepared for was the unthinkable and unprecedented spike in natural gas prices, which was nothing like we had ever seen before in history,” said Kimber Shoop, OG&E’s director of regulatory affairs.
Years of low natural gas prices and typically lower demand for electricity in winter months led OG&E and some other electric utilities to rely on the spot market for natural gas purchases. The company told Oklahoma regulators its diverse generating portfolio gave it flexibility in natural gas purchases.
To keep the lights on during the winter storm, OG&E spent more than $749 million on natural gas and purchased power. The utility spent more on natural gas during the 2021 storm than in all of 2020.
“We didn’t want us to have what happened in Texas, where there was rolling blackouts, huge spikes and costs and there were even deaths,” Shoop said.
Public Service Co. of Oklahoma said for the past two winters, it has moved to fixed-price contracts to buy natural gas for electric generation. The Tulsa-based utility continues to look at adding more gas storage from contractors. PSO also wants to add more wind and solar to its generation fleet.
“Paying the historically high fuel costs during Winter Storm Uri was necessary to maintain stability of the grid and provide consistent service during an extreme and life-threatening event,” said PSO spokesman Wayne Greene. “PSO makes no profit on the costs of fuel and purchased power and does not set the price.”
AARP said Oklahoma customers, not shareholders of investor-owned utilities, are bearing the brunt. Customers are getting hit by surcharges from the winter storm and rising natural gas prices for much of 2022, especially as global supplies have been constrained by Russia’s invasion of Ukraine. AARP has called for a moratorium on utility bill increases.
“There’s this arrogance or lack of understanding what customers are going through to add these billions of additional costs within a year and a half,” said Sean Voskuhl, director of AARP Oklahoma. “It’s just unconscionable. It’s up to our commissioners, our legislators as well as our governor to hold the utilities accountable.”
The Lone Voice
Oklahoma Corporation Commissioner Bob Anthony, who started his 34th year as commissioner in January, has been the lone voice at the three-member commission against customers picking up the tab.
Anthony often clashed with commission Chairman Todd Hiett and former Commissioner Dana Murphy as regulators had hearings on the ratepayer-backed bonds in late 2021 and early 2022. (Former Sen. Kim David won election in November to replace Murphy, who was term limited. All three commissioners are Republicans.)
Anthony calls the securitization cases “the biggest fleecing of ratepayers in the history of Oklahoma.” He said the Corporation Commission and the attorney general have the legal duty to protect ratepayers and pursue the public interest.
“I think that’s one of the most irresponsible and costly mistakes this agency’s made, maybe ever,” Anthony said of the winter storm costs. “The utilities were made whole. All of the financial liability and hardship is on the consumers.”
During Anthony’s first term on the Corporation Commission, he wore a wire to aid an FBI investigation of public corruption in the telecom industry. Now, he said electric and gas customers will be paying for decades for fuel purchased over the space of days in February 2021. Many of the state’s residents get their electricity from either OG&E or PSO and their gas from ONG, meaning they’ll be subjected to the storm surcharges on both energy bills.
“There’s plenty of people who are horrified to find out that they have debt of $2,000, $3,000 or $4,000,” Anthony said. “That’s the financial impact.”
Hiett, who along with the attorney general’s office and commission staff advised lawmakers as securitization bills quickly advanced through the Legislature in spring 2021, said the alternatives were grim. Having customers pay for the fuel costs in the typical way — over the space of a year — would have meant months of $1,000 or more bills for most customers.
“There have been questions about if it was shoved through the Legislature and shoved through the commission, and that’s not true at all,” Hiett said. “We took over a year in those cases, and we had many intervening parties, key parties that have the interest of consumers like AARP and the attorney general.”
Hiett said delays as the Oklahoma Supreme Court was asked to approve the securitization process came as interest rates began rising. Those delays mean customers are on the hook for hundreds of millions more in interest payments over the life of the bonds.
The Treasury rates started climbing right as these cases were going to the courts,” Hiett said. “There’s testimony on the record by the financial advisers that the protests at the Supreme Court ended up costing a lot.”
Although there were protests on the legality of the bonds issued by the state, no one appealed the Corporation Commission’s votes to approve the storm costs and related financing orders. The law allows for an appeal bond if a case from the Corporation Commission is challenged. That meant a party would have to come up with millions of dollars to appeal the storm costs.
Two justices, in a concurring opinion approving the bonds, sharply criticized the office under Attorney General John O’Connor for not being more involved at the commission or at the court over the storm costs. They noted the attorney general is the only party that would not have to post an appeal bond.
“The utility consumers that the attorney general should be representing have effectively been left without representation,” wrote Justices Douglas Combs and Noma Gurich. “Their access to counsel lies with the attorney general. Yet he has failed them.”
O’Connor said the two justices took “potshots” at his office, which had helped draft the securitization bill and believed it was the best option for consumers.
“We could have stepped in there, and I could have held a press conference and acted real popular, but the fact is we thought it was constitutional,” O’Connor said in an interview. “We stood down in order to speed up the process and not delay it.”
O’Connor said lawmakers should change the law so regulated utilities have price stability as a mandate along with the current requirements of reliability and return on investment. He compared that price stability mandate with paying a little more for extra homeowner’s insurance.
“If the utilities had to have price stability, they would store more gas underground for a bad storm. They would probably ‘ladder’ their purchasing so they could have contracts at different times for different amounts,” O’Connor said. “We’d all be paying a little bit more, but we’d have a contract to buy that gas and the gas producers would have to provide it.”
It remains to be seen how new Attorney General Gentner Drummond, who defeated O’Connor in the GOP primary last June, will approach his role as consumer advocate in utility regulation cases.
“As attorney general, I take very seriously my duty to represent the interests of ratepayers throughout Oklahoma,” Drummond said in a statement.
Price Gouging Investigations
Two years later, there has been nothing disclosed on price gouging investigations. O’Connor’s office had an outside law firm prepare letters to several energy companies, but their trade group said it wasn’t clear the state’s price gouging law covered natural gas. O’Connor didn’t pursue the matter further.
O’Connor said the state’s price gouging statute needs clarification. Even if natural gas was not listed among the exemptions, he said enforcing it at the time could have led to worse outcomes for customers. Limiting natural gas prices to 10% over the pre-storm price might have led utilities to be unable to buy gas at all when it was trading at $400, $600 or $1,200 a unit in the costliest days of the storm.
“If we tried to interpret it to limit the price to $2.75, then we would have had some Oklahomans die because the utility companies would not have been able to buy gas at $2.75 when it’s being sold for $1,100,” O’Connor said.
The Federal Energy Regulatory Commission is still investigating possible market manipulation during Winter Storm Uri, but did not provide details during an update of its annual enforcement efforts in November.
In a January 2022 interview after she voted for a $1.3 billion securitization plan for Oklahoma Natural Gas, Murphy said the federal government is the proper entity to investigate high natural gas prices since it’s a national market. She said securitization was the best option for customers.
“The Corporation Commission is not the investigatory body like the attorney general or the Federal Energy Regulatory Commission,” Murphy said. “Sure, I have concerns about it. But the reality is, this is a commodity. It’s supply and demand.”
Hiett said all the utility securitization orders approved by the Corporation Commission include a clawback mechanism if any later investigation finds there was price gouging or market manipulation by natural gas sellers during the winter storm.
Acts of God
Apart from the high prices during the winter storm, many of the natural gas suppliers canceled existing supply contracts, citing an “act of God” clause. There’s been speculation that unscrupulous companies or traders might have declared those clauses, only to turn around and sell their supply at huge profits on the spot market.
Sharfman, the energy consultant with Intelometry, said such accusations are usually settled among companies before going to trial. Separately, a company facing rising prices in a market could also offer to buy out a contract to deliver the gas. Those situations are above board because both parties are making some money from rising market prices, he said.
Natural gas utility Arkansas Oklahoma Gas Corp., which has 60,000 customers in Oklahoma and Arkansas, filed a lawsuit in federal court in Arkansas against BP Energy Co. The utility said it had a firm contract to buy gas from BP, which exercised its “act of God” clause during the winter storm. The utility said it had to spend $34.4 million to buy gas on the spot market and BP should pay the difference because it didn’t deliver. The case is headed to trial.
OG&E told regulators that every natural gas supplier exercised those clauses during Winter Storm Uri. Company officials declined to comment on whether they are still buying gas from those companies.
Brook Simmons, president of oil and gas trade group the Petroleum Alliance of Oklahoma, said he couldn’t comment on any specific companies or cases. But he said those “act of God” clauses have long been a part of contract law.
“My members open up the newspaper, look online every day and find out what their product is selling for. They are price takers,” Simmons said. “They don’t set the price, the market sets the price. Uri was one of those situations where you had broad failure within the system for a period of 12 days. It wasn’t just Oklahoma and Texas. It was across the entire North American grid.”
Simmons said since the storm, there’s better awareness of the need to keep electricity flowing to natural gas in the field, including producing wells, compressor stations and pipelines. Some natural gas producers have invested in winter weatherization of their equipment, too.
“Oklahoma’s oil and natural gas facilities out in the field have traditionally been built to shed heat,” Simmons said. “We have seen operators continue to invest in more cold weather treatments and more equipment to prevent freeze offs and keep natural gas flowing.”
The Southwest Power Pool, which ensures reliability and operates a wholesale electricity market for Oklahoma and all or parts of 16 other states, said all types of generation had performance problems during the winter storm. But in a July 2021 report, it faulted a lack of coordination between the electric sector and the natural gas sector.
“If the supply of natural gas is disrupted, limited or unavailable, as occurred during this event, the reliability of the electric grid would be compromised and electric consumers would be exposed to exorbitant costs. Both of these situations occurred during the winter weather event,” the report said.
The disconnect between gas and electric markets “can expose electric ratepayers and consumers to astronomical and uncompetitive natural gas market costs.”
Part of the reason for high prices during the storm stemmed from the Presidents Day holiday weekend, the SPP report said. That meant most traders were buying next-day spot market gas for a four-day period because the natural gas trading market is closed on holidays and has limited weekend trading. Natural gas is a key resource to back up wind generation, which is variable because the wind doesn’t always blow. So far, nothing has changed in natural gas trading schedules.
Simmons, with the Petroleum Alliance of Oklahoma, said his members want utility regulators to ensure utilities increase storage and sign longer term contracts for natural gas.
“If you’re not incentivized to make good long-term choices or hedge or have gas in storage and you have these external events that are one-offs and all the costs get passed on to the consumer, then it’s going to take real leadership within companies to figure out that they have to make changes so that it doesn’t happen again,” Simmons said.
Paul Monies has been a reporter with Oklahoma Watch since 2017 and covers state agencies and public health. Contact him at (571) 319-3289 or pmonies@oklahomawatch.org. Follow him on Twitter @pmonies.
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