Hutchinson isn't immune to skyrocketing natural gas and electric market prices following Storm Uri, a polar vortex that brought unseasonable freezing temperatures from Texas to Canada. But a combination of reserves and stabilization funds built up by the Hutchinson Utilities Commission will help soften the blow for residents.
At a special HUC meeting Thursday, general manager Jeremy Carter told commission members customers might see an energy bill two or two-and-a-half times larger than usual if nothing was done. That estimate, he said, already reflected an advantageous position for Hutchinson as compared to other energy providers. HUC purchased gas off a contract and wasn't as vulnerable to spiking prices. But there was no helping the higher demand as temperatures plummeted mid-February, which ultimately led to additional purchases off the market. Electricity prices were also impacted by market fluctuations, but not so severely as natural gas prices. Ultimately, roughly $2.2 million in new expenses were accrued for March bills.
The commission unanimously agreed to use $1.2 million in cash reserves and $451,000 from the natural gas rate stabilization fund to lessen the impending impact on customers' natural gas portion of the March utility bill.
"While customers will see an increase on March’s bill, the use of these cash reserves on average will reduce a customer’s impact by 30% to 50% from the originally projected natural gas bill, depending on usage," states a news release from HUC.
HUC described the situation around Storm Uri as a "triple whammy" for utilities around the country:
- Cold weather froze off many natural gas well heads in the southern part of the U.S., limiting the amount of natural gas that could be extracted and added to the supply.
- While there was unprecedented demand for natural gas to heat homes and businesses, there was also a high demand for natural gas as a fuel source for electricity generation in the Midwest and South, further creating an imbalance between supply and demand. This created skyrocketing natural gas prices at the Ventura and Demarcation hubs, which provide the majority of natural gas daily spot market pricing for much of Minnesota.
- Natural gas prices reached as high as $188 per million Btu. The normal price is roughly $3 per million Btu. This contributed to extreme energy prices in the wholesale markets of ERCOT, SPP, and the MISO market where HUC purchases electricity to supplement a base load contract for power.
Many southern states such as Texas and Oklahoma saw greater price inflation, with natural gas prices reaching $800-$1,100 per million Btu, and electric prices hitting $9,000 per megawatt hour in the ERCOT market.
"These unprecedented prices have created a catastrophic financial crisis that has received the attention of state and federal lawmakers and regulatory agencies across the country," according to HUC's news release.
HUC expects the polar vortex will have a financial impact on customers when they receive their March bills. It encourages customers to call customer service once they receive their bill to make alternative payment arrangements that fit their needs.
RESERVES
Carter said HUC was able to build up the reserves it brought forward to aid in March bills through good fiscal responsibility. Like other businesses, it serves HUC to develop reserves over time in case of major events, such as plants going down, in order to keep power up and running.
"We're also required to keep reserves on hand because we have outstanding debt," Carter said, noting that doing so shows bond holders, agencies and investors HUC has a strong financial position.
HUC has bonds for projects that improved infrastructure and created redundancies. Those redundancies helped it avoid rolling blackouts seen elsewhere.
Also contributing to reserves were changes to HUC's structure over the past five to seven years. Operating costs and staffing were reduced to cut expenses and build up cash without increasing rates in light of what appears to be a trend of natural gas shortages every few years.
Carter said there appears to be more extreme weather, either hot or cold, which creates expenses that many utility companies pass on to customers. HUC hopes to have a buffer built against that risk. Carter said he worries some smaller utilities may end up in a situation similar to a Texas cooperative, which filed bankruptcy to avoid passing on extreme costs to customers.
