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Oklahoma regulators hear utilities' ideas to limit future cold snap costs

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September 25, 2021


Regulated Oklahoma utilities are considering returning to an old-school way of buying fuel used to support power generating needs, potentially protecting customers from the types of astronomical price spikes seen in recent extreme winter weather.

At least during winter months, utilities are considering a move away from the current practice of paying for fuel based upon daily spot prices, to one where fixed prices are used for the entire month.

That could smooth some short-lived cost spikes, like the one between Feb. 10 and 15. During that week, natural gas values on daily spot markets climbed 28,574.5% and wholesale electricity costs followed suit, utility officials said.

Those additional costs eventually get passed to customers. Utility companies and state regulators are currently grappling with ways to recover some costs from that storm, which will likely cost Oklahomans in excess of $4.5 billion. If prices had been set for the duration of the month, consumers might not now be facing larger bills for the next decade-plus. 

But setting one price for the month could leave customers paying more during months where daily fuel costs dip below the agreed-upon monthly rate.

Utility representatives discussed that issue and others with members of the Oklahoma Corporation Commission during a meeting earlier this month.

"The strategy of buying gas on the spot market has been beneficial to our customers over the years. This event (in February) has changed our perspective," said Clint Stutler, PSO's Public Service Co. of Oklahoma's manager of natural gas procurement. 

Gerald Wilson, Oklahoma Gas and Electric Co.'s director of fuel and market operations, told commissioners it too is exploring switching away from daily pricing to first-of-month (fixed) pricing for some of the gas it uses.

"In the recent past, we have had no issues with supply and pricing had been relatively steady," Wilson said. "Now (after experiencing February's storm). we are looking at price stability and the potential for additional supply."

OG&E's winter storm fuel costs

OG&E is lowering the total of February storm costs it is requesting to recover from customers from $875 million to $769 million, a spokeswoman said this week.

The utility revised its request before the Oklahoma Corporation Commission after the Southwest Power Pool (SPP) finished determining what OG&E was owed for electricity it put onto the grid during the storm that was used by other SPP participants, she said.

"If our request is approved, the average residential customer would see an increase to their monthly bill of $3.12 over 15 years, $2.52 over 20 years, or $1.99 over 28 years," said Christi Woodworth, OG&E's vice president of corporate communications, brand & marketing.

The market has changed as renewables have been added

Utilities have changed the way they buy fuel to generate power as more renewable energy has been added to the grid.

The added resources allowed utilities to become less reliant on their own resources to meet consumer demands for electricity during certain times of the year.

As additional wind sources have been added, utilities across much of the Great Plains have gradually shifted toward using more responsive natural gas-fueled systems to generate electricity. Natural gas, most of the time, is cheaper and can be tapped more quickly than coal.

In 2014, the SPP adopted the daily spot pricing system for electricity, where it estimates how much is needed based on daily power needs and estimated resources available. 

Between then and February, the market consistently provided power users across SPP's footprint some of the lowest electricity costs in the nation.

A perfect storm disrupted the system

February's cold snap provided a harsh reminder that utilities' reliance upon presumed operating conditions and fuel costs can be risky.

During February's storm, power demands from users who needed electricity to help run their home and business heating systems spiked across the Great Plains and Texas, where lengthy power outages killed some residents.

Renewable sources across SPP's footprint, meanwhile, sometimes couldn't perform as needed because of calm winds and because some wind turbines had been disabled by freezing fog early on during the event.

That left utilities relying heavily on natural gas-fired units to meet climbing power needs, just as demand for that fuel as a heating source for homes and businesses also spiked.

At the same time, natural gas production across Oklahoma, Texas and Louisiana fell by 50% because of freeze offs involving producing wells and natural gas processing facilities, stated a preliminary report presented to the U.S. Federal Energy Regulatory Commission (FERC) this week.  

Federal energy officials excoriated Texas in the same report for the state's fierce electrical independence, saying that likely helped contribute to the deaths of hundreds of Texans during the February freeze. 

Because some generators couldn't obtain the fuel needed to create electricity, that put even more pressure on the availability of surplus electricity.

“This is a wake-up call for all of us. There was a similar inquiry after Texas experienced extreme cold weather in 2011, but those recommendations were not acted on,” FERC Chairman Rich Glick said.

“We can’t allow this to happen again. This time, we must take these recommendations seriously and act decisively to ensure the bulk power system doesn’t fail the next time extreme weather hits. I cannot, and will not, allow this to become yet another report that serves no purpose other than to gather dust on the shelf.”

Earlier this summer, FERC strengthened already in-place rules to add fines of up to $1 million a day after reviewing an evaluation of a similar cold snap in early 2018 that forced various power generating units offline in the deep south.

The regulations take effect April 1, 2023.

"This is a new level in terms of requirements for the planning and operating process across the country, but local and state decisions can have an impact as well," said Elliott  Nethercutt, the principal economist for the National Regulatory Research Institute, the research arm of the National Association of Regulatory Utility Commissioners.