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State, Utilities Look at Costs and Lessons of Grid Emergency

6 min read

As Gov. Asa Hutchinson orders a state inquiry into how Arkansas’ electricity grid performed in February’s record cold snap and power generation crisis, Arkansas utilities are plotting ways to ease impacts on customers resulting from fuel price spikes during the emergency.

Millions of Texans, Louisiana residents and others were left without power for days during the freeze, but generally Arkansans fared better, facing rolling blackouts that lasted hours at most.

But Entergy Arkansas, the state’s largest electric utility, serving about 715,000 meters, included February’s impacts in its annual Energy Cost Recovery Rider filed this week before the Arkansas Public Service Commission, diverging from its usual practice of basing the fuel cost adjustment rate on only the previous year’s cost.

The governor has created a state Energy Resources Planning Task Force and is demanding answers from the state’s utilities and cooperatives, the Arkansas Public Service Commission and two Little Rock-based electric grid and market managers, Southwest Power Pool and the Midcontinent Independent System Operator.

The task force, including representatives from the Department of Energy and Environment, the Arkansas Oil & Gas Commission, the Arkansas Liquefied Petroleum Gas Board and the Arkansas Department of Commerce, is ordered to take testimony from the Arkansas Public Service Commission, MISO, SPP, electric and gas utilities, and others.

In a March 3 order, Hutchinson decreed that the task force provide final findings and recommendations by Sept. 30. Earlier reports may be filed as necessary. The governor said that February’s storms had “revealed vulnerabilities in critical energy resources” and that the state had a duty to “evaluate the ability of Arkansas’ critical energy resources and infrastructure to withstand extreme events.”

The state’s 17 electric distribution cooperatives are determining individually how to bill their members, but Arkansas Electric Cooperative Corp., their Little Rock wholesale power provider, approved plans to minimize the impact of high fuel costs by recovering them on member bills over the next nine months. 

The cost of all thermal fuels used to generate electricity skyrocketed during the polar event, with natural gas briefly spiking to thousands of times its normal price. “During the polar vortex week, AECC purchased gas for as high as $220” per million British Thermal Units for use at its Fulton CT1 Generating Station, spokesman Rob Roedel told Arkansas Business. “Indicative pricing for Magnet Cove [another gas-fired plant] was $400-500/MMBtu. For reference AECC purchased gas for as low as $140/MMBtu last spring, and $3/MMBtu had been normal prior to this event. Power prices, particularly in SPP, were at sustained levels never seen before, with pricing in SPP for multiple days at 100-times normal prices ($3,000/MWh vs. $25/MWh).”

Regulated utilities do not profit from spikes in fuel prices, but in some cases there is no avoiding passing the costs along. “Fuel costs of the generation that was demanded to meet the needs of our members was exponentially higher than normal,” Roedel said, noting that the actual level of increased usage for consumers is still being calculated. But as a benchmark, the wholesale cost of natural gas for the week of Feb. 14 last year was about $2 per million BTU. On Feb. 15 this year, the cost hit $220 per million BTU.

“Natural gas is traded in commodity markets and demand was very high,” Roedel said. “Another factor in cost was the fact that many non-fossil generation resources were inoperable. For instance, many wind farms were unable to generate as the turbines were frozen.”

In years past, electric utilities implemented “fuel adders” to recover the cost volatile fuel swings unrecovered in the utility’s base electric rates. Any such fuel adders will recover only the actual cost of fuel and purchased energy. “The electric cooperatives make no margins (profits) on these adders,” Roedel said. Those extra charges can end up on members’ bills.

Kirschvink, the Entergy Arkansas communications manager, said February’s severe weather required unusual steps in this year’s Energy Cost Recovery Rider.

That rider, or fuel adjustment rate, this year includes “an adjustment to account for the impacts of higher fuel costs due to the severe weather events,” Kirschvink said. “This is being done in an effort to reduce customer impacts, while still providing an immediate decrease to our customers.”

The ECR rate filed Monday is nine-tenths of a cent per kilowatt hour, down 8.7% from 2020’s rate of 1.05 cents per kilowatt hour. “For a residential customer using 1,000 kilowatt hours, the bill would decrease by 93 cents a month, Kirschvink said. The new rates go into effect in April.

“Entergy Arkansas does not make a profit on fuel costs, and it is simply a dollar-for-dollar recovery method,” Kirschvink said.

Natural gas customers will certainly pay bigger bills for the volume of gas they had to use to stay warm during the crisis, but they won’t immediately feel any pinch from the price spike caused when demand overwhelmed supply.

Ross Corson, senior communications specialist at CenterPoint Energy of Houston, Arkansas’ biggest natural gas utility, noted two cost impacts from February’s extreme cold: people use more gas to heat their homes. “The costs for higher usage will begin to show up on customers bills,” he said. “However, to mitigate this cost impact, there is already a long-standing regulatory tariff called the Weather Normalization Adjustment.

This mechanism helps protect customers against unusually cold temperatures and is shown as a separate line item on each bill: “WNA reduces the effect of abnormally cold weather on customer bills and reduces the impact of revenue loss to the company during unusually warm weather. It applies to bills mailed between November 1 and April 30.”

The second cost factor, of course, is the higher price of gas “due to the sudden, unprecedented price spike in the natural gas markets last month,” Corson said. “Beginning mid-February, natural gas spot prices across the United States rose to historic levels during a period of widespread high demand for natural gas and natural gas supply constraints associated with the extreme winter weather emergency.”

Corson called costs from the price spike itself significant.

“We are continuing to evaluate all available cost recovery options and we will work with the Arkansas Public Service Commission on a plan to address these costs in a way that eases the impact on customers’ bills,” Corson said. “The costs associated with the increased price of natural gas during the unprecedented weather emergency will not be reflected on customer bills until there is an approved cost recovery plan.”

As a regulated utility, CenterPoint Energy is obligated to purchase and deliver a reliable supply of natural gas to customers. It charges customers only what it pays. “There is no mark-up on the cost of natural gas,” Corson said. “To even out seasonal variations in monthly gas bills, we always encourage customers to enroll in an average monthly billing plan. And customers who need payment assistance can always visit CenterPointEnergy.com/PaymentAssistance or log into CenterPointEnergy.com/MyAccount to request a payment extension or arrangement.”

Scott Springer, general manager of North Little Rock Electric, said that as a municipal utility, his organization projects fuel costs at a very high level, then gives regular rebates to customers. The cost of February’s power crisis will cut that rebate in May, but won’t cost customers out of pocket, Stringer said.

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