Paying the Gas Bill…for the Next 16 Years
Paul Robbins, Editor, Austin Environmental Directory
There Be Pirates!
Starting October 1 of this year, Texans homes and small commercial businesses that use natural gas for heating, water heating, and cooking will begin to pay a huge surcharge on the fuel they purchase. The surcharge (some would call it tribute) of $1.11 per thousand cubic feet (MCF), will increase fuel costs by 21%. (This assumes a four-year average of Residential gas bills in Texas from 2019 to 2022). This is an overall increase of about $51. This annual charge might last until the year 2039, 16 years from now.
Given the fuel-cost percentage of the overall bill, the surcharge will increase overall gas utility expenses for the average Texas home by about 8%. (Again, this uses the average bill from 2019 to 2022.)
This surcharge is meant to pay $3.5+ billion “securitization” bond to finance the exorbitant fuel costs charged by gas supply companies and traders during Winter Storm Uri.
Most Texans reading this will recall the cruel frigid storm in mid-February. Many Texas cities set new records for the number of hours at or below freezing. Between February 14-19, 2021, there were 771 daily records or ties of records for lowest minimum daily temperatures at 194 Texas weather stations.
The extreme weather was layered onto failure of the natural gas and electricity supplies. This was caused by lack of preparation for the storm, as well as skimping on winterizing the infrastructure that would make energy supplies and generators more resilient to cold weather.
To add to the calamity, Texas was shipping Liquefied Natural Gas overseas at the same time its own people were freezing.
At one point, almost 40% of customers on the ERCOT (Texas) grid were without electricity.
As many as 978 deaths were caused by the storm. The Perryman Group estimated $195 billion to $295 billion due to property damage, lost income from business closures, and crop losses.
The desperate effort to secure adequate supplies of natural gas for heating and power plants caused prices to soar to unbelievable levels. Typical gas prices in Texas at the time soared from an average of $3 to $4 per Million BTUs to as high as $400. There were reports of prices in Oklahoma as high as $1,200.
Gas Cost Per Million BTUs in February 2021
Paying these astronomical costs in real time would have been too onerous, so the Texas Legislature passed a bill that essentially mortgages (at rates exceeding 5.1%) these billions of dollars over as long as 16 years.
The number of years might decrease depending on the growth of gas customers. The more growth, the more customers and consumption that can be used to increase payments and reduce the time needed to retire these bonds. However, this higher cost may have the opposite effect by reducing the competitiveness of the fuel.
Some environmentalists want to stop all new natural gas hookups to reduce global warming. In response, the Texas Legislature passed a law forbidding cities within the state to do this. It is ironic that this surcharge helps the cause of reducing gas hookups. The environmentalists here do not have to raise a finger. In this case, the gas industry is its own worst enemy.
Two companies that reported incredible profits after the storm included Energy Transfer and Kinder Morgan. Their Texas intrastate pipelines are scantly regulated, and they sold gas they had placed in storage at huge markups. Energy Transfer reportedly made $2.4 billion, and Kinder Morgan made about $1 billion, as a result of desperate price escalations.
Another pipeline company, Energy Product Partners, made about $250 million from the crisis.
Traders also made a killing (no pun intended).
Petroleum giant BP reportedly made about $1 billion from the opportunity, greatly boosting its quarterly profits from other energy sales and services to a total of $2.6 billion.
The Australian company Macquarie Group made about $234 million. The trading arms of Goldman Sachs and Bank of America also reportedly did well. Goldman was estimated to have cleared about $200 million from this crisis of opportunity, though some of this may have been lost due to utility defaults and bankruptcies.
The major gas utilities in Texas, most notably Atmos, CenterPoint, and Texas Gas Service, will be quick to defend themselves by saying they do not make a profit on any fuel they sell. Fuel, to them, is a pass-through cost. They will lay blame on the companies that made these profits.
However, these gas utilities are charged with buying affordable and adequate supplies of fuel. In this sense, they failed, and their customers are paying for their mistakes.
The Texas Legislature
The Legislature never made a successful effort to claw back the excess profits made by the gas industry. There was a bill drafted in the 2023 session to use surplus money in the state budget to pay for this debt. However, it could not gain support.
The Legislature has also never enabled Residential gas customers to buy their own supplies on the open market. It seems strange that while Texas has deregulated most electric customers in ERCOT to purchase their electricity competitively, they are not allowed the same ability with gas service.
Larger Texas Commercial and Industrial customers have this ability, where the gas utility becomes a common carrier for lower-cost fuel procured elsewhere.
Nationwide, almost 20% of gas utility customers have customer choice programs. The percentage of customer choice participants in Georgia and Ohio exceed 80%.
Had customer choice been in effect in Texas during Winter Storm Uri, would it have made a difference in price and reliability? I cannot say with certainty. But any company that intended to stay in business should have had firm contracts, and an extra incentive to prepare for extreme weather.