Texas storm impacts local utility costs – The Sopris Sun
In February, a 10-year weather event occurred in Texas, bringing unusually cold temperatures and snowfall.
During this storm, demand for natural gas skyrocketed for both heating and electricity, at the same time as availability plummeted due to the freezing of gas supply lines and the reduction in gas supply. pumping capacity due to power outages. This mismatch between supply and demand in Texas has driven up natural gas prices across the country.
According to a presentation by Holy Cross Energy Vice President of Food and Programs, Steve Beuning, “I believe the dollar amount that Xcel Energy spent on natural gas during those four days was in the range of. $ 300 million, or about four months’ worth of their normal natural gas purchase expenses. The higher costs for Xcel Energy (Xcel) are passed on to their retail and wholesale electricity customers, including Holy Cross Energy (HCE).
Beuning continued. “What we’ve seen this month, with this emergency event, is a 478% increase in our electricity supply costs, as that share of their natural gas has been transferred to us. So for the power that we bought from Xcel for the month of February, instead of that predicted cost of around 3.3 cents per kilowatt hour, we actually saw a wholesale price of power electricity up close. of 16 cents per kilowatt hour.
But HCE members won’t see this higher cost in their bills.
HCE is in a unique position. Most energy co-ops and municipalities in Colorado have long-term contracts that guarantee that they will purchase almost all of their energy from a specific energy supplier, such as the Tri-State Generation and Transmission Association ( Tri-State) or Xcel. In an interview with Drew Schiller, vice president of finance at HCE, Schiller explained that these contracts exist because energy has traditionally been supplied by large, expensive assets, such as a coal-fired power plant. To make the big investment of building a factory, they had to know they had guaranteed buyers. This model of energy production is changing rapidly.
According to Schiller, “to have [purchasing] flexibility is extremely important in a market where technology evolves, prices change. I would be surprised if you see someone building a new coal-fired power station. It doesn’t make financial sense. It is an asset of 50 years. The current technology in our industry begins to evolve over five and ten years. Why would I want to hold on to something that will last 50 years? It is not the right tool in the current situation.
So why does HCE have purchasing flexibility when other regional cooperatives don’t? According to Beuning, it is “congratulations to the management of Holy Cross in the 1990s, when the production and transmission co-operative association that supplied us with wholesale electricity went bankrupt, and Holy Cross was wound up. in a position of having to renegotiate its electricity supply agreements. It was one of the options we negotiated back then and we are still living under that contract now and benefiting from it. “
This purchasing flexibility means HCE avoided around $ 11 million in inflated costs in February. For context, HCE spends between $ 65 million and $ 70 million on energy in a typical year. Existing contracts with other energy providers who rely less on natural gas electricity, meant that HCE had to buy less from Xcel during the storm.
Again, Schiller. “We still buy a little bit each month from Xcel Energy, although we have the contractual right to buy from a group of other people. And really, it boils down to, we don’t know exactly how much we need at any given time. So we only contract up to a point and then let Xcel, as part of our contract, fill those peaks and troughs between hourly needs.
So although HCE bought expensive power from Xcel during the storm, it was a lot less than they would have had if they had been contractually obligated to buy most of their power from them. . To cover additional expenses, HCE uses a “rainy day” fund made up of additional income, instead of passing unforeseen costs on to its members.
According to HCE President and CEO Bryan Hannegan, “For our members who have natural gas from Black Hills, or those who have electricity from Xcel, you’re going to see a little adder on the bill at the rest of all this, but if you are a member of Sainte-Croix and you buy your electricity from us, you are not.
On the other hand, Black Hills Energy (BHE) as a supplier of natural gas was in a different situation from that of electricity suppliers. They have fewer means to avoid commodity price inflation.
BHE sent out a press release on February 15, advising customers to reduce their usage if possible. According to another press release after the storm, “We will be working closely with the Colorado Public Utilities Commission to determine the best way forward to manage the long-term impact of the price increase on our customers, which will take more time.” According to BHE, the February storm caused the biggest increase in natural gas prices in the past two decades. These price increases have not yet been passed on to their customers’ invoices.