The Oklahoma Corporation Commission on Tuesday voted unanimously to allow one of the state’s largest natural gas utilities to begin preparations it says will keep customers from paying large gas bills in the coming months and suspend gas cut-offs for nonpayment until mid-April.
The measure approved by the commission allows Oklahoma Natural Gas to establish what is known as a “regulatory asset” in which to defer expenses related to the mid-February cold snap, waives requirements that the cost of gas increases and expenses be passed on immediately to customers and established a moratorium on gas cut-offs for failure to pay until April 15.
The company’s costs that go into that regulatory asset — and what effect that will have on Oklahoma Natural Gas customers’ monthly bills — has yet to be determined by the company and the commission.
Oklahoma Natural Gas requested the regulatory asset on Feb. 18, and during a hearing in front of an administrative law judge on Feb. 25, the American Association of Retired Persons (AARP) requested the cut-off waiver. It was not granted by the judge at the time, but later the company agreed to voluntarily include the moratorium in its request the following day.
During the second and third weeks of February, natural gas wellhead, pipeline and processing plant freeze-offs caused by sub-freezing temperatures that gripped much of the middle of the country, in addition to increased demand by customers and power utility companies, caused natural gas prices to spike dramatically on the spot and daily index markets, with some reports of price spikes of more than 300 times the normal price.
Like other utilities, Oklahoma Natural Gas, a division of Tulsa-based ONE Gas, had to make gas purchases on the daily index and spot markets, driving costs for the month of February alone to an estimated $1.5 billion. For comparison, Oklahoma Natural Gas spent $306 million in all of 2019 on natural gas purchases.
To get the required funds to pay for the purchases, payments for which are due at the end of March, ONE Gas, Oklahoma Natural Gas’s parent company which also covers parts of Texas and Kansas, procured a $2.5 billion unsecured term loan from Bank of America, N.A., according to a recent SEC filing by ONE Gas.
In its filing with the state’s Corporation Commission, Oklahoma Natural Gas estimates that, if the regulatory asset was not approved by the commission, gas prices for customers beginning during the first billing cycle in April could require payments of $95 to $100 per dekatherm. Usually, gas sells on the market for between $2 and $3 per dekatherm.
Normally, the cost of purchasing gas is passed along directly to gas utility customers, something Oklahoma Natural Gas warned in its filings would cause severe price increases in customers’ April bill and would likely result in numerous cut-offs with people being unable to pay the inflated amounts.
In order to prevent that, the utility requested that the Corporation Commission waive the requirement that fuel price adjustment costs be passed on immediately to consumers and allow the utility to place expenses from the February winter weather into an account known as a “regulatory asset.”
“Basically, this is just a place… to park these costs for counting purposes only so the commission can look at then later when the bills come in and when the company’s had an opportunity to assemble all this and present it,” Curt Long, an attorney for Oklahoma Natural Gas, told the commissioners.
Costs that would be put into the regulatory asset include:
• Natural gas costs from purchases made by ONG on the spot and daily markets.
• Liquified and compressed natural gas costs and services.
• Costs associated with temporary facilities used to reinforce and maintain line pressure and delivery of supply to distressed or isolated locations.
• Costs to maintain critical points and pipeline systems.
• Costs pertaining to emergency response and outages including materials, supplies, and travel to ensure stability and reliability of natural gas during the emergency.
• Deferred costs, such as costs to the company for debt financing costs used to finance the deferred costs related to the emergency.
The commission would have to review whether the costs put into different cost categories by Oklahoma Natural Gas are prudent before signing off on them.
During the meeting, Commissioner Bob Anthony said he was concerned about a protective order approved by the commission last week that would temporarily shield items submitted by Oklahoma Natural Gas, including information related to hedging, consequences of the gas supply crisis on customers bills if not moderated by regulatory relief, financing information and other items. Anthony said the protective order was probably approved too hastily and showed “incredible secrecy.”
Mike Valez, of the commission’s public utility division, said the protective order is only temporary to allow the real-time sharing of information, and that before the costs are submitted to the commission for approval, they must be made public.
“I think we’re going to need to go to the public,” Anthony said, “go to the consumers and have total openness and say this is like an event we hardly ever see.”
Commission Chairman Todd Hiett echoed Antony’s sentiment that the commission had only two options, and neither was good.
“We really only have two options at this point. One is a bad option, which is probably the option we need to go with, to move today’s costs into the future. I don’t like doing that,” Hiett said. “But I think the other option is a disastrous option. We know at this point the regulated utilities alone have somewhere in the neighborhood of $4-$5 billion in these extraordinary costs. And if those were to be billed to the consumers, I think it starts a downward spiral that would be damaging to Oklahoma.”
Electrical utilities have also anticipated an increase in the cost of fuel used to power generators. Most of the electricity in Oklahoma is generated by natural gas. OG&E, which estimated it spent nearly $1 billion on fuel during February, has filed a proposal with the Corporation Commission that would spread the cost to customers out over 10 years using a similar regulatory asset.
Public Service Company of Oklahoma, as well as gas utility companies CenterPoint Energy and Arkansas Oklahoma Gas have also submitted requests to the commission to create similar regulatory assets.
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