Oklahoma utilities explore changes after February winter storm
Regulated Oklahoma utilities are considering reverting to a traditional way of purchasing fuel used to meet power generation needs, potentially protecting customers from the types of astronomical price spikes seen in recent extreme winters.
At least during the winter months, utilities are considering moving away from the current practice of paying for fuel on the basis of daily spot prices, to one where fixed prices are used for the entire month.
This could mitigate some short-lived cost spikes, like the one from February 10 to 15. During that week, natural gas values in daily spot markets climbed 28,574.5% and wholesale electricity costs followed suit, utility officials said.
These additional costs end up being passed on to customers. Utilities and state regulators are currently grappling with ways to recoup some costs from this storm, which will likely cost Oklahoma residents more than $ 4.5 billion. If prices had been set for the length of the month, consumers might not be faced with rate increases for the next decade or more.
Following:OG&E wants $ 875 million from its customers. Here’s what you need to know about demand
But setting a price for the month could leave customers paying more during months when daily fuel costs fall below the agreed monthly rate.
Utility officials discussed this and other issues with members of the Oklahoma Corporation Commission at a meeting earlier this month.
“The strategy of buying gas in the spot market has been beneficial to our customers over the years. This event (in February) changed our perspective, ”said Clint Stutler, natural gas supply manager for PSO Public Service Co. of Oklahoma.
Gerald Wilson, director of fuel and market operations for Oklahoma Gas and Electric Co., told commissioners she is also considering moving from daily pricing to month one (fixed) pricing for some gas. that she uses.
“In the recent past, we have not had any supply issues and prices have been relatively stable,” Wilson said. “Now (after experiencing the February storm) we are looking at price stability and the potential for additional supply. “
OG&E Winter Storm Fuel Costs
OG&E is reducing the total costs of the February storm it is asking to recover from customers from $ 875 million to $ 769 million, a spokesperson said this week.
The utility revised its claim to the Oklahoma Corporation Commission after the Southwest Power Pool (SPP) finished determining the amount of overhead and electrical charges owed for the electricity it put on the grid during the storm and which has been used by other participants in the SPP, she said.
“If our application is approved, the average residential customer will see their monthly bill increase by $ 3.12 over 15 years, $ 2.52 over 20 years or $ 1.99 over 28 years,” said Christi Woodworth, vice -President of corporate communications, brand and OG&E brand. marketing.
The market has changed with the addition of renewable energies
Utilities have changed the way they buy fuel to generate electricity as more renewable energy has been added to the grid.
The additional resources have allowed utilities to become less dependent on their own resources to meet consumer demands for electricity at certain times of the year.
As additional wind sources were added, utilities in much of the Great Plains gradually turned to using more responsive natural gas-fired systems to generate electricity. Natural gas, most of the time, is cheaper and can be mined faster than coal.
In 2014, the SPP adopted the daily spot electricity pricing system, where it estimates the amount needed based on daily electricity needs and estimated resources available.
Between that date and February, the market has consistently provided electricity users across SPP’s footprint with some of the lowest electricity costs in the country.
A perfect storm disrupted the system
The February cold snap was a stark reminder that utilities’ reliance on assumed operating conditions and fuel costs can be risky.
During the February storm, electricity demands from users who needed electricity to run their home and commercial heating systems increased in the Great Plains and Texas, where long blackouts killed some. residents.
During this time, renewable sources across the entire PPS footprint were sometimes not able to function as needed due to calm winds and because some wind turbines had been deactivated by the freezing fog at the start of the event.
This has left utilities heavily dependent on natural gas-fired units to meet growing energy needs, just as the demand for this fuel as a source of heat for homes and businesses has also increased.
At the same time, natural gas production in Oklahoma, Texas and Louisiana fell 50% due to the freezing of production wells and natural gas processing facilities, according to a preliminary report presented this week to the United States Federal Energy Regulatory Commission (FERC).
Federal energy officials blasted Texas in the same report for the state’s fierce electric independence, saying it likely contributed to the deaths of hundreds of Texans during the February freeze.
Because some generators could not get the fuel needed to generate electricity, this put even more pressure on the availability of excess electricity.
“It’s a wake-up call to all of us. There was a similar investigation after Texas experienced extreme cold in 2011, but these recommendations were not acted upon, ”said FERC President Rich Glick.
“We cannot allow this to happen again. This time, we need to take these recommendations seriously and act decisively to ensure that the bulk feed system does not fail the next time extreme weather conditions strike. I cannot and will not allow this to become another report that serves no purpose other than collecting dust on the shelf. “
Earlier this summer, FERC tightened rules already in place to add fines of up to $ 1 million per day after reviewing an assessment of a similar cold snap in early 2018 that forced various units to offline electricity production in the great south.
The regulations come into force on 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 also have an impact,” said Elliot Nethercutt, senior economist at the National Regulatory Research Institute, the research arm of the National Association of Regulatory Commissioners.