Blame drought, California for higher utility bills

BY MARK JAFFE THE COLORADO SUN

One explanation for this past winter’s soaring utility bills was the disruption in global natural gas supplies caused by the war in Ukraine, but it turns out the source of many Colorado households’ woes was closer to home: California.

Drought cut California hydropower production to half of normal levels in 2022, and to ll the gap the state’s utilities went on a natural gas buying spree that drove up the cost of delivered gas to Colorado utilities by almost 100% over the course of the year.

“California bid up natural gas in December and January in basins Xcel buys gas in,” said John Harpole, president of Mercator Energy, a Littleton-based gas brokerage rm. “As a result of California, Colorado ratepayers paid more for natural gas.” e California scramble pushed up prices across the West, with the cost of natural gas delivered to Colorado utilities, the so-called Citygate rate, rising to $9.83 for a thousand cubic feet in January 2023 from $4.97 in December 2021, according to the U.S. Energy Information Administration. e drought-related gas prices didn’t only a ect home heating bills, but electricity costs as well, with the EIA estimating it could have added 5% to prices in Western electricity markets. e California price shock is both a cautionary tale and one that is likely to be repeated as natural gas markets become more volatile and other forces from climate change to the need to backup growing renewable electricity generation play a role in the demand for gas.

“Consumers have to be aware that natural gas which used to be far more stable isn’t anymore,” said Albert Lin, executive director of Pearl Street Station Finance Lab, a clean energy think tank.

In Colorado, this falls most heavily on Minnesota-based Xcel Energy, the state’s largest natural gas and electricity provider. e company has 1.5 million natural gas customers and depends upon natural gas for 29% of its electricity.

“We are keenly aware of the nancial challenges some of our customers experienced this winter,” Bob Frenzel, Xcel Energy’s CEO, told nancial analysts in January. “We are always empathetic of customers who are feeling an increase at the grocery store, in rent.”

Still, when the price of natural gas soars so do customer bills, with some households seeing their utility bills double or triple last December.

In the wake of the high winter utility bills, the legislature passed Senate Bill 291, in an e ort to deal with the volatile natural gas market and the future use of natural gas in the state, as well as an e ort to improve the way utility rates are set.

“ e bill provides ratepayers some relief for volatile prices in the short term and in the long term it gets a handle on our investments in the gas system,” said Meera Fickling, a senior climate policy analyst with the environmental group Western Resources Advocates.

Natural gas is sold and bought by utilities in an unregulated market and the cost of the gas is directly passed on to customers — rising when prices are high and falling when they are low. e utilities neither make money nor lose money on the price of gas.

Whether the utilities buy at low prices or high prices, whether they manage their gas supplies well or poorly, they face no risk or losses.

In February 2021 Winter Storm Uri simultaneously boosted demand for natural gas and shut down natural gas Texas production leading to skyrocketing prices. e PUC granted Xcel Energy permission to recover an extra $500 million in storm-related gas costs from its Colorado customers.

Four electric cooperatives that buy wholesale power from Xcel Energy led a complaint with federal regulators contending that the utility mismanaged its supplies and asked for a partial refund. Xcel Energy denies the allegation.