Colorado regulators look at how prepared utilities were for February deep freeze, how to ease impact on ratepayers

With Colorado’s costs of keeping the heat and lights on during February’s deep freeze expected to exceed $1 billion, state regulators took a look Wednesday at how utilities prepared and how they can blunt the impact on customers of the extreme weather that’s happening more frequently.

The Colorado Public Utilities Commission is investigating how the utilities it regulates, including Xcel Energy-Colorado and Black Hills Energy, responded to the frigid weather Feb. 13-16 that sent demand for electricity and heat and natural gas prices soaring. In their weekly meeting, members questioned whether the companies could have cut costs by purchasing gas sooner in the week.

The PUC also considered whether companies could have cut demand by being clear how severe the situation was and asking customers to reduce use.

While Colorado didn’t suffer the kind of problems that left millions in Texas without power for days, utilities paid sky-high prices for natural gas as companies across a big part of the country scrambled to meet demand. Those costs will ultimately be passed onto customers.

The utilities must get approval from the PUC for rate increases. The commission has asked companies to respond to follow-up questions by March 19.

Gov. Jared Polis has said customers shouldn’t bear the brunt of the exorbitant prices if utilities didn’t take common sense steps to avoid them.

Like Polis, the Office of Consumer Counsel, which represents the public before the PUC, said it is concerned that ratepayers will end up shouldering the costs. Director Cindy Schonhaut said in a letter to the PUC that the financial impacts of the extreme weather could total more than $1 billion statewide.

“Colorado energy customers are already under great stress. As we all know too well, the COVID-19 pandemic is currently pushing far too many utility customers to their limit,” Schonhaut said.

During the meeting, PUC staffers relayed some of the prices utilities paid for natural gas when temperatures along the Front Range plunged below zero. The companies have submitted preliminary estimates of the higher rates customers are facing and answers to a list of questions from the PUC.

Natural gas prices were around $3 per million British Thermal Units and shot up to $180 per unit in the region and even higher in other states. Xcel Energy, the state’s largest electric utility with 1.5 million customers, said it had to spend an extra $627 million in electricity and natural gas costs Feb. 13-16. Its demand for service was double what’s typical for the period.

Xcel has proposed spreading out the costs to minimize the impacts. Spread over two years, the average residential customer would pay $3.18 more a month and the small commercial customer would pay $4.85 more.

Black Hills Energy, which provides electricity and natural gas to 290,000 customers in Colorado, said it spent $105 million over the four days and that demand was 60% higher than normal. The utility estimated that over two years, the average residential customer would pay $4.50 more a month for electricity and the average small commercial customer would pay $17.

Utilities use hedging, which locks in prices through long-term contracts, and store natural gas to protect against volatile fluctuations. Xcel Energy said its hedging practices on gas for electricity and heating saved more than $825 million over the four days.

However, the PUC questioned the utilities’ statements that they wouldn’t have saved money if they had bought more natural gas earlier in the week. The cold weather took hold Feb. 13, a Friday, and didn’t start to relent until toward the end of the holiday weekend.

“They said fixed-price contracts weren’t available earlier for delivery over the weekend, so there would be limited advantage to having purchased earlier,” said Erin O’Neill, the PUC’s chief economist.

“Can we validate that, that no other safety valves could’ve been invoked?” Commissioner John Gavanasked.

O’Neill said it was worth investigating.

The commissioners also asked whether steps were taken to rein in costs by asking customers to reduce demand. Xcel Energy said service was scaled back to some of its larger commercial customers that agree to interruptions when the demand is high.

But in response to Polis’ argument that customers should be given a choice to reduce use rather than pay high rates, Xcel Energy said using forced outages is something it reserves for “our most dire system emergencies,” not economics.

The commissioners said they might need to take ” a really hard look” at making economics a factor in those decisions.

“These were unprecedented costs, but I don’t think each of us is looking at this thinking it can’t or won’t happen again. So the question is, how do we get smarter and how do we get better,” said Commissioner Megan Gilman.

Schonhaut said the Platte River Power Authority, which supplies electricity to four northern Colorado communities, saw its demand drop 10% after putting out an urgent plea to customers. Xcel Energy’s messages about conservation were more general and weren’t distributed widely, she added.

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