Summary of Extreme Weather Event February 2021 - City of ...
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Summary of Extreme Weather Event February 2021
What happened the week of February 14, 2021?
• Historic cold weather and a series of winter storms severely impacted the Midwest and
Texas.
• The extreme cold weather drove high demand for natural gas and electricity.
Homeowner demand in some areas nearly doubled during this time.
• Natural gas demand was further driven by the use of gas for electric generation.
o Over the last several years, electric generation from natural gas has increased
dramatically as natural gas prices have dropped and US supply has been
plentiful. It fuels a significant amount of electric baseload generation (meaning
it generally runs 24 x 7) and has also been the go-to source of generation to
offset the intermittency of other fuel sources, such as wind and solar, since
natural gas generation can scale up and down quickly, unlike some other fuel
sources.
• During this weather event, the provision of both natural gas and electricity was
constrained in many cases due to overwhelming demand, natural gas well and pipeline
freezes, wind turbine freezes, and freezes on coal piles and equipment at coal plants as
well as equipment at nuclear power plants.
• The further south energy facilities were located the more pervasive these natural gas
and electric production issues generally became. Gas pipeline and power plant facility
weatherization to maintain operations is based on a range of normal temperatures,
which this extreme event surpassed.
• No one fuel source is to blame. This was a perfect storm of many simultaneous factors.
• As a result, daily prices for natural gas and electric prices in the wholesale market in
these regions skyrocketed.
• The situation underscores the importance of electric utilities embracing a diverse,
robust resource mix.
What happened to natural gas prices and purchases for NPGA communities?
• The severe weather, increased demand, and natural gas production and delivery
constraints led to historic increases in the price of natural gas. Gas that had been selling
for around $3 per MMBtu skyrocketed to $175 to $622/MMBtu in the majority of
NPGA's member/customer area. Rates as high as $1,100/MMBtu have been cited in
some parts of the country. In general prices were 100-200 times greater or more than
at the beginning of February.
• NPGA pre-purchases gas for much of its member's needs and puts gas into storage for
winter use. Much of the gas supplied was purchased at or below $3 per MMBtu. Thesefr
advance purchases, however, are based on anticipated winter demand. When demand
soars, differences between supply and demand are referred to as "incremental gas
purchases" and are often subject to the Gas Daily price which varies by pipeline.
• Incremental purchases had to be made to keep gas flowing and serve critical "human
need" during the extreme cold, forcing the purchase of gas at inflated prices.
• Widespread production freeze-offs caused:
o Force majeures (an event making performance under a contract inadvisable,
commercially impracticable (very difficult), illegal, or im.possible)
■ Physical gas is cut and must be replaced at market price
o Pipeline Operational Flow Orders
• Requires usage to match deliveries or significant penalties up to 2.5 index
imposed
o Some pipelines, including Southern Star Central Gas Pipeline, had significant loss
of pressure, jeopardizing deliveries and system stability
■ Curtailed usage and deliveries only to customers serving "human need"
• Nationally, gas supply production dropped nearly 20% during this extreme weather
event
How were NPGA member communities impacted?
• NPGA communicated with members regarding price increases in the markets and
pipeline impacts and asked them to request conservation from customers and to reduce
demand in other ways wherever possible without jeopardizing human need.
o Most NPGA communities have very limited ability to reduce load through major
industrial or commercial users; gas was primarily needed to heat homes.
• Cost impacts to NPGA communities vary considerably by pipeline; NPGA has members
on five pipelines and customers on a sixth. We know some members were subject to
prices of over $300 per MMBtu for at least a portion of their supply, contrasted with the
gas purchased at or below $3 per MMBtu earlier in the month.
• Exact pricing has been very difficult to confirm from NPGA suppliers, so cost impacts at
this time are estimated. Impact by community varies widely due to predicted versus
actual temperature and the ability by some to pull gas from storage. Some communities
will have no impact; others may be facing additional costs of $200,000 to over $1
million, more than three times normal annual costs.
• This will be a financial blow to NPGA and its member communities. Without relief, this
financial burden will eventually be passed on to customers.
• Gas suppliers, who will also pay these steep costs, know customers are not going to be
able to pay and are evaluating options. NPGA is evaluating options. We remain in close
contact with suppliers, and this is an evolving situation.
• NPGA has scheduled a board meeting for Wednesday, March 3, to discuss community
impacts and mitigation actions.How have other gas entities been impacted?
• We've heard national reports from others of communities spending their monthly gas
budget each day over President's Day weekend. KMGA shared with us they spent an
estimated $45 million to cover the weather event.
• Coupled with increased usage, customers with average monthly $100 natural gas bills
could be facing bills of over $2,500 for February in some Kansas communities, as an
example.
• Kansas utilities are working with their governor to issue a state of emergency for utilities
and the KCC's issuance of an emergency order directing KCC-regulated entities to
coordinate with municipal systems to ensure continuation of gas supply for human
needs. The state of emergency declaration could be a path forward to federal
assistance.
• Potential federal financial relief sources being pursued in Kansas include repurposing
Kansas Coronavirus Relief Funds to the,extent funding remains; increased funding and
potential reclassification of applicability for the Low Income Heating & Energy
Assistance Program (LIHEAP);:and relief through President Biden's $1.9 Trillion stimulus
plan.
What is the outlook?
• There are many options on the table for industry and government leaders for evaluating
and remedying this situation moving forward.
o In the short term, there will be consideration of capping natural gas prices or
other mechanisms to smooth out these major price impacts to provide relief for
struggling communities
o There will be evaluation of state resource adequacy requirements and diversity
of fuel supply
o There will be evaluation of natural gas and electric power plant
hardening/weatherizing mandates
What actions are being taken?
• FERC and NERC announced a'joint inquiry into the operations of the bulk-power system
during this extreme weather event.
o NMPP Energy has been working with our national associations, APPA and APGA,
who have sent a joint letter to FERC and DOE asking that the inquiry be
expanded to include the significant price increases experienced in the natural gas
markets and to ensure they were the result of market forces rather than
manipulation or profiteering.
o The possibility of retroactive price changes, charges, etc. is unclear.k
• Kansas Governor Laura Kelly also sent a letter to FERC urging investigation of system
failures, reduced natural gas supply and compromised pressures on interstate pipelines,
integrity of FERC-regulated power markets, and asked for support of legislative
proposals that would provide retroactive financial relief to utilities and ratepayers.
• APPA and APGA also sent a letter to President Biden supporting an Emergency Disaster
Declaration for impacted regions of the country and requesting federal funding be made
available to assist public systems and their communities.
• NMPP Energy staff reached out to Governor Ricketts and Nebraska Congressional
representatives to help them understand the financial impacts to communities and
customers and asked for further government relief.
o The potential for state or federal bailout given the impacts in the Midwest and
Texas could run into the tens of billions of dollars
• The Nebraska legislature has asked for public power districts and natural gas entities to
testify before legislative committees regarding recent events. NPGA along with MUD,
Black Hills, the League of Nebraska Municipalities and the Public Service Commission
will testify before the Urban Affairs Committee on March 9, and the electric industry will
be testifying before the Natural Resources Committee on March 3.
• Impacted organizations of many types throughout the region are exhausting all possible
means to pay bills (both gas and electric). There is great uncertainty and anxiety around
future changes to market prices, make whole payments, and government intervention.AMERICAN
• American Public PUBLIC
Gas Association
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ASSOCIATION
Powering Strong Communities
February 19, 2021
The Honorable Richard Glick The Honorable David G. Huizenga
Chairman Acting Secretary
Federal Energy Regulatory Commission U.S. Department of Energy
888 First Street NE 1000 Independence Avenue SW
Washington, DC 20246 Washington, DC 20585
Re: High Natural Gas Prices Due to Winter Storm Uri
Dear Chairman Glick and Acting Secretary Huizenga:
Recent weather events, including Winter Storm Uri, brought record low temperatures to many states
and covered nearly 75 percent of the country in snow and ice. Many localities are not accustomed to
severe winters and the disruptions that can accompany them. The American Public Gas Association
(APGA) and American Public Power Association (APPA) appreciate the efforts that the Federal Energy
Regulatory Commission (FERC) and the Department of Energy (DOE) have already taken in response to
this natural disaster.
APGA represents the interests of over 1,000 community and municipally-owned gas systems in 38
states, while APPA represents the interests of over 2000 state, municipal, and other locally owned
electric utilities in the United States.
Throughout this severe weather, many communities across the U.S. have relied on their public gas
utilities to maintain delivery of safe, traditionally affordable, and reliable natural gas for use in space and
water heating and cooking. Public power utilities have likewise worked hard to maintain reliable and
affordable electric service to their customers. Our members have been proud to support and serve their
customers in this time of need, as well as throughout the entire COVID-19 pandemic. However, the
energy price impacts from Winter Storm Uri have only further compounded all the challenges facing
Americans as we continue to address the pandemic and economic recession.
Unfortunately, municipal gas and public power utilities, and consequently their customers, have fallen
victim to significant price increases throughout this crisis. Natural gas prices, which have hovered
around $3/MMBtu, skyrocketed to upwards of $300/MMBtu and even higher in some cases. With
demand for natural gas rising in response to the cold temperatures, our members had no choice but to
purchase gas at the inflated prices or pay even steeper penalties to ensure their customers could
continue to heat their homes or to allow natural gas-fueled electric generation to continue operating. In
one case, a municipal utility spent its monthly gas budget each day over President's Day weekend. In
another, a joint action agency expended three times its annual gas purchasing budget just to buy gas for
its customers for four days.~i
Unfortunately, similar stories abound throughout the Midwest, south-central, and other regions most
severely impacted by the storm, bringing into question how many of these communities will be able to
purchase needed gas throughout the remainder of the winter, let alone the rest of the year. Without
relief, these high prices will be passed directly to consumers, with many customers anticipated to face
monthly bills hundreds or possibly thousands of dollars more expensive than usual.
We appreciate FERC's inquiry into the operations of the bulk-power system during this extreme weather
event and request that the Commission, in coordination with DOE, expand its inquiry to include the
significant price increases experienced in the natural gas markets. APGA and APPA members are locally-
owned and governed to be accountable to the neighbors they serve, not corporate boards or investors —
community aid and quality service are the mandates for these utilities. Understandably, our members
are uniquely concerned with how the market reacted in this emergency because publicly owned utilities
have rates set at the local level. Consequently, we believe an objective investigation is warranted.
As not-for-profit entities, public gas and public power systems continue to focus on providing safe and
reliable energy to their customers to best support their communities in this time of need. We look
forward to working together with FERC and DOE to ensure that natural gas remains an affordable energy
choice for the thousands of American communities, now and in the future. Thank you again for your
commitment to understanding and addressing the challenges our industry and country currently face.
Sincerely yours,
Dave S ch ryver Joy Ditto
President & CEO President & CEO
American Public Gas Association American Public Power Association
cc: Neil Chatterjee, FERC Commissioner
James Danly, FERC Commissioner
Allison Clements, FERC Commissioner
Mark Christie, FERC Commissioner
Jennifer Granholm, Secretary of Energy Nominee
2L' DCAIN1
' American Public
Gas Association ~1w
ASSOCIATION
Powering Strong Communities
February 19, 2021
The President
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500
Dear Mr. President:
We are writing on behalf of the members of the American Public Power Association (APPA) and
American Public Gas Association (APGA) to ask for relief related to the arctic storm impacting broad
areas of the Midwest and Texas.
APPA is the national service organization representing the interests of the 2,000 publicly owned, not-for-
profit electric utilities that collectively provide cost-based electricity to 49 million Americans in 49 states
and five U.S. territories. While several public power utilities serve large cities, the vast majority of them
serve communities of 10,000 people or fewer.
APGA is the national, non-profit association of publicly owned natural gas distribution systems, with
more than 740 members in 38 states. Overall, there are approximately 1,000 public gas systems in the
United States. Public gas systems are not-for-profit retail distribution entities that are owned by, and
accountable to, the citizens they serve. They include municipal gas distribution systems, public utility
districts, county districts, and other public agencies that have natural gas distribution facilities.
The cold weather in the Midwest and Texas that began over the weekend has driven high demand for
electricity while at the same time supply (power generation) has been constrained due to natural gas well
and pipeline freezes, wind turbine freezes, and freezes/cold weather impacts at power plants themselves.
As a result, many public power customers in Texas have been without power as their local providers have
been forced to "shed load" (reduce demand) to help the entire Texas electrical system (known as ERCOT)
remain stable and functioning.
In addition, natural gas prices, which had hovered around $3/MiviBtu, skyrocketed to upwards of
$300/M1vlBtu and even higher in some cases. With demand for natural gas rising in response to the cold
temperatures, our members had no choice but to purchase gas at the inflated prices or pay even steeper
penalties to ensure that our members could meet their communities' energy needs. In one case, a
municipal utility spent its monthly gas budget each day over President's Day weekend. In another, a joint
action agency expended three times its annual gas purchasing budget just to buy gas for its customers for
four days. This situation has also driven up wholesale gas and power prices in adjacent areas of the
country, into the Southwest and Southeast.
Within ERCOT and the Midwest markets known as the Southwest Power Pool (SPP) and the
Midcontinent Independent System Operator (NIISO), prices for power purchased on the wholesale market
in these regions have sharply risen over the last several days. Natural gas powers a significant amount ofPage 2
Letter to President Biden
re: Artic Storm Impacts to Power and Gas Sectors
the baseload generation in the regions impacted, and inadequate supplies of natural gas have caused the
price of this critical fuel to skyrocket. This, in turn, has impacted the spot prices of electricity,
compounding the financial burden on many of our not-for-profit utility members. While these utilities
have hedging strategies and reserves in place, the magnitude of the spike has outpaced these risk
management tools in some cases. For example, natural gas for one public power-owned power plant cost
$78 million for four days of supply — whereas fuel had cost only $18 million for all of 2020. If no relief
is provided, these staggering costs will ultimately have to be borne by utility customers at a time when
many have lost their jobs or are otherwise struggling because of the COVID-19 pandemic.
Given the magnitude of this situation, we urge you to consider using your authority under section 301 of
the Natural Gas Policy Act (NGPA) (15 U.S.C. § 3361) to declare a natural gas supply emergency and to
authorize the Secretary of Energy to exercise delegated authority under section 302 of the NGPA (15
U.S.C. § 3362) to cap the price for purchases of natural gas from producers of natural gas or other persons
to the extent authorized by the NGPA. As the description above indicates, inadequate supplies of natural
gas threaten the availability of the fuel for high priority uses, including electric power generation.
Limiting the price of gas to a fair and equitable level, we believe, would assist in meeting the
requirements of such high priority uses. While the natural gas supply emergency authority under the
NGPA has been used sparingly, we believe this fmancial crisis is significant enough to merit such action.
In the meantime, public power and public gas utilities are focused on keeping the lights andheat flowing
and taking steps like conservation measures to ensure consumers have the energy they need. They are also
communicating with their customers about ways they can save energy (to prevent future curtailments in
the case of generation); stay safe while using generators and space heaters; and avoid scams.
We know the Federal Energy Regulatory Commission and North American Electric Reliability
Corporation have begun an investigation into the electric bulk power system, and requests have also been
made to investigate the unprecedented increase in natural gas prices. Congress will hold hearings and the
industry, writ large, will figure out the root causes of this situation and apply lessons-learned going
forward, we believe quick action in the near-term will help alleviate pressure on communities —many of
which are struggling during the pandemic. This, in turn, will help them get back on the road to recovering
and, ultimately, thriving as we know they can.
Please do not hesitate to reach out to us if you would like to discuss this time sensitive matter.
Sincerely yours,
Joy Ditto Dave Schryver
President & CEO President & CEO
American Public Power Association American Public Gas Association
cc: Patricia Hoffman, Acting Assistant Secretary, Principal Deputy Assistant Secretary,
Office of Electricity, U.S. Department of EnergyYou can also read
