The Cost of Staying Safe

When Oklahomans hear a winter storm is coming, we immediately think of the bare necessities, food, water, and warmth. We stock up on groceries, we light our fires, and we let our faucets drip to prepare for - and prevent - the worst.

As winter storm Uri swept across the south central US last February, utilities that weren’t prepared - also prepared for the worst. The storm was destructive, causing blackouts in several states and resulted in the deaths of over 200 people.

At the time, Oklahoma’s gas supply was in dire straits, with demands surging and the cold damaging critical equipment. To keep the heat running, the state’s largest gas company, Oklahoma Natural Gas, made a last-minute decision… It purchased fuel from the insanely expensive “spot market” at nearly 600 times the usual price.

The spot energy market allows producers of surplus energy to instantly locate buyers for this energy, negotiate prices within milliseconds, and deliver energy to the customer just a few minutes later. As you can imagine, these producers stand to profit most when Americans have the most to lose.

Now, a year later and battling more ice, officials say Oklahoma residents have to foot the entire $1.37 billion dollar bill, a plan approved by the state’s three-member utility regulator, the Oklahoma Corporation Commission.

Instead of challenging the prices the utility and its customers were charged, Oklahoma is readying a plan to use securitization – which works similar to a credit card – to cover the debt. It will pay off the almost $1.4 billion, plus interest, by charging customers as much as $7.80 a month over the next 25 years.

Many states have used securitization to cover weather-related costs, such as repairing fallen power lines after a tornado, but it has seldom been utilized for fuel costs.

“It sets the precedent that there can be basically no upper limits to the cost of gas that would be passed on to a consumer,” said Kylah McNabb, an energy consultant and a former policy adviser to Oklahoma’s secretary of energy and environment under former governor, Republican Mary Fallin.

Watchdogs are obviously wondering why Oklahoma Natural Gas wasn’t better prepared – with either emergency fuel contracts or weatherized power plants. They say state leaders haven’t adequately questioned the charges and have instead rushed to make a plan to pay off the debt – in part because the oil and gas industry is so powerful in Oklahoma. After all, Oklahoma is the fourth biggest producer of gas in the country.

Oklahoma’s story is among a national trend of regulators failing to challenge the industries they oversee, as climate change becomes more severe and extreme weather becomes more common.

Oklahoma leaders counter they are getting customers a satisfactory deal, ensuring a lower interest rate from banks by charging a flat fee on monthly utility bills, regardless of how much energy a customer actually used during the storm. They are also mandating a $687 “exit fee” for any gas customers who opt to switch from using gas for heating and cooking - to electric.

Oklahoma Natural Gas claims it was prepared for the storm, partially because it had purchased gas at lower costs in the summer and put that energy in storage for the winter. In a statement, OGE said the exit fee was not meant to be punitive and would ultimately “ensure that all customers pay their fair share”.

State officials claim they warned Oklahomans about higher prices in the days leading up to the winter storm, but surely no one expected costs would surge from $2 to $3 per thousand cubic feet - to almost $1,200. Oklahoma’s price increases were among the highest in the region, three times higher than energy spot prices at neighboring fuel trading locations in Houston.

Monthly bills were projected to be in the thousands. State leaders recognized that would cause extreme hardship, as Oklahoma has the eighth-highest poverty rate in the country and was already struggling to recover from the coronavirus pandemic. When legislators formed a special committee to review the storm costs, Oklahomans had yet to be billed for the massive fuel costs, and they had no idea what was coming.

Legislators introduced the securitization bill in early April 2021, and the governor signed it into law on April 23rd. It was meant to be just one option, but lawmakers and regulators at the Corporation Commission never revisited whether Oklahoma Natural gas customers should have to pay the $1.4 billion.

Ashok Gupta, a senior energy economist at the environmental group Natural Resources Defense Counsel, said that was “a failure of the regulatory body to do its job effectively even from a procedural point of view”.

In other states, regulators have rejected utility requests to cover debt from storm Uri. In Minnesota, officials denied a gas utility’s request to recover $500 million. A small town in south-eastern Kansas sued BP Energy in March for price gouging.

Most Oklahomans became aware of the higher bills they would be paying only after receiving a November letter from the utility requesting them to weigh in on the plan already under way. Finally aware of the financial repercussions, Oklahomans have pushed back on the bill increases they are being told to expect.

Consumer advocates say that state regulators are too close with the industry they oversee. Recent reports point out that the Corporation Commission’s three elected officials have each received more than $200,000 in campaign donations from ​employees, subsidiaries or political action committees tied to the companies they regulate, according to campaign finance reports.

Two commissioners, Todd Heitt and Dana Murphy, did not respond to a request for comment about their campaign donations. Anthony said his votes were independent and that his voting record had shown that.

Two days after the historic February storm, Oklahoma Natural Gas submitted a “protective order” to keep private the names of gas companies that benefited from the price spike. The Corporation Commission, which oversees utilities, agreed within 48 hours. Oklahoma Natural Gas said its request for a confidentiality provision with its suppliers was “industry standard”.

But the huge price surge, one of more than 600 times the normal prices, has led to calls for greater transparency.