Kansas consumers will wind up paying $1 billion after a historic cold snap in February. Max McCoy writes that we may never know who made that money. (Getty Images)
When the historic cold came stealing around Valentine’s Day, there were two things I knew for certain. The first was that the kitchen pipes in our 120-year-old house in central Emporia were likely to freeze. The second was that consumers would be footing the bill for the most predictable economic disaster ever.
It was the longest cold streak in the state’s history, with temperatures never climbing above 15 degrees Fahrenheit at Topeka, according to the National Weather Service. The low temperature was -21, on Feb. 16.
The cold wave placed an unbearable strain on utilities across the central United States, freezing pipelines and sending natural gas prices into the stratosphere. In Kansas, utilities scrambled to meet demand, the governor urged homeowners to turn down their thermostats, and rolling blackouts were adopted to keep the state from going dark. With coal piles and machinery literally frozen, electric utilities turned to natural gas to generate power, increasing the demand.
But the real problem wasn’t the historic cold. After all, cold is to be expected in winter, and it doesn’t take Jim Cantore to figure out that once in a while the cold is going to break records. No, the problem was the lack of economic circuit breakers that would prevent the ruinous wholesale energy rate hikes we saw in February.
The price tag that consumers will pay for those seven days of power is $1 billion.
It is among the greatest short-term wealth transfers in state history. To put that in perspective, for a Kansan making the minimum wage, that amounts to more than 66,000 years of 40-hour work weeks, with no vacations.
It is also an outrageous example of the socialization of risk and the privatization of profit.
State regulators have so far rebuffed efforts by consumer groups to compel utilities such as Kansas Gas Service to reveal the identities of their wholesale suppliers. Despite promises from officials to launch investigations to get to the bottom of the rate hikes, we may never know who made bank on our misery.
“This is the most economically impactful event in our state in my lifetime, and I’m 70,” attorney and consumer advocate Jim Zakoura told me. “The system is clearly broken.”
In filings before the Kansas Corporation Commission — the state agency responsible for regulating utility rates — Zakoura asked to subpoena a national gas price index, S&P Global Gas Platts Daily, for evidence of market manipulation. The index set the market price of natural gas from Feb. 13 to 16 on just seven trades, he said. Zakoura also sought to compel Kansas Gas Service to reveal the names of its high-charging suppliers.
KGS has submitted a rate plan seeking $451 million, to be paid over a period of five to 10 years, to cover the cost of natural gas in February. That amount represents about $60 million in carrying costs, including interest on securities. Evergy, the largest electric utility in Kansas, has filed to recover $152 million. Taking into account the utility rate proposals, costs to municipalities that supply residential and industrial power, and cooperatives across the state, Zakoura estimates the total cost of the February storm to be $1 billion.
It may take the KCC up to a year to determine a rate plan, Zakoura said. If granted as proposed, residential customers could see their utility bills increase $5 to $12 a month.
Recently, KCC staff recommended against Zakoura’s motions to make KGS identify its suppliers and to subpoena Platts Gas Daily. Zakoura said he was disappointed because instead of the KCC’s promised robust investigation into possible price gouging, it signals an inquiry limited to helping utilities recoup actual costs.
No reasonable person, he said, could look at natural gas prices in February and conclude there wasn’t some type of price fixing, manipulation, or disaster profiteering at work. He also contends that rates are subject to the Kansas Consumer Protection Act, which limits price hikes during disasters to no more than 25%. The act went into effect Feb. 14, when Gov. Laura Kelly declared a state of emergency.
In this case, the very system seems to be made to protect those who would exploit a disaster for maximum profit. When it's 21 below zero, natural gas becomes even more important than food, because you'll freeze to death quicker than you'll starve. And yet, Americans are at the mercy of an unregulated market for an essential commodity.
– Max McCoy
“Natural gas suppliers have largely taken the position the act does not apply to them,” Zakoura said. “We are having to litigate the application of this anti-profiteering law in every case, most prominently in the city of Mulberry, Kansas, versus BP Energy.”
Mulberry, a town of about 500 in southeast Kansas, saw its wholesale rates skyrocket during the cold wave. Many other Kansas towns also provide natural gas to their residents, businesses and institutions, and were hit with financially devastating increases in February.
Zakoura praised Kelly’s response, saying things would have been much worse if she hadn’t asked Kansans to lower their thermostats. He also said he did not want his remarks to be taken as critical of the KCC, which was operating under tightly prescribed guidelines.
Zakoura said there are about 50 natural gas suppliers in the state, but only about half of those were in a position to effectively deliver gas during the storm. While utility rates are regulated by the state, and the cost of pipeline transportation is also set by the government, the price of natural gas is not.
“The cost of natural gas itself, the commodity, is unregulated,” KGS spokeswoman Dawn Tripp said in an email. “(Meaning) that the price paid for natural gas is dictated exclusively by market forces of supply and demand.”
Because supplies are purchased in an unregulated and competitive market, Tripp said, the utility purchases natural gas through sealed bids.
“Because of this competitive bid process,” she said, “Kansas Gas Service considers the contracts and invoicing surround the winning bids to be confidential.”
So, if the utility has its way, consumers will never know who pocketed most of $1 billion from what appears to be a clear case of price gouging during an emergency. If this kind of price hike, from $2.54 on Feb. 1 to $622.78 on Feb. 17, had occurred during any other emergency — the price of bread during the Greensburg tornado, for example — you can bet that criminal charges would have been filed damned quick against the offenders.
But in this case, the very system seems to be made to protect those who would exploit a disaster for maximum profit. When it’s 21 below zero, natural gas becomes even more important than food, because you’ll freeze to death quicker than you’ll starve. And yet, Americans are at the mercy of an unregulated market for an essential commodity.
I remember watching the mercury drop during that week in February, all the while feeling guilty because I feared lowering the thermostat in our old house would result in thousands of dollars of burst pipes and several days without water. It was also near the depth of the pandemic winter, pre-vaccination, and I imagined the risk of having a stranger, a plumber, in our home. If the pipes burst, and anybody was going to fix them, I was the one who would be crawling under the house with a toolbox. Fortunately, the pipes endured.
I remember the relief I felt when temperatures warmed. By the afternoon of Feb. 23, according to the National Weather Service, it was 71 degrees. That’s a difference of 92 degrees in just a week. That’s global warming for you.
It’s easy to forget just how close the state came to catastrophe that Valentine’s Day week. So much has happened in six months. It also might be tempting to dismiss another $20 or so in our monthly utility bills, and feel some relief that the masters of the universe didn’t make us immediately shell out a couple of thousand bucks.
But here’s the thing.
If we don’t impose some regulation on the commodity prices of natural gas, we’ll be in the fix again, and it won’t take a historic cold wave to put us there. We are in danger of showing utilities and the suppliers that we will put up with any kind of outrageous price gouging as long as the pain is spread out over years. We consumers are at a serious disadvantage because we’re dealing with monopolies buying a commodity in an unregulated market, with suppliers claiming the Kansas Consumer Protection Act doesn’t apply to them.
It won’t take too many billion-dollar sprees to bankrupt us all.
(Correction: An earlier version of this story misstated the percentage increase in February gas prices.)
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