Big gas bills for cities’ utilities follow freeze
Bay City Gas utility manager Kevin Hecht placed his order for the city’s February supply of natural gas in mid-january. As always, his estimate for how much gas city residents would burn was based on their typical winter usage.
But February 2021 in Texas was anything but typical. With freezing temperatures lingering for days, residents of the small community between Houston and Corpus Christi — like many others across the state — needed more gas than usual, forcing Hecht to buy it on the open market.
Unfortunately, gas production facilities across the state were freezing up, reducing supply and sending gas prices rocketing off the charts. Hecht gasped when he received the city’s February bill.
The $4 million tab was 20 times higher
than Bay City residents had ever paid for a month of natural gas. “It was basically the cost of five full years of gas for just that one month,” Hecht said.
In the wake of February’s winter disaster, which nearly crashed the state’s power grid and killed more than 100 people, state lawmakers convened hearings to probe how a weeklong winter storm had crippled the state. They have proposed laws to prevent similar catastrophes in the future.
Meanwhile, staggeringly high bills for the storm are coming due.
Most Texas residents receive their natural gas from large private utilities such as Centerpoint Energy, Atmos Energy and Texas Gas Service, which collectively incurred billions of dollars in extra costs buying natural gas at the height of the crisis. In public filings and statements, they said they would pay their suppliers with cash reserves and by borrowing money.
Yet about 80 Texas communities operate their own natural gas utilities, many artifacts from an earlier time that municipalities have held on to in an effort to keep rates low. Most are small cities that don’t have the same resources or bargaining power to cover the massive bills they owe to companies that delivered the gas. They have fewer customers among whom they can spread unexpected costs.
Attorney General Ken Paxton has vowed to investigate the storm’s sky-high gas prices. Unlike the state’s electricity market, where the Electric Reliability Council of Texas pays an independent market monitor to ensure companies follow the rules, the gas industry has no equivalent watchdog position.
Deals between municipalities and gas delivery companies are considered arrangements outside most regulation, said Sen. Lois Kolkhorst, R-brenham, whose district includes several city gas utilities facing astronomical February bills. “These are signed contracts between a city and a gas supplier without state oversight,” she said, “which is why Texans must take a hard look at the issue of potential market manipulation and regulatory failures that have created this ridiculous rip-off.”
Officials in hard-hit cities have pledged not to pass on the bloated costs to customers all at once, saying they will break up any money owed into small increases billed to residents over as long as a decade or more. For now, however, the giant bills municipal utilities owe to distributors loom.
In Bellville, northwest of Houston, the municipal gas utility serves a population of 4,097. February’s gas bill came to about $2 million — “a sixth of our entire annual budget,” said Mayor James Harrison. He said finding the money to pay for what was essentially one week’s worth of gas could set back the city’s development for years.
“We have plans to retop streets, take out a bond to build a new police station,” he said. “We’re not trying to get out of the bill. We’re just looking for answers right now, and we don’t have any.”
“We don’t have that kind of money,” added Bay City Mayor Robert Nelson. “Our customers don’t have it. How can we pay it?”
Price soared from $3 to $400
It’s not clear how many of the seven dozen municipal gas utilities are staring down a financial crisis because of February’s unprecedented prices. Not every one was crushed by February gas costs.
In West Texas, Alpine gas utility director Randy Guzman said the city’s one-year contract with its supplier locked in gas prices at low rates. City residents also didn’t use any more gas than anticipated, meaning Alpine’s costs were what it expected to pay.
He said the city was in the process of signing a three-year fixedprice contract with its gas supplier. “Now that we can see what can happen, it’s better to be ahead than behind,” he said.
Others were less fortunate. In the Houston suburb of Sealy, City Manager Warren Escovy said monthly winter gas bills for the municipal utility typically run about $80,000. The February tab came to about $2 million — more than the community of 6,500 collects in property taxes every year.
Although details of municipal natural gas contracts are complex and can differ, officials said city utilities ran up the monstrous bills during the storm in two basic ways. With February’s historic cold, some underestimated their residents’ usage. So even if their contract provided for a low, fixed price of gas, when that was gone they were forced to buy it on the open market as prices soared. Other municipalities have contracts in which all their gas is purchased at market prices.
Bay City’s Hecht said the state’s fracking boom has kept natural gas prices relatively stable over the past decade. When he ordered Bay City’s February gas the prior month, the price was no different than in previous years, a bit less than $3 per 1,000 cubic feet.
But as temperatures dropped, residents quickly exceeded their predicted use and “we ended up doubling what we thought we’d use,” he said.
On Feb. 12, the price jumped to $11 per 1,000 cubic feet, Hecht said. The next four days it held at $180. “We’ve never, ever seen natural gas prices there.”
The rocketing prices boxed him into a corner. “I can’t simply turn off the gas to the city because it’s become too expensive and then turn it back on when the price drops,” he said. “I’m committed legally and morally to deliver that gas.”
As the subfreezing temperatures lingered, natural gas prices continued to balloon. On Feb. 17, the price reached an astonishing $400 — “We’re talking close to 200 times the regular price,” Hecht said.
On Feb. 20, the cost dropped back to more normal levels. By then, however, Bay City had racked up its $4 million bill. Hecht said the charges for six days of gas came to about 10 years’ worth of net earnings for Bay City’s utility.
“It’s insane,” he said.
Few options for small cities
Communities whose cityowned gas utilities got slammed with the giant bills have reacted with a range of responses. San Antonio, whose CPS Energy is the state’s largest municipal utility, sued its gas suppliers, alleging improperly jacked-up prices.
“The lawsuits are designed to ensure that San Antonio residents get fair treatment instead of price gouging and gross overcharging by natural gas suppliers during last month’s weather emergency,” Mayor Ron Nirenberg said in a statement last week. “We will not tolerate suppliers hitting the jackpot by exploiting average customers.”
In Corpus Christi, the municipal utility’s expected $1 million February gas bill soared to $40 million when residents used about four times the gas they normally do, utility director Bill Mahaffey said. The city recently announced it would have to sell bonds to cover the costs.
Smaller communities have fewer options, said Brad Stafford, the city manager of Navasota, where February’s $1.3 million gas bill was 20 times its typical size. “We’re scrambling,” he said.
In Sealy, City Council members recently voted to dispute a third of their $2 million February bill, mostly additional penalties and fees. For the remainder, they decided to tap the city’s water utility savings account to pay the bill.
The water money had been set aside to pay for a much-needed new well, said Escovy, the city manager. “So honestly, it was spoken for. It’s just crazy to use something we’d saved for something else.”
As in other cities facing the huge gas costs — as well as the private gas utilities — customers ultimately will have to foot the bill. Like them, Sealy, whose invoices were mailed out Friday, will offer residents the opportunity to spread their payments out over time, Escovy said.
Mayor Carolyn Bilski said that while residents can expect to receive bills 10 times higher than normal, they are being told the city will help them with payment plans. She also has contacted organizations such as Combined Community Action, which assists low-income residents with their utility bills, and she said they’re asking the Legislature for help with disaster relief.
In the meantime, she is anticipating plenty of angry phone calls. “There’s going to be some shock and awe over this,” she said.
Bay City, as a small community that can ill afford an unplannedfor seven-figure bill, also is hoping state lawmakers will ride to its rescue. “It’s a staggering sum for us,” Hecht said.
So far, however, while lawmakers have introduced legislation to assist private gas utilities with their unexpectedly huge bills, Thomas Brocato, an Austin attorney helping the municipal gas utilities, said he knew of none filed to help the city-owed companies.
But Sen. Kolkhorst said that “everything should be on the table, be it legal assistance for court challenges or other state resources to protect the ratepayers and taxpayers.”
She said that “when the discussion turns to privatizing the gains for gas companies but socializing the massive losses for the taxpayer, then we know the free market system is failing.”