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MDU, regulators weigh impact of February gas price spike on customer bills

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Smoke rises from chimneys in east Bismarck as furnaces heat up homes on a cold winter morning in January 2019.

Montana-Dakota Utilities pitched a plan to state regulators Friday for how it would spread out costs associated with February's natural gas price spike to customers over the course of the next year and a half.

MDU is suggesting a "staggered approach," as "customers have smaller use in the summer versus the winter," said Tara Vesey, manager of regulatory affairs for the company. The utility is proposing that customers pay a lower rate in winter months, and a higher rate in summer months so as to avoid sticker shock during the winter heating season.

The company is looking to recover nearly $13 million that way through September 2022, which means gas customers would pay more on their monthly bills until fall that year. MDU's proposal works out to about $4 to $5 more per month for the average household, according to the company's projections.

MDU staff met with the Public Service Commission to go over the fallout from the price spike, which occurred in mid-February when temperatures were bitterly cold in North Dakota and across much of the central part of the United States, causing demand for gas to soar across a number of states. At the same time, the frigid air prompted infrastructure in the oil and gas fields of the south-central U.S. to freeze, contributing to a supply shortage and driving up prices even more for utilities like MDU that need to purchase enough gas to meet customer demand.

Much of MDU's gas supply is locked in at certain prices through various contracts, but the company had to buy gas on the daily market to meet its demand over a four-day period in mid-February at prices that had spiked.

It's unclear if the PSC will ultimately sign off on the exact plan MDU presented. Some commissioners indicated they wanted to consider what a flat rate would mean for customers' bills or whether it makes sense to impose higher rates during the shoulder seasons of spring and fall.

The commissioners seemed eager to hash out a final plan soon so as to not drag out the payments beyond September 2022. Commissioner Randy Christmann raised the potential for an inequity if the matter is delayed too long -- some people who were MDU customers in February during the price spike might move and change utilities, and vice versa, new MDU customers would have to pay the higher rates even though they were not using gas during the price spike.

"I think we should definitely start as soon as we can," Christmann said.

MDU staff told the PSC the company tries to balance the potential for gas oversupplies and shortages, and it takes a number of steps to avoid situations like what happened in February by sourcing gas from a diversity of suppliers via a variety of pricing contracts. Buying gas on the daily market, like what happened in February, is rare and tends to be a last resort to ensure reliable gas service to MDU customers, according to the company.

The utility draws much of its gas from an underground storage field in Baker, Montana, and from another facility that straddles the Montana-Wyoming border. Such a setup guarantees MDU access to about half its gas needs each winter, and serves as a "tremendous resource in our backyards," said Shawn Nieuwsma, MDU's gas supply manager.

Commissioner Brian Kroshus said it appeared to him the situation in February did not reflect any major problems in the strategy MDU takes to provide its customers gas service.

"Looking at some of the other utilities, your peers, they have experienced significantly higher cost of service for their ratepayers because they didn't have the same controls and mechanisms in place," he said. 

Regulators in numerous states affected by the February price spike are calling in utilities to explain how the companies plan to spread out the costs to customers. Some utilities have indicated the average customer could be on the hook for hundreds of dollars, whereas MDU told the Tribune earlier this year its average customer could expect to pay another $80 to $100 total. MDU serves 115,000 gas customers in North Dakota, including residents of Bismarck and Mandan.

The PSC plans to have a similar discussion with the staff of another major gas supplier in the state, Xcel Energy.

MDU also has an unrelated rate case lingering with the commission, as the company seeks to bring in more money to pay for replacing aging gas pipelines. The average household would see a $4.21 per month increase for gas service under a tentative settlement between the company, PSC staff and AARP North Dakota, which intervened in the case. The PSC might make a decision on the agreement at its next meeting, May 5.

Reach Amy R. Sisk at 701-250-8252 or amy.sisk@bismarcktribune.com.

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