by Carrie Moritz, Gazette
Cold is normal for winter, especially in South Dakota. However, last week, Garretson was part of a midwestern polar vortex that affected every state from North Dakota to Texas, driving energy rates through the stratosphere.
The unusual below-freezing temps in Texas, Oklahoma, Missouri, Kansas, and more, placed demands on the energy grids providing electricity and natural gas to millions of people that went far and above what is considered "normal." This "perfect storm" created an emergency power crisis that will be felt by many for months to come.
The City of Garretson will be feeling it, too. Garretson's natural gas company, Clayton Energy, projected that the City will be paying 8 times more for those five days than it did for the entire month of January 2021.
The critical power usage was initially slated to only last for Sunday and Monday. It went until Thursday, with natural gas rates going far above regular market rates.
The City of Garretson signed on with a new natural gas company, Clayton Energy, last October. Clayton Energy averages out pricing from Northern Natural Gas over 3- or 5- year terms and contracts over that period of time for a set price, called hedging, which helps to stabilize costs to customers.
The Garretson City Council asked Clayton Energy to hedge 70% of Garretson' usage out to 5 years. This means 70% of normal usage is locked in at those hedged prices. This is a calculated risk, to ensure the City does not over-buy natural gas, as anything purchased over usage has to be sold back at market rates.
However, since a cold snap such as that experienced last week leads to more usage than normal, it can leave overall costs to fluctuate. Anything used over Garretson's hedged 243 Decatherms per day is charged at market rates.
And last week, the market exploded.
The City of Garretson first learned about the looming power issue on Friday, February 12. Clayton Energy contacted City Finance Officer Anna Uhl and Mayor Greg Beaner directly, letting them know that Sunday and Monday were going to be declared "Critical Days." This meant that market rates were predicted to be higher than usual.
"We didn't think it was going to be this bad," said Garretson Mayor Greg Beaner. "Even our natural gas company didn't think it would go this long."
He was apologetic that the City hadn't been able to help mitigate some of those issues. If he had known it would be this bad, he said, the City would have taken different steps in alerting residents.
"It's unprecedented record times like this disaster that we have no control over, and its impact will be greatly felt by your customers and most people throughout the Midwest," wrote Clayton Energy President William "Bill" Lindley in an email to the City last Tuesday, February 16. Like Sioux Valley CEO Tim McCarthy, who said last week Tuesday that it was the most precarious power situation he had seen in 33 years, Lindley said he hadn't seen anything like it in his 28 years.
On Tuesday morning, when markets opened again, the Southern Power Pool had declared a Level 3 emergency, forcing power companies to shut down power stations around the Midwest to keep from overloading the system. Since natural gas pipelines are run by electrical pumps, this caused a bottleneck between supply and demand. This bottleneck, which was then slated to go through Tuesday, continued through Thursday.
Speculators used the bottleneck to drive prices even higher than a normal polar vortex during the crisis, which Lindley compared to likely price gouging. At a SD Public Utilities Commission meeting on Tuesday, the other major utility companies in South Dakota were not able to directly point to price gouging, though they did state that investigations into the event were starting to get underway by federal regulators.
The market was trading at rates as high as $950 per Decatherm in areas around the Midwest, according to Lindley. Initial estimates from Clayton Energy on Tuesday, February 16 had placed rates at around $475 per Decatherm.
The Friday before, February 12, rates were at $17.50 per Decatherm. Garretson's contracted rate is at $3.51 per Decatherm, and Uhl said that normally, prices don't deviate much from that- even in the winter.
"The daily pipeline 'spot gas' prices throughout the Midwest ranged from $200-$950 per Decatherm (the unit of measurement on the pipeline)," wrote Lindley.
The City of Garretson normally spends about $24,000-$43,000 per month during the winter, said Uhl.
On Sunday, February 14, natural gas usage cost the City $79,211. Instead of 243 Decatherms per day, Garretson used 629. That left 389 Decatherms to be charged at higher rates.
"We hedged for your community based on a 3-year historical average," wrote Lindley. "Again, this is based on average...and we have no choice but to fill the remaining demand with daily 'spot gas' or pay the penalty." Not showing up with gas would have cost three times the daily "spot price" as a penalty, according to Lindley.
"Although it's difficult to value at a time like this, Northern Natural prices stayed near the bottom of this range," said Lindley. The "Spot Price" was $203.00 per Decatherm.
In all, from February 13 to 17, natural gas cost the City $345,642, more than eight times what was paid in January. Garretson had $49,329 hedged per day, and saved $248,832 overall from actual market prices.
"I am certain, that if we had stayed with our old energy company, that we would have been towards the higher end of those prices," said Mayor Beaner. He pointed out that Centerpoint made money from selling natural gas to Garretson, and did not work on an average and hedge their prices like Clayton Energy does.
Despite knowing that costs could have been higher, Mayor Beaner knows Garretson residents will more than cringe when they learn what their natural gas bill will be in March.
"We can't expect a person on a fixed income to pay this huge increase," he said to the Gazette. He intends to ensure the City will work hard to have options available.
On Monday, March 1, the council will be exploring spreading the cost out over a longer period of time, or finding other ways to potentially keep from passing the cost on to residents.
"We will do our best to minimize the impact and defer costs where possible," said Lindley in an editorial to the Gazette. "Investigations are already under way from legislators from all levels of government from local to the federal level and potentially multiple agencies."
Unfortunately, this takes time, he points out.
And while the City itself hadn't heard from the Governor's office directly about how to cover the increased cost, the Public Utilities Commission held a meeting with South Dakota officials on Tuesday to discuss further options. They voted to work with utilities to help spread out costs over a period of time, which would raise rates for most of 2021.
Clayton Energy stated it is working with the American Public Gas Association, the Iowa Association of Municipal Utilities, and the Iowa Governor's office to see about obtaining 0% interest loans for individual homeowners who may need help covering their natural gas costs. Whether this will apply to South Dakota residents yet remains to be seen.
As for actual costs to homeowners and businesses, Mayor Beaner said it's impossible to know exact figures right now.
"It'd be like comparing apples to oranges," he said.
"Based on the age and size of homes in your community, some peak much harder than others based on their averages," wrote Lindley.
However, the mayor is hopeful the City will know more by its next council meeting on March 1, and will be able to provide some type of relief to homeowners. For those requiring immediate help, energy assistance is available to low income residents at https://dss.sd.gov/economicassistance/energyassistance/.
