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The plight of the city-owned gas utilities

It’s rough.

In the wake of last month’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 ripoff.”

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, whose 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?”

It’s not clear to me that this isn’t just how the market is set up to work, but there could be something there to investigate. I think Sen. Kolkhorst has identified the problem, so it’s mostly a matter of what if anything the Legislature wants to do about it. My guess is that this isn’t a high enough priority for them, but it is in their power. I wish the people of Bellville and Bay City and wherever else good luck in sorting this out.

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One Comment

  1. Bill Daniels says:

    There are many entities and people to blame for the skyrocketing prices and power outages, including ERCOT itself (hat tip to Wolf for convincing me of that). There are many lessons we should learn from the Coldpocalypse.

    “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?”

    Bingo. Here’s a lesson we need to learn right now. Necessarily making the price of energy skyrocket, Obama’s dream, one Biden is carrying out right now by blocking new oil and gas drilling offshore and on federal land, as well as his threats to end fracking, are going to hurt America’s security. Making us dependent again on foreign oil again makes us weaker.

    The lesson Mayor Nelson teaches us, with his statement is…..when the cost of energy skyrockets, it destroys America. With just one week of high prices, Bay City has to scrap fixing roads and other things the community needs.

    What is it going to be like when EVERY week is high natural gas price week? The city can’t pay, and the people can’t pay. We had a one week taste of what skyrocketing energy prices actually look like and……turns out people don’t like it. Maybe we should learn from this, and ask Biden to change his anti-affordable energy policies, so a week in February, in Texas, doesn’t become the norm nationwide every week of the year