Black Hills rate increase flies under the radar
BY STEVE ANDREWS AND SUSAN PERKINS OPINION MAY 6, 2017
Did you hear the news? Back in March, Black Hills Energy passed along to all its customers a $12.9 million increase in its electric bills. No real discussion, no argument, done deal, effective April 1.
Wait: where were all the headlines? Where were the protesters? Why not a cover story in The Chieftain or even a single letter to the editor about this? Why did we all sleep through this latest whack at our wallets?
Remember all the fire and brimstone about the $8.5 million rate increase Black Hills proposed last summer that was knocked down to $1.5 million? And the still-unresolved verbal tug-of-war between an “offended” Black Hills and a “truth-hurts” PUC Commissioner Frances Koncilja? Why zilch pushback over this latest $12.9 million gotcha?
That’s because the increase is in the Energy Cost Adjustment, a legal mechanism used by Black Hills, and it usually flies on automatic pilot. It’s already listed on every customer’s monthly bill. If the company’s fuel costs go up, every three months your bills automatically increase to cover the utility’s costs. When natural gas costs to fire up the electric generation stations out by the Pueblo airport increase, Black Hills simply bumps up your bills accordingly.
Neither Black Hills nor their shareholders are at risk when the price of natural gas rises and your electric rates increase. While they are not supposed to make a profit on the fuel costs, they never lose. Ever. Kind of a, “Heads we win, tails you lose” deal, eh?
That makes it tough for businesses in Black Hills’ service territory because they can’t plan on firm costs for electricity. While the company brags on its website, “We’re ‘Improving Life with Energy’ by strengthening our communities through growth and development opportunities,” in fact, growth is stymied by the highest electricity costs in Colorado’s 20 largest cities. Businesses can get whiplash when natural gas prices increase.
In fairness, the $12.9 million figure mentioned above will be the total cost to customers if the latest quarterly increase in the ECA stays at the higher rate for an entire year. That’s not a given. And if the cost of natural gas declines, so will our bills. But long term, we expect that the cost of natural gas will increase.
How can that be? Aren’t we still benefiting from the mega-boom in natural gas extraction from shale gas formations stretching from Texas to North Dakota and east to Pennsylvania? Yes, but it’s not that simple. Here are two reasons for caution:
First, since natural gas costs more almost everywhere else in the world than it does here in the U.S., there has been a recent strong move by the petroleum industry to export liquified natural gas from the U.S. to importing countries. To date, we still import a bit more natural gas from Canada than we export overseas from Texas and Louisiana. But given the number of export facilities that are being built in the U.S. to export natural gas, that equation should change soon if it hasn’t already. And as we export more, our domestic prices for natural gas likely will increase.
Second, believe it or not, the cost to drill and “frack” for natural gas in large portions of many shale gas formations in the U.S. is too high to justify the investment at today’s natural gas prices. Until those prices rise, the industry will focus their drilling in “sweet spots” — the most prolific parts of shale gas formations.
Think about that: We’re drilling the best locations at the time the gas is cheapest, just to keep the rigs drilling and the industry’s cash flowing. When those sweet spots are drilled out, we should still have plenty of natural gas available to extract, but it will almost certainly cost more.
Why does this arcane-sounding stuff matter to Black Hills customers? Because when it comes to generating electricity in combustion turbines, Black Hills boasts that they are all-in for natural gas.
The good news here is that, compared to coal-fired power plants, natural-gas generators can be turned up and down almost as nimbly as the burner on your gas stove. That makes them ideal for efficiently following load increases on a minute-by-minute basis. That also makes them ideal for backing up new wind and solar powered generation, which Black Hills admits are more competitive over their lifetimes than new gas-fired generation. (World-class financial analysts at Lazard agree with that cost comparison.)
In fact, there are really only two ways to reduce the risk of higher fuel costs on our electricity bills:
First, the cities and towns in Black Hills’ service territory should get together and take the “off-ramp” in their franchise agreements with the electricity supplier. Once they commit to opting out, they can study their other options for obtaining reliable and more affordable supplies of electricity elsewhere.
Second, they can follow the lead of the Kit Carson Rural Electric Cooperative. Once Kit Carson pays off a five-year buyout of its deal with its current electricity supplier, its CEO Luis A. Reyes Jr. expects its customers’ rates to decline by double digits, in large part because of its investment in fuel-free sources of electric generation.
A double-digit decrease in the long-term cost of electricity? Now there’s a worthy target to aim at. Let’s shoot for the moon. Adios, Black Hills.
Steve Andrews is a retired energy consultant. Susan Perkins is a lawyer in the energy sector. Both are members the network Pueblo’s Energy Future.