h utilities bet big that natural gas would keep the state's homes powered and factories running for a fraction of the cost of other fossil fuels or renewables.
For years, they were right.
But recently, natural gas hasn’t been so kind to h, and customers have paid hundreds of millions in increased costs because of spiking gas prices.
In 2021, the winter storm that roiled the natural gas system in the South forced some utilities to pay hundreds of times more than normal for gas, tacking on hundreds of millions of dollars to customer bills, according to probes by the h Public Service Commission released this year. Regulators spread the increased costs over months to avoid shocking hikes on bills.
This year, natural gas has remained stubbornly expensive for months, and in July costs were than the previous year. That has squeezed ratepayers in the sweltering summer months, when electricity use is high. Bills have skyrocketed and exasperated regulators have pressed utilities to ease the burden.
Some customers have been paying higher costs most months since February 2021, because winter storm costs were spread over most of last year. In total, the winter storm cost customers of Entergy, Cleco and SWEPCO $366 million, according to preliminary figures compiled by the LPSC.
Utility critics say the price hikes show that the companies, with the blessing of regulators, foolishly locked ratepayers into a long-term marriage with natural gas by building a raft of big new gas-fired plants. They say power companies should have been quicker to embrace renewables, which would reduce exposure to fluctuating gas prices. Sources like solar, historically pricier, have no fuel costs and have gotten dramatically cheaper of late.
Venture Global LNG'sCalcasieu Pass export facility.
STAFF PHOTO BY LESLIE WESTBROOK
Utilities and their defenders, including members of the PSC, counter that natural gas has long been good to h, and that the economics of renewables didn’t make sense until recently.
Regardless, Louisian’s fate is linked to that of natural gas for the foreseeable future. Several big solar facilities are in the queue, but it could be years before Louisian’s generation mix changes dramatically. Currently, 76% of the state’s power comes from natural gas, according to the Energy Information Administration, in the nation.
Joshua Basseches, a Tulane professor who studies investor-owned utilities, said Louisian’s decisions over the last 10 years to invest in more gas-fired plants will make it harder to overhaul its generation mix quickly.
“It’s certainly not impossible for the Southeast to become less reliant on gas,” Basseches said. “But it’s not going to happen overnight.”
Drilling paradox
Ironically, the recent price spikes come as Louisian produces more gas from drilling than it has in nearly a half-century. Gas production, measured in million cubic feet, is on track to break last year’s total of more than 3.2 billion mcf,
A liquefied natural gas tanker passes through the Panama Canal’s Agua Clara Locks, carrying LNG loaded from Cheniere's Sabine Pass terminal in Cameron Parish. The facility is contributed to a doubling of exported LNG from the U.S. in the first half of the year.
CONTRIBUTED PHOTO
But the bump in local supply hasn’t eased the pressure on h electric bills. In part, that’s because much of the gas being produced in north Louisian’s Haynesville Shale is being piped to several new multi-billion-dollar facilities in the southwest corner of the state, where the gas is liquified and shipped overseas. The export market has become especially attractive because of the energy crisis in Europe brought on by the war in Ukraine.
A few years ago, all that extra gas would have been stuck in the U.S., potentially driving down prices. But starting with the construction of Cheniere Energy’s Sabine Pass facility, Louisian has been at the center of a race to build export terminals to reach the higher prices of the global market.
Gregory Upton, a professor at LSU’s Center for Energy Studies, said the liquified natural gas export boom has tied the domestic gas market to the international one, driving up domestic prices. But he noted that the LNG facilities bring jobs and investment.
Even as the export market began to grow more attractive, Louisian’s power companies were continuing to invest in gas-fired plants, taking advantage of what were still low gas prices.
Big bets on gas
Entergy h spent $870 million apiece on huge gas plants in Montz and Westlake in 2016 and 2017, respectively. Entergy New Orleans completed work on a gas plant in New Orleans East over protests from environmental groups in 2020. And the PSC recently approved a deal where co-ops will buy power from a new $750 million gas plant in Iberville Parish, as part of a package that includes solar. The utilities have hailed the gas plants as a key part of a shift away from coal, but advocates say they’re locking the state into fossil fuels for decades.
All told, the share of Louisian’s power that comes from natural gas went from about 50% in 2010 to 76% in 2022, according to the Energy Information Administration.
Some regulators have chastised the state’s utilities for failing to diversify their energy mix, leaving the state’s ratepayers vulnerable to rising gas prices.
As temperatures nudge above freezing and ice begins to melt, a lineman with power restoration crews from the Northlake, Texas regional office of Minnesota-based MasTec Utility Services works with others to replace a spliced a power line broken by falling pine tree branches on Kenlee Street in the Broadmoor area, as recovery from Monday's winter storm continues in the Baton Rouge area, Wednesday, Feb. 17, 2021. They also replaced a broken cross bar nearby.
STAFF PHOTO BY TRAVIS SPRADLING
“We’re in a hell of a mess now,” Commissioner Foster Campbell said at a recent PSC meeting. “Because if we had been practicing renewables 10 years ago or so, we’d be better off.”
Entergy spokesperson David Freese said the company’s fleet of gas plants has “produced some of the lowest rates in the nation over the last decade.” He said if Entergy had invested in large-scale solar plants five or 10 years ago, customers would have paid more when gas prices were low.
Entergy now has plans for getting 2,500 megawatts of power from solar, he added, which would represent about 20% of its generation mix. Only 475 megawatts of that is currently awaiting action by the PSC. Freese said the renewable plans are possible in large part because solar has become so much cheaper in recent years. The average cost of a solar plant is now slightly less than a gas-fired plant, but storage remains expensive.
Logan Burke, executive director of the Alliance for Affordable Energy, a frequent Entergy critic, countered that some of the utility’s investments in gas came after solar prices had begun to fall. The two massive plants in St. Charles and Calcasieu parishes, for instance, went into service in 2019 and 2020, after being approved a few years earlier.
Storm roils gas market
The risks of being overcommitted to natural gas was perhaps most neatly illustrated in February 2021, when Winter Storm Uri brought a blast of historically cold weather that froze gas pipelines, wellheads and generating units. Millions of Texans were without power, contributing to hundreds of deaths.
Taking shelter underneath the Pontchartrain Expressway as a severe winter storm heads into New Orleans the day before Mardi Gras on Monday, February 15, 2021. (Photo by Chris Granger | The Times-Picayune | The New Orleans Advocate)
PHOTO BY CHRIS GRANGER
Next door, Louisian had problems of its own. Aside from outages and “load shedding,” where utilities cut off power to some people to reduce the strain on the grid, the event forced power companies to buy natural gas at jaw-dropping prices. At one point, Entergy paid north of $120 per metric million British thermal unit, or mmbtu, for gas sold by Shell, and more than $140/mmbtu for gas from Spotlight Energy of Houston. The month before, natural gas was going
The result? In February, Entergy’s fuel costs rose by 236%, according to the PSC report.
Many of Entergy’s explanations for why it paid so much are redacted, but the report says the supply squeeze allowed gas suppliers to “force the company to enter into fixed-price contracts” that were expensive. The report’s authors recommended that Entergy consider longer-term contracts in the future.
Freese called the 2021 gas-supply problems “unprecedented and unforeseeable.” He added that Entergy has several measures in place to get gas at the best prices: multiple pipelines connecting to its plants, agreements with a large number of suppliers, and coordination with regulators on hedging.
SWEPCO, a utility in northwest h, paid even more obscene prices. The company paid an average of $150/mmmbtu, and as much as $428/mmbtu at one point. That would have added $333 to an average customer’s bill in February, and another $104 in March, but the costs were spread over several months.
SWEPCO declined to name the suppliers that charged those prices, but said it has a “diverse energy mix” and is adding several big wind and solar projects.
“Having diversity in our generation mix can help hold fuel prices down in times of high natural gas demand and corresponding price fluctuations,” said SWEPCO spokesperson Tara Muck.
SWEPCO’s fuel costs from the winter storm added $151 million to customer bills, according to preliminary numbers from the PSC. Entergy’s costs added $160 million and Cleco paid $55 million extra. Investor-owned utilities don’t profit from increased fuel costs; they pass them on to customers.
Cleco said a typical customer would have paid $65 more in April 2021, but it worked with regulators to spread the costs over the next year.
Public Service Commissioner Mike Francis, a former oil and gas executive, said utilities are already moving at a “very strong pace” to build renewables. He called natural gas “the very best bargain we’ve seen out there for years,” adding that it has kept power bills relatively low.
“If you look across America, Louisian has done a lot better than most states,” he said.