(STILLWATER, OKLAHOMA / April 22, 2021) – The state and Oklahoma power providers are continuing to assess the impact from February’s extreme cold weather and how costs will be recovered from customers statewide.
In addition to various steps power providers are considering, the Oklahoma legislature is discussing bills that would establish bonding that could help address the issue. Media reports have quoted possible payment amounts and plans, but it is important to remember that no final decisions have been made for Stillwater. This update provides the latest details.
There are two parts of the electricity equation: the cost of natural gas and the cost of electricity, both of course, affected by the extreme February run-up in the cost of natural gas.
1. The cost of natural gas to generate electricity that Stillwater produced and was consumed through the Southwest Power Pool
Stillwater does not provide natural gas service to customers, but natural gas is a major source for generating electricity. Grand River Dam Authority (GRDA) provides electricity to Stillwater and was hit with record high prices for natural gas. The price for a dekatherm (a unit of energy) of natural gas went from approximately $2.85 a dekatherm (dth) to $428.00 for six straight days.
During the extraordinary winter event, the Stillwater Energy Center was called upon to run 24 hours a day for approximately 10 days to support the electricity needs of the Southwest Power Pool (SPP), which manages the electric grid and the wholesale power market for the central United States. Stillwater was directed by GRDA, which is the City’s market participant in the SPP, to “run at all costs.”
“That meant no matter what the cost of natural gas was, and if the units were available, they were to be online to support the SPP. We were also instructed that we could not take an economic outage,” said Loren Smith, Stillwater Electric Utility Director.
As a result, the City of Stillwater’s natural gas bill to produce electricity for the SPP for February was approximately $15.7 million. Its annual budget for natural gas is typically around $1.6 million a year.
However, the City’s contract with GRDA states that it will purchase all of the energy produced from the Stillwater Energy Center. That energy payment offsets the cost of natural gas as well as pays for variable operations and maintenance cost. In April, GRDA made a “make whole” payment of approximately $4.2 million, which when combined with the energy payment previously made in March for February’s energy production, covered the City’s costs.
Financial impact? NO. Because of the GRDA “make whole” payment there is no financial impact on Stillwater Electric Utility customers related to natural gas purchases.
2. The cost of the electricity that Stillwater purchased and provided to its customers
All electricity producers and providers in the Southwest Power Pool, including GRDA, are determining the best way to be paid for the high cost of energy purchased during the event. GRDA has stated it plans to amortize the cost over multiple years to soften the impact to customers.
“At this point we do not know how many years that will be or the total amount that needs to be recovered” Smith said. “GRDA has committed to use reserve funds to absorb some, but not all, of those costs.”
The GRDA administers a current Power Cost Adjustment (PCA) schedule that allows it to recover costs over 12 months for variations in fuel cost and market revenue, among other costs. Earlier this month, the GRDA board approved a new PCA that allows for recovery of costs for a period of longer than 12 months.
GRDA also announced the earliest the first billing under the new PCA structure will occur is August 5, but may occur later depending on when the Southwest Power Pool makes a final determination regarding any “make whole” payments.
Financial impact? YES. The City will know what it owes GRDA for its electricity for the February event and the plans for payment 30-60 days in advance. It will then pass those details along to its customers.
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