Giant utility bills have small towns, businesses like Templeton Rye wondering if they're getting gouged
Templeton Rye co-founder Keith Kerkhoff is experiencing a nasty hangover from February’s polar vortex: a $54,000 utility bill that’s more than twice what the western Iowa whiskey distillery expected, even for a bone-chilling winter month.
“Nobody ran out of natural gas that I know of,” Kerkhoff said. “Somebody along the line took advantage of the cold weather” and “now we’re stuck with these horrendous bills.”
Kerkhoff isn’t blaming the municipal-owned utility in Manning, which provides the growing company its power. But he struggles to understand why costs spiked so high, so quickly.
The utility shares Templeton’s skepticism. “Let’s call it what it was: It was price gouging,” said Jeremy Carroll, Manning’s utility director. Carroll wants Iowa’s political and regulatory officials to push for an investigation into February’s soaring natural gas prices.
Already, federal regulators and Minnesota and other states have launched investigations into the spike in natural gas prices. In Kansas, exorbitant costs have caused some towns to weigh bankruptcy.
Alex Cutchey, the Iowa Association of Municipal Utilities government affairs director, said the group is closely watching the federal investigation. “Like everyone else, we are concerned about possible pricing gouging,” Cutchey said.
But, he added: “Right now, we have no hard evidence of any market manipulation in Iowa.”
Industry leaders say the Arctic blast that hit Iowa and the rest of the U.S., including southern states unused to such weather extremes, drove natural gas demand to record highs while at the same time gas wells in Texas and Oklahoma froze. That squeezed supplies and sent prices skyrocketing, they say.
One Iowa utility has reported that February’s wintry blast cost it an extra $100 million for natural gas in Iowa. It and other companies are working with the Iowa Utilities Board to lessen the financial hit to families and businesses, primarily by extending how long utilities will have to recoup the costs through higher bills.
The Iowa Association of Municipal Utilities says its members saw wholesale electric prices peak about 240 times higher than typical winter costs and that natural gas prices were 80 times or more above their usual level.
Carroll said Manning’s natural gas customers’ average winter bills have doubled and tripled. And they may be lucky. The state municipal utilities association says some Iowans are fielding post-freeze bills that are four to seven times larger than January’s.
“In some communities, the estimate is closer to 10 times last month’s bill,” Troy DeJoode, the association’s executive director, said in an email.
Manning’s utility is giving customers six more months to pay the added costs, Carroll said. But he’s angry his town’s customers face that expense.
“Our focus should be on preventing this from happening again,” Carroll said. “I want to find out where all that money ended up ... and then how can we limit the exposure” for Iowans in the future.
Carroll said natural gas is key to powering manufacturing in Iowa, a sector that is the second-largest contributor to the state’s economy. It’s especially important in rural Iowa, where about half of the state’s factory jobs are located, an Iowa State University report shows.
Carroll worries that the massive price spikes could make existing or new businesses reconsider operating in the state. “This could have a long-term effect,” said Carroll, who called rural towns the “heartbeat of Iowa.”
“We have to look at ‘How do we get this under control?’” he said.
‘Who do you point a finger at?’
The Iowa Utilities Board, which has regulatory oversight of investor-owned utilities, such as MidAmerican Energy and Alliant Energy, has received 72 consumer complaints so far.
The state agency looks into consumers’ concerns but it doesn’t have authority to open an investigation, a spokesman said. The board also doesn’t approve rates for municipal or cooperative utilities.
The board said it’s monitoring regional and federal inquiries. And Jennifer Easler, the Iowa attorney general’s consumer advocate for utilities, said she’s closely watching state and federal investigations as well.
Easler said her office will scrutinize proposals from MidAmerican, Alliant, Black Hills Energy and other publicly traded utilities’ efforts to recover costs tied to the polar vortex to ensure they’re appropriate.
The Iowa Association of Municipal Utilities said some members have used reserves to partially or fully offset the costs to customers. Many are stretching payments over several months.
Brad Honold, the Coon Rapids Municipal Utilities general manager, said the winter blast cost the town of nearly 1,300 people $177,000 more for natural gas than it anticipated.
The utility’s board dipped into its reserves to cover the added costs, not wanting to add to existing COVID-19-related financial struggles. “The board decided that the reserves were there to provide rate stabilization,” Honold said.
Customers still had to pay for increased gas use — about 30% more than normal — but at normal natural gas rates, he said.
Coon Rapids also saw electricity costs jump from about $20 per megawatt hour to $4,000. Fortunately, the city’s electricity-generating operations, which include a diesel-fueled power plant, will likely offset the added costs. “We might even see a return” from the sale of electricity, he said.
In the cities and towns that are passing on the unexpected costs, it’s creating financial strain for businesses and families.
Kerkhoff, the Templeton Rye co-founder, said he’s asked the Manning utility to warn the company if natural gas prices spike again. He said he would have shut down operations for a few days to avoid paying $20,000 more for power.
The company, however, will have to absorb the costs. “We’re not going to raise the price of our whiskey,” Kerkhoff said, adding that he hopes a federal investigation will result in consumers in Iowa and elsewhere getting a rebate.
“We’re not happy about this, but who do you point the finger at?” he said.