If Minnesota regulators are mad about natural gas price spikes, why are they making them more likely?
The Minnesota Public Utilities Commission (PUC) is mad about the massive upcharge in natural gas bills resulting from supply shortages in February’s polar vortex, which will cost the average Minnesota household an additional $350, spread out over the next 27 months.
This begs the question: if PUC commissioners are so mad about rising natural gas costs, why are they enacting policies that will make price spikes more frequent and more expensive in the future?
Natural gas is the primary heating fuel used in Minnesota, but it is also being used more frequently to generate electricity. This is OK in the summer when demand for natural gas for home heating is virtually nonexistent, but it is a massive problem in the winter when demand for home heating is high.
Demand for natural gas is even higher during events like the Polar Vortex because wind turbines have a bad habit of generating little power when it is needed most. The graph below shows wind and natural gas generation during the February 2021 Polar Vortex.
As you can see, the demand for natural gas for electricity generation increases as generation from wind turbines declines. We would expect this because natural gas is used to “back up” wind turbines to make sure we have enough electricity when the wind isn’t blowing.
One saving grace for natural gas consumers was the fact that Minnesota still has a large fleet of coal and nuclear power plants. Unfortunately, the PUC is actively working to shut down the coal plants, which would put even more strain on natural gas supplies during future Polar Vortices.
The graph below shows generation from wind turbines, natural gas plants, and a future natural gas generation scenario if all of Minnesota’s remaining coal plants were shut down. These numbers were calculated by finding the average hourly generation of Minnesota coal plants in February and adding this generation to the amount of electricity generated by gas plants.
As you can see, demand for natural gas would have been substantially higher during February of 2021 if Minnesota’s coal plants were not operating. Sadly, the PUC’s actions are making price spikes more frequent and more severe in the future, which should be blindingly obvious to the Commissioners.
This doesn’t appear to be sinking in, unfortunately. The Star Tribune reports:
“This kind of behavior in the marketplace is inappropriate in a regulated industry,” said Commissioner John Tuma, pointing out reports of price gouging by gas industry middlemen during the storm. “We need to figure out what happened and figure it out quickly.”
The gas industry may deserve scrutiny for its role in supply shortages, but the PUC needs to look internally to address the fact that they are essentially mandating future price spikes into existence by prematurely retiring our coal-fired power plants and approving plans to rely on wind, solar, and more importantly, natural gas in their stead.
Rather than pointing fingers and deflecting blame, the PUC should be actively examining how Minnesota’s natural gas system will be affected by this increase in natural gas consumption for both electricity demand and home heating. This examination must include an honest assessment of whether we need more natural gas pipelines to transport this gas during conditions like the 2021 Polar Vortex.