Faced with a $550,000 natural gas bill from a single winter storm, the tiny Creek County town of Oilton had no choice but to pass the cost on to residents or consider bankruptcy.
The Tulsa-based natural gas distributor BlueMark Energy was charging Oilton 12% interest a month on its unpaid bill.
The city’s attorney advised that there was little that could be done to fight the bill, so the best route would be to come to some sort of agreement.
“It was either that or they were going to sue us, which would have just bankrupted our town,” said Jerry Green, vice-mayor and chairman of the Oilton Public Works Authority. “Our dilemma was we couldn’t afford to litigate. With the cost of litigation, it may outweigh what we owe.”
Oilton is already facing hard times. The town of about 1,000 people recently lost its only full grocery store, a major source of sales tax revenue. About 22% of residents live below the poverty line.
The money Oilton will pay BlueMark over the next five years will come from a new $25 assessment the town is charging its 280 utility customers on top of monthly gas bills.
Oilton resident Phillip Bruce is a disabled Navy veteran and single father of two, living on a fixed income. He only uses natural gas for his cooking stove and hot water, but with several expensive medications and increasing consumer prices across the board, the extra charge hurts.
“They know you’ve got to have it, so they can damn-near charge you whatever they want,” he said.
Winter Storm Uri in February 2021 brought sub-freezing temperatures to Oklahoma, Texas and much of the Midwest, contributing to massive natural gas price spikes. Oklahoma had the highest cost for natural gas in the nation during the week of the storm. In some parts of the state, natural gas was trading for around $1,200 per unit, compared to an average price of between $2 and $4 per unit.
Faced with natural gas bills for a single month that ran into the hundreds of thousands and even millions, some small Oklahoma towns considered declaring their utility trusts bankrupt.
After the storm, the Oklahoma Attorney General’s Office said it would investigate alleged market manipulation and price gouging in the natural gas industry. A year and a half after the storm, no criminal or civil cases have been filed and there’s no active state investigation. But Oklahomans will continue to pay off the cost of a single storm for decades to come.
Customers for larger utility companies including Public Service Company of Oklahoma, OG&E and Oklahoma Natural Gas are picking up the more than $1-billion tab for those utilities’ expenses during the storm. And at least eight towns have told the state they are seeking help to pay off their winter storm bills.
The Oklahoma Legislature created a new grant program this year that could help some of the towns with $5 million in state funds, but also passes part of the cost of natural gas during the storm on to state taxpayers. Legislation to create the program didn’t address whether natural gas companies should contribute to the fund. From Feb. 7 through Feb. 21, 2021, Oklahoma’s regulated utilities alone spent more than $2.5 billion on natural gas fuel purchases, according to data released by the Oklahoma Corporation Commission.
Allegations of market manipulation
While Oklahoma has dropped its investigation, The Federal Energy Regulatory Commission is still probing allegations of market manipulation that may have caused the price spikes during the 2021 winter storm after an earlier inquiry found anomalies in the natural gas trading.
Tom Seng, director of the University of Tulsa’s School of Energy Economics, Policy and Commerce, said it wasn’t just natural market fluctuation.
“I can tell you, absolutely, positively, there is no way those prices represented the cost to get that gas to these utilities,” said Seng, who was a natural gas trader for years. “It was price gouging.”
Earlier this year, Oklahoma Attorney General John O’Connor threatened to file suit against some natural gas, midstream and marketing companies if they did not sign an agreement extending the one-year statute of limitations, but quickly withdrew the threat when natural gas industry representatives argued they were exempt from the state’s anti-price gouging law.
Months later, in a decision on a case that challenged the state bonds for OG&E’s winter storm expenses, the Oklahoma Supreme Court excoriated O’Connor for failing to protect ratepayers. Justice Douglas Combs wrote that the “utility consumers that the Attorney General should be representing have effectively been left without representation. Their access to counsel lies with the Attorney General. Yet he has failed them.”
A representative for O’Connor’s office said Oklahomans should be thankful for the state’s natural gas industry.
“Our natural gas industry and utilities are to be thanked for keeping Oklahomans safe and warm in their homes while also keeping many businesses from experiencing catastrophic losses during winter storm Uri,” said Madelyn Hague, spokeswoman for O’Connor. “Although our office has no pending investigations regarding this matter, we are working hard to protect Oklahoma ratepayers by urging stakeholders to consider legislation and rule changes that would require utilities to prepare for price fluctuations and take action to blunt market effects on consumers.”
Small town utilities struggle
Tulsa-based natural gas distributor BlueMark Energy has filed lawsuits against three municipal utility corporations and trusts in Oklahoma and Kansas as a result of astronomical unpaid gas bills from Winter Storm Uri. Other municipalities that had contracted with BlueMark to receive gas reached agreements have not been sued, but say the cost of the storm is getting passed on to customers.
Unlike Oklahoma’s larger utilities like OG&E and PSO, municipal gas companies are not regulated by the Oklahoma Corporation Commission, which would be required to sign off on any rate increases.
After the storm, Yale’s Water and Sewer Trust Authority received a $2.4 million bill, compared to its normal monthly payment of around $40,000, said Yale Mayor Richard Adsit. BlueMark also charged 18% interest per month on the unpaid balance.
Money Yale will pay BlueMark could come from the grant program recently created by the state.
Yale approved a settlement with BlueMark on Aug. 9. The city will apply for a winter storm grant from the state for $1.4 million, out of which BlueMark would receive around $1.18 million.
BuleMark sued the Mannford Public Works Authority, the Yale Water and Sewer Trust and the City of Alma, Kansas, for unpaid natural gas bills after the storm. The town of Alma has settled but the Mannford and Yale suits have yet to be resolved.
David Weatherford, an attorney for Mannford, said the city’s issues are somewhat different than others, since it had a contract in place for a set volume at a specific price at the beginning of the month, but were invoiced at a higher rate that was due to the winter storm anyway, resulting in a bill of more than $450,000.
Mannford, a city of around 3,000 with 1,000 natural gas customers, usually sees an average monthly natural gas invoice of around $70,000, Weatherford said. The city did not charge customers a higher rate from the February storm, he said. Rather, Mannford customers pay a set rate.
Mike Fina, executive director of the Oklahoma Municipal League, said of the 63 non-regulated municipal gas systems in the state, many hedged purchases or had a surplus of stored natural gas, Fina said, but not all were as lucky.
The large gas bills from a single winter storm are enough to financially sink some of the towns, Fina said.
“If you look at Yale, they were on the verge of bankrupting their utility. That’s how big a difference a million dollars makes for Yale’s utility,” Fina said. “It’s the difference between bankruptcy and not.”
Some residents face higher bills
BlueMark Energy CEO Michael Westbrock said he was unable to discuss specifics of the cases, since some had yet to be settled, and declined to disclose who BlueMark was buying gas from during the storm and for what rates.
However, much of the issue came down to supply and demand, and his company and other third-party marketers were also having to pay extreme amounts for gas at the time as well, he said.
Wellhead and pipeline freezes during the 2021 storm caused third-party marketing companies including BlueMark to scramble to find available natural gas supplies, Westbrock said. If they hadn’t, he said, thousands of people would have been without gas service.
To keep the gas flowing, he said, the company had to buy gas on the open market, where gas in some cases was selling for nearly 300 times its normal price, Westbrock said.
“It was unlike anything we’ve ever seen before,” he said. “We simply were having to pay a price in order to keep the gas flowing, and I had no control over the price. So it didn’t matter whether the price was $2 or $200. We had a contract in place.”
Westbrock said he believed some producers were benefiting from a rising natural gas market, and were not acting illegally.
In Oilton, Around 60% of the town’s residents are seniors living on fixed incomes, Green said, the extra $25 monthly charge is putting financial strain on some.
“They want it gone off their bill. Hardly anybody understands what happened. We had no control of it,” Green said. “It was all done on the stock market, basically.”
Now the town is hoping to apply for one of the state-funded winter storm grants to help pay off the bill, he said.