pipeline explosion

A natural gas pipeline explodes near Shelley, British Columbia, in October 2018.

A pipeline explosion last year in Canada is having ripple effects in Southwest Washington and beyond.

Washington residents face a nearly 14 percent natural gas rate hike this spring, local businesses are seeing higher utility bills, and officials at Cowlitz PUD say it’s taken a complex investment strategy to protect electricity customers from being affected.

“We don’t have all the final numbers yet,” said Steve Kern, PUD general manager. “But I’m sure that when the dust settles, there will be some pretty big losers and some pretty big winners from the volatility of natural gas prices.”

Natural gas prices at Washington’s Sumas Hub station, at the Canadian border, have spiked and plummeted since October, after an explosion caused a prolonged closure of Canada’s Enbridge pipeline at the same time as other West Coast production was reduced for maintenance, said Mark Hansen, spokesman for Cascade Natural Gas. An abnormally cold winter compounded the problem, as homeowners and businesses cranked up the heat, he said.

“Prices were 60 percent higher in November, December and January than we expected,” Hansen said. “Our gas costs were about $48 million higher than we were anticipating.”

Cascade Natural, which serves the Longview-Kelso area and surrounding areas, can’t change rates without approval, so the company has asked the Washington Utilities and Trade Commission to allow it to charge more over the next two years to make up for that loss. Across all customer categories, rates would go up 11.94 percent – with residential customers seeing rates climb 13.88 percent, or about $6 per month, on average.

While the Enbridge pipeline is back online, natural gas prices have stayed high. When a cold snap in late February and early March pushed up demand for gas-fueled electricity and home heat, the cost of gas at the Sumac, Wash., natural gas hub surged to a record high of $200 per million British thermal units, or btus, the Bloomberg business news service reported.

Federal figures show that only about 7 percent of power generated in Washington comes from natural gas-fired plants, but that electricity plays a critical role in smoothing out fluctuations in available hydro and solar power. With gas prices high, peak electricity delivery costs surged as well – trading as high as $1,000 per megawatt-hour in early March, according to Bloomberg.

Fifteen years ago, a spike like that could have been devastating to Cowlitz PUD. Though a large majority of the utility’s electricity comes from hydropower sold by the the Bonneville Power Administration, the PUD also buys power on the open market, as needed, to meet consumer demand.

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In the early 2000s, the Enron energy price manipulation scandal pushed up the market rate of power, prompting rate increases of 30 percent and 45 percent for PUD rate payers. That ultimately led the utility to develop a strategy of hedging to try to protect itself from big spikes in electricity costs.

“When you buy homeowners insurance for your house, that’s a form of hedge,” Kern said, to explain the utility’s approach. “If your house burned down, you would not want to take that risk.”

By locking in how much it will pay for market power sometimes years in advance, Cowlitz PUD may sometimes pay a little more than it has to – but it’s also protected from huge surges in pricing, so it can keep rates predictable, he said.

Cowlitz PUD customers should not expect a significant rate change this year thanks to that hedging strategy – but some businesses may not be so well protected. A handful of very large energy users in the county buy power at market rates. The electricity is delivered by the PUD, but the rates these businesses pay are determined by the market and their own hedging strategies.

Norpac buys power under such an arrangement, said David Richie, a spokesman for the company. He declined to elaborate on how fluctuations in natural gas and electricity prices are affecting the Longview company’s operations. “Natural gas is a small portion of our portfolio,” he said.

Kern at the PUD also declined to comment on how Norpac might be affected by spiking gas prices. “We don’t see all the hedges they may be putting in place, so I don’t know how they are affected,” he said.

As to the future of natural gas prices – and how power costs will change as a result – the experts say their crystal balls are cloudy.

Hansen at Cascade Natural Gas notes that his company can’t predict whether pipelines it does not control may rupture again, and that fluctuations in the weather play a big role in how much gas consumers buy.

“When you have major volatility like this, it can create an expectation of more volatility,” Kern said. “Once we get through this summer, I think we’ll see things calm down a little – but even then we could see volatility.”

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