Gas prices hit rock bottom for utilities

It was like buying a $400 iPhone for $4, or a Big Mac for 3 cents.

Colorado Springs Utilities hit on a unique bonanza this week when events converged to sink natural gas prices to the lowest point in a generation.

Gas, which normally trades at $3 to $4 per million British thermal units (MMBtus) this time of year, sold for 2.6 cents starting Monday. An average home uses about 430 MMBtus per year.

“In my lifetime, I don’t remember ever seeing anything like that,” Utilities CEO Jerry Forte told the Utilities board on Wednesday. “Gas was sold for whatever you wanted to pay for it.”

Not only did city-owned Utilities save $850,000 in the gas it sells to customers, it also made $1 million from power sales as it slashed its generation cost by using gas instead of coal to fire its electric plants.

The city also stored 20,000 MMBtus at the low price in depleted oil and gas veins that serve as underground storage caverns in northeast Colorado and Wyoming. The utility couldn’t store more because most of its 3.7 billion cubic feet of capacity was filled through normal programs that capture gas when prices are low.

Joe Holmes, Utilities’ senior energy supply trader, said below-normal rates began in late August after scheduled pipeline maintenance in Colorado reduced the system’s capacity to export out of the Rocky Mountain region.

That meant gas supplier Colorado Interstate Gas dropped the price — at times below $1 per MMBtu — and Springs Utilities jumped on it.

But the bottom dropped out when a fire at the Cheyenne Plains Compression Station in Cheyenne destroyed a compressor station.

“That stranded about 800,000 MMBtus a day starting on Sunday, Sept. 16, that no longer had transport capacity to get out,” Holmes said. “That just floored prices. There was no way to get it out, so it wasn’t worth much at all.”

When Utilities traders came to work Monday morning, CIG and other suppliers seemed to be giving gas away.

“I’ve never seen prices get down around the nickel range,” said Utilities energy supply manager Janet Feltz, who’s been in the business for 20 years. “It was the confluence of maintenance happening at the same time as a fire.”

Utilities bought about 361,000 MMBtus from Sept. 11, when the pipeline maintenance was under way, through today to resell to customers. That’s not much, because there’s not many gas-fired furnaces in homes and businesses running this time of year.

The bigger payoff came by firing Drake Power Plant with gas instead of coal. The plant can handle either fuel, so when gas prices dropped, officials converted its fuel source.

Nixon Power Plant about 20 miles south of Colorado Springs can’t run on gas, but the neighboring Front Range Power Plant that Utilities owns, with Public Service Co. of Colorado, runs solely on gas.

The plant doesn’t regularly run at full blast, because the city relies on its plants that burn coal, traditionally a cheaper fuel.

“It varies how much it produces depending on the price of gas,” Feltz said. “When gas prices get below $2, it is cheaper to burn gas than it is to burn coal, which is an unusual situation.”

Utilities upped its power production at Front Range, using the cheap gas, and began selling to other power companies.

“We’ve made a tremendous number of sales through today,” Feltz said Thursday. “When you’re generating around $10 (per megawatt hour) and selling for $30, you can see how you can rack up some margins there.”

She estimated the city would net $1 million from the power sales from the cheap gas, “so that further reduces cost to our customers.”

Feltz and Holmes said juggling the right amount of gas during glut times is tricky.

Traders have to be sure there’s a place for the gas. Those who purchase too much can be subject to penalties imposed by pipeline owners. That’s because when buyers can’t take what they order, the pipeline becomes unstable, Holmes said.

“They impose penalties to make sure people follow the rules,” he said, noting fines can run up to $72 per MMBtu. “That would have made cheap gas not very cheap.”

That’s why the city was careful not to push the maximums through its plants. If one of the plants broke down and there was no place to put the gas, the penalties would have far outstripped the savings.

Prices began climbing again Thursday after the pipeline companies overcame the fire-induced interruption, but the past few weeks will go into the record books for Holmes and Feltz.

“It’s been a banner month,” Feltz said. “It’s been an interesting time to be in the energy trading business.”

CONTACT THE WRITER: 636-0238 or pam.zubeck@gazette.com