Kansas energy crisis: heating bills could be 25 times normal in some cities
Ordinarily, the city of Winfield spends about $1.5 million a year on natural gas for customers of its public utility department. During the brutal cold spell a week ago, Winfield had to buy $10 million worth of gas in six days.
“It’s incredible,” said City Manager Taggart Wall. “It’s devastating financial impacts to our customers. A normal bill would be in the $100 range, just natural gas. We’re estimating $2,500 for this event, for one month, if we were just to straight pass that on.”
Winfield is one of dozens of municipal utilities with thousands of customers spread across Kansas, all of which are facing similar dire straits.
“It’s devastating to every single one of our members,” said Gus Collins, Winfield’s utilities director and the chairman of the Kansas Municipal Gas Agency, which manages gas purchasing for a coalition of 49 cities.
No matter the cost, letting the gas system run dry wasn’t an option as temperatures dipped to life-threatening levels across the Great Plains as far south as Texas.
“Our first and foremost (obligation) was to have gas continue to flow during these unprecedented temperatures,” Collins said. “So they were successful there and now we’re strategizing how to meet the (financial) obligation.”
Two Sedgwick County cities, Cheney and Kechi, have municipal gas systems and both are on the ropes.
Usually, they’d pay about $3 for the standard measure of 1 million British Thermal Units of gas. Their prices during the cold spell peaked at $622, more than 200 times the price just a couple of weeks ago, officials in the two cities said.
In Cheney, “We’re faced with sending out utility bills that we fear that the residents and the businesses won’t be able to pay,” said City Administrator Danielle Young. “But at the same time we’re being faced with a bill to pay as well to the gas supplier.
“Over the weekend, it was everything we could do to keep the gas supply on to our residents. Now that’s shifted to the gas supply is secured, what’s the financial impact of this and how are we going to handle it?”
Why so high?
A lot of things had to happen, and they did, to cause gas prices to rocket to levels that were unimaginable a few weeks ago.
One contributing factor was that as temperatures dropped well below zero outside, residents had to run their furnaces more to keep their homes livable.
In Cheney, Young said customers were using about three times as much gas as they normally would at this time of year.
That would have been bad all by itself, but the situation was complicated by a cascade of issues at electric companies across the region.
Wind power, a major part of the Great Plains’ energy supply, was compromised early on as wind turbines iced up and had to be stopped from spinning to prevent the blades from breaking off.
Coal power would usually cover the slack, but the storm conditions left coal piles wet and frozen, reducing the efficiency of the plants. The extreme temperatures also caused spot mechanical breakdowns that further compromised power output.
That left the electric utilities — which don’t usually use much if any natural gas in the wintertime — scrambling to turn on their gas-fired generating units to meet the demand for electricity.
As a result, municipal utilities were competing for the limited supply of natural gas not just with other gas companies, but with the electric companies as well, Young said.
It couldn’t have come at a worse time, as Cheney residents and businesses are still struggling to recover from economic losses caused by the ongoing COVID-19 pandemic, she said.
“Just less than a year ago our businesses were forced to shut down during the stay-at-home order,” Young said. “Most of them came out of that . . . but they all took a hit during COVID. Now they’re going to take a hit again with this and that concerns all of us.”
She said the City Council is planning to address the situation at a special meeting sometime in the next week.
“I sat here and wrote out the options” for the council, she said. “I have more questions than options at this point.”
Kechi, a small and mostly residential community just north of Wichita, usually spends $150,000 to $160,000 per year on natural gas for its customers.
“We spent that in one day,” said City Administrator Kamme Sroufe. “There were six days that (prices) were extremely high, so we’ve probably, definitely, blown our budget out of the water.”
As of Friday, the price of gas had fallen to about $8 for a million BTUs — still high, but not outrageously so.
“It’s good that it’s stabilizing, it’s just how we’re going to handle that six days that were extremely high rates,” Sroufe said.
Kechi had some gas in storage when the crisis hit and city officials are hoping that will at least mitigate the rate shocks somewhat.
“It won’t erase them by any means, but I’m hoping it will at least supply some comfort, I guess,” Sroufe said.
Assistance needed
Customers in Wichita are expected to feel the pain too, but probably less than those in the small cities that have their own gas systems.
Wichita is served by two large commercial gas utilities, Kansas Gas Service and Black Hills Energy.
Those companies generally rely more on long-term gas contracts that lock in prices well in advance of winter demand, which tends to smooth out peaks and valleys in cost.
“We use a variety of strategies to minimize the financial impact when purchasing (gas),” Black Hills spokesman James Williams said in a statement.
Neither of the two major gas providers have released details yet on what kind of increases their customers might have to endure, but they have said they’re working with state government regulators to try to soften the blow.
Municipal utilities tend to buy more gas from short-term and daily spot markets, where prices are more volatile.
That usually isn’t this big of a deal. In fact, municipal utilities often have lower rates than commercial gas giants, because they don’t need to turn a profit, said Wall, the Winfield city manager.
“We’re a city, we’re not for profit,” he said. “I’ve got paneling on the walls in my office, so there is no excessive markup here. We have one of the largest manufacturing sectors in the state because we are one of the most affordable utilities.”
All the municipal utilities are trying to find ways to at least spread out the cost of the emergency over several billing cycles, so customers won’t have to pay it all at once.
They’re also hoping that higher levels of government will offer some kind of relief.
Kansas Gov. Laura Kelly and the Sedgwick and Cowley county commissions have issued disaster declarations, which may free the affected cities to apply for federal aid, if there is any.
Rep. Ron Estes, R-Wichita, said in a statement that he’s working on it in Washington.
“Natural gas prices that are 100 to 200 times normal pricing are unacceptable and will devastate Kansas families, businesses and localities,” he said. “I’m working with state and local officials along with utility providers to take the steps needed to address this crisis, and I’m calling on the Federal Energy Regulatory Commission to use whatever means necessary to protect Kansas consumers.”
Any help would be appreciated, Wall said.
“Somebody’s got to step in,” he said. “Where oh where is the fairness in this? Does the commodity truly cost more than 150 times as much (as normal) to produce? That’s a question that needs to be asked.”
This story was originally published February 21, 2021 at 4:53 AM.
