Loan would reduce gas pains

Kansas lawmakers approved plans to offer loans to cities that took a significant financial hit from gas price hikes during the recent cold snap. Humboldt could take advantage of the offer, after receiving a total bill for $1.6 million.

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March 5, 2021 - 3:03 PM

Humboldt city administrator, Cole Herder, points out specific features inside the West Border Station, such as where odorant is added to gas. Photo by Trevor Hoag / Iola Register

HUMBOLDT — Help is on the way.

A bill signed by Gov. Laura Kelly Wednesday could ease the immediate burden  Humboldt faces from its utilities-based financial crisis.

Recall, rate increases on natural gas during the recent cold snap slammed cities across Kansas, including Ellinwood, Pratt, Altamont, Winfield, Lyons, Burlingame and Humboldt, with unmanageable utility costs.

Humboldt’s total bill was $1.6 million, a wallop to both the city and residents.

City administrator, Cole Herder, explains the utilities-based financial emergency in Humboldt, along with proposed solutions such as Kansas Senate Bill 88.Photo by Trevor Hoag / Iola Register

City administrator Cole Herder said, “I have an example of one family whose  bill is typically under $200 a month. Their bill for this month would have been $5,400. That’s an exceptional case, but I just know our residents can’t stand that.”

“And our major manufacturers, it’s just astronomical the amount they’d have to pay,” he added.

“Our customers can’t stand that kind of bill in one month,” Herder lamented. “It would just bankrupt everybody.”

The drastic situation requires a solution.

Herder mentioned that early on there was hope that price negotiations might be made at the supply-chain level, but this would be difficult, he said.

He and others also looked into disaster relief from FEMA, but to no avail.

Utilities might not qualify under any future federal COVID-19 relief, either, Herder noted, and the timeline would be too long anyway.

Enter Kansas Senate Bill 88, which was quickly revamped and rushed through at record speed.

“It will provide up to $100 million in loans to cities that were affected,” Herder said.

Herder further explained that “this legislation allows us to be legal, and to have the loan long enough to help us recover.”

He added that “what we hope is to apply for a loan for the full amount of $1.6 million, and we have up to 10 years to pay it back. I’ve looked at what it would cost per unit, and it would cost about $2 a unit, over the next 120 months to pay that debt back.”

For the next 10 years, then, the cost of natural gas for Humboldt residents would be an additional $2 per MMBTU.

The West Border Station along the Southern Star gas pipeline in Humboldt.Photo by Trevor Hoag / Iola Register

The typical cost per MMBTU is about $3 to $3.50.

“Right now, I think that’s probably the only viable option for us and for our residents,” Herder said, especially since “the money will be made available almost immediately.”

Any course of action must first be approved by the Humboldt city council, however, scheduled to convene on Monday.

“We’ll work together to get this solved,” said Herder. “We don’t want people losing sleep or worrying about how they’re going to pay for this.”

“I appreciate their patience and their trust that we’re going to do the best job we can.”

As for a review and analysis of events in Humboldt, “it’s been a busy couple weeks,” said Herder.

After the cold snap began around Feb. 9, the city received notice from its gas supplier, KMGA, asking consumers to restrict usage. The city did so and asked residents to do so as well via social media.

The Humboldt school system aided the situation by turning down thermostats and declaring snow days, and local manufacturer B&W Trailer Hitches shut down key parts of their operation.

“The residents have been great and the businesses have been great about helping us conserve,” Herder said. 

“We probably should’ve used double the gas we used in January, but we only used 25% more. I know there has been a significant amount of saving on people’s parts.”

Despite the impressive team effort, the situation still took a nosedive.

Herder received word on Valentine’s Day that an emergency meeting of cities had been called, and he immediately knew something was wrong.

The price of natural gas was soaring. First to $329 per MMBTU, then $622.

Again, it’s normally around $3 to $3.50.

“This was for the top third of our usage because the bottom two-thirds had already been bought on the futures market and we had those already secure,” Herder clarified.

By the time the dust settled, however, the situation looked grim.

“Typically we get billed about $35,000 a month,” Herder said. “But we’ve been advised that the estimate for February’s cost will be $1.6 million.”

“Our annual budget for the gas supply is about $375,000.”

Given the radical discrepancy, in response the City of Humboldt declared a financial emergency, and the county also agreed to do so on its behalf.

Herder said he’d likewise been in conversation with legislators at all levels, including Rep. Caryn Tyson, Sen. Roger Marshall and Lt. Gov. David Toland.

“All of them are interested in why this happened and how can we stop it in the future,” Herder said.

As for who he thinks is responsible, Herder absolved suppliers, pipeline managers and the city itself.

“The gas we buy is traded on a daily index,” he said. “So we believe that there were people profiting on the trading of the gas that never had any contact with the gas.”

In short, it seems to have been an issue with price-gouging, he suggested, with callous stock traders cashing in while residents had to choose between going broke and freezing.

The Kansas Attorney General’s Office and the Federal Energy Regulation Commission are formally investigating the situation.

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