Kansas lawmakers approve $100 million in loans for cities hit by huge natural gas bills
Louisburg, with 4,300 residents south of Overland Park, typically pays $100,000 in February for natural gas to heat homes and businesses.
After last month’s deep freeze, the city faces a monthly bill of $3.8 million.
“As of this writing the City of Louisburg does not have the operating or reserve funds to pay the expected natural gas bill of $3,800,000 if/when it comes due,” city administrator Nathan Law wrote in a Tuesday letter.
Kansas cities with municipal-owned utilities are facing catastrophic energy bills in the wake of last month’s bitter cold, which led to rolling blackouts across the region. Local officials are warning the coming invoices could bankrupt some communities.
Both large and small utilities struggled under skyrocketing natural gas prices and intense demand. But city-owned utilities, with smaller emergency funds and little ability to take on debt, were especially strained by the price surge.
The Legislature on Wednesday passed a measure to create a $100 million loan program to quickly give cities cash to pay the upcoming bills. Lawmakers approved the proposal just one day after it was introduced -- extraordinarily swift passage of a massive spending bill.
The House passed the bill unanimously. The Senate vote was 37-1; only Sen. Alicia Straub, Republican of Ellinwood, voted no.
The speed reflected the dire warnings of city officials, who said that without aid numerous communities would be left in financial ruin in a matter of days. Gov. Laura Kelly said she planned to sign the bill before the end of Wednesday
“I have never heard such desperation from people begging for a solution from someone,” said Amanda Stanley, a lobbyist with the League of Kansas Municipalities.
Kansas’ largest municipal utility, the Board of Public Utilities in Wyandotte County, supported the loan program. The BPU, which has a stable and diverse portfolio of energy as well as long term power purchase agreements, was not affected enough by the February freeze to consider applying for a loan itself.
“We are not in the same shape as a lot of these smaller utilities but we recognize how strained some of them are going to be,” said BPU spokesman David Mehlhaff.
More than 50 municipal-owned utilities supply natural gas in Kansas and nearly 118 municipal-owned utilities provide electricity -- covering about 16 percent of the state’s residents. Many of those operations have been bracing for financial pain after keeping gas flowing and lights on.
In southern Kansas, Winfield, a city of 12,300, normally pays $1.6 million a year for natural gas but is looking at a February bill of nearly $10 million. The city estimates a residential utility bill of $133 a month would soar to $1,731.
“For both residents, businesses, and industry alike, this could mean the difference in staying afloat financially and keeping Fortune 500 manufacturing jobs right here in Winfield,” city manager Taggart Wall told legislators.
Argonia, a 500-resident city in southern Kansas, faces a possible bill of more than $500,000. It typically pays $9,000 a month. “We have many elderly and fixed income families that absolutely will never be able to afford such a cost,” city clerk Tara Pierce said.
Denison, a 187-person community north of Topeka, is on the hook for $241,000.
“The city cannot write that check,” city council president Vicki Wold said in a letter to lawmakers.
House Speaker Pro Tem Blaine Finch, an Ottawa Republican, said communities last month were faced with a choice between supplying gas to keep people warm and paying a “king’s ransom.”
While the proposal enjoys widespread support, some lawmakers fear residents and businesses will still ultimately bear the burden of last month’s cost spikes.
“This is a good bill,” said Rep. Rui Xu, a Westwood Democrat, “but no matter what, it’s going to come back down to the ratepayer paying it over 10 years.”
Straub, the only legislator to vote against the bill, said consumers shouldn’t be held accountable for the charges. “By accepting these low-interest loans, in some way it’s like we are acknowledging that somehow the consumer was at fault for this,” she said.
The Kansas Corporation Commission, which regulates investor-owned utilities like Evergy, issued an emergency order on Feb. 15 that, among other things, allowed utility companies to keep track of the extraordinary costs it incurred during the cold snap. Evergy, which provides electricity to much of eastern Kansas and the wider Kansas City region, could defer costs on its balance sheet and later present those costs to the KCC as part of any request to adjust electric rates.
Gina Penzig, an Evergy spokeswoman, said that the company will work with the KCC and the Missouri Public Service Commission to make sure costs associated with the extreme cold are spread out over time to mitigate the effect on prices. Evergy estimated that the cost to procure natural gas between Feb. 13 and Feb. 19 was $300 million.
Evergy officials have said that the company was pleased with how it fared during the historic freeze and that its costs were significantly lower than those of utilities in other states that report to the Securities and Exchange Commission.
“As a general matter, we expect to be able to recover the excess costs associated with the event,” said Evergy chief executive David Campbell during a Feb. 26 call with analysts. “The recovery is likely to occur over time to smooth the impact to our customers.”
Staff at the Kansas Corporation Commission, which regulates utilities in Kansas, is asking the commission to open seven separate, company-specific investigations into what happened and how to handle costs going forward. The Missouri Public Service Commission last week opened a case “to investigate Missouri’s electrical and natural gas utilities’ preparation for and response to Missouri’s February 2021 extreme cold.”
Gov. Mike Parson hasn’t ruled out aid, but has previously said he wanted an investigation into possible price gouging. Some Kansas legislators also expressed concerns about gouging but said swift action was needed.
“The reality of it is, whether that is found to be true or not, by the time an investigation is done and it is litigated and a settlement is reached, could be two, three, four years down the road,” said Kansas Sen. Jeff Longbine, an Emporia Republican. “And that will not keep power on to our municipalities in the meantime.”
The Kansas loan program is designed to provide cash fast. Under the measure, cities will be able to apply for loans with interest rates set at 2 percent below market rates. They would have up to 10 years to repay, allowing utilities to spread the cost of the crisis over time.
The $100 million for the program would come from the state’s idle funds — money not yet sent to agencies for spending. It’s often invested in the meantime, where it earns roughly $50 million a year in interest.
State law prohibits officials from tapping more than 10 percent of idle funds for other uses. Treasurer Lynn Rogers, who would administer the loan program, said $100 million is less than 10 percent of the idle funds value, which he said is about $3.2 billion.
Kimberly Gencur Svaty, a lobbyist for Kansas Municipal Utilities, said $100 million would be enough to take care of the “crux” of the crisis. Like others, she emphasized the utilities have just days before crippling bills start coming due.
“It is not a bailout … it is simply a backstop,” she said.
The Star’s Katie Bernard and Jeanne Kuang contributed reporting
This story was originally published March 3, 2021 at 12:48 PM.
