Huge Winter Storm Gas Bills Push Cities to the Brink

ISTOCK.COM/BRYNGELZON

 

Connecting state and local government leaders

The freezing temperatures that lingered over much of the country last month led to astronomical natural gas prices and put some cities on the verge of bankruptcy.

This story was originally posted by Stateline, an initiative of the Pew Charitable Trusts.

The tiny city of Denison, Kansas, came to the brink of insolvency so fast last month that its leaders hadn’t figured out how to begin the bankruptcy process.

“We don’t even know how to go under,” said Vickie Wold, the city council president. “How the city fails, what happens here—we’re just hoping and praying.”

Denison has fewer than 200 residents, and in a typical February, the city pays about $4,000 to provide them with natural gas to heat their homes. Last month, the bill came to $242,498. 

“We can’t write that check,” Wold said. “There’s no way we can pay that, and we can’t pass it on to these people, some of whom are struggling to keep their utilities paid as it is.”

Many cities in the Midwest are facing a similar crisis. A variety of towns large and small operate their own municipal utilities, providing services such as gas, electricity and water to residents. Some small towns exist as political entities primarily to provide those services.

Much attention has been paid to a relatively small number of Texas customers who received massive gas bills during February’s storm. But in much of the country, municipal gas utilities and natural gas-powered electricity providers are the ones that owe huge amounts of money.

The polar vortex that hit on Presidents Day weekend limited the supply of natural gas, which drove up prices. As infrastructure failed at the same time demand for gas spiked, the cost for natural gas on some pipelines skyrocketed to hundreds of times its typical level, forcing cities and utilities to pay unheard-of prices or let their customers freeze.

Fortunately for Denison, Kansas lawmakers moved rapidly to create a loan program for struggling cities. The town just received $192,000 to cover costs from the storm, which it will pay back over 10 years. Other states are acting as well. Illinois and Minnesota have created or proposed loan programs to allow cities to pay their bills in the short term, while giving them years to spread out the costs to their customers.

In many areas, large utilities like Xcel Energy were also hit hard by the gas prices, but their cash reserves and ready access to capital make them less vulnerable than small towns with tiny budgets.

Kansas lawmakers are considering a bill to help large, investor-owned utilities manage their debt, but some already have borrowed money from the private sector to help with their storm costs. The sense of urgency for small towns facing bankruptcy was much greater, lawmakers said.

Some state attorneys general have announced investigations into whether price gouging contributed to the crisis, and the Federal Energy Regulatory Commission is also looking into possible market manipulation. Utility experts say it could take years to determine exactly what happened and who benefited—let alone if any illegal activity occurred.

Even if price gouging is found to be a factor, natural gas experts say the wild price swing is a function of the current market structure, where energy prices change daily, though the drastic nature of February’s spike was unprecedented. 

In the meantime, cities say they’re trying to hang on. Officials predict it will take years to dig out from this crisis. And as climate change amplifies extreme weather events, they fear there’s little to protect them from a future disaster. 

“This is a good opportunity to say, maybe we do need to be preparing more for these unbelievably large superstorms,” said Kimberly Gencur Svaty, a lobbyist for municipal utilities in Kansas. “Sometimes you have to have that scenario that's huge and eye-opening to get the regulators and the industry to say, ‘We cannot let this happen again.’”

‘A Dire Situation’

Roughly 1,000 municipalities nationwide have natural gas utilities, 53 of which are in Kansas.

Leaders in Kansas acted quickly to help their beleaguered cities in the aftermath of the storm. State lawmakers drafted a bill to create a $100 million low-interest loan program, allowing cities that operate their own utilities to borrow money to stay afloat while spreading the cost of the February crisis to customers out over 10 years. Less than 48 hours after the bill was introduced, Gov. Laura Kelly, a Democrat, signed it into law. 

“Some of these cities were threatened with bankruptcy within a week if we didn't pass that bill,” said Kansas Speaker Pro Tempore Blaine Finch, a Republican. “It’s a dire situation, and we had a pretty breakneck pace to get that bill passed.”

Winfield, a south central Kansas city of 12,000, saw its costs for natural gas in February exceed $13 million, far above the $200,000 it usually pays. 

“This is financially devastating, and it very likely sets us back many, many years,” said City Manager Taggart Wall. “It will be a long haul out of this.”

The city has received more than $12.7 million in loan relief from the state and has promised not to send “unpayable bills” to its customers. Residents in many cities will be paying higher bills simply because they used more gas in February, but municipalities are still trying to determine how to recoup their unprecedented costs without putting a huge burden on residents. Wall called the state aid “extremely critical,” but said it’s only a stopgap that will still leave the city with debt for years to come.

“Those six days in February are going to dictate the vast majority of what we do for the next six years,” said Colin Hansen, executive director of Kansas Municipal Utilities, an association that represents municipal-owned utilities across the state.

“[The loan program] was absolutely critical, but it is by no means a solution to the problem,” he said. “It enables a lot of cities that were using words like bankruptcy and insolvency to take a step back from that ledge, but all that does is spread the hurt out for many years.

“We’ve got a number of members that are very concerned if they can remain a viable community with this debt on their backs.”

So far, 50 Kansas cities have applied for $66 million in loan relief.

Other states have also provided aid. Illinois Gov. J.B. Pritzker, a Democrat, directed the state’s Finance Authority to create a $15 million low-interest loan program to help cities with their natural gas costs. The authority has received applications from 13 cities requesting more than $7 million. The cities will have three years to repay their loans.

“It absolutely has been a lifesaver,” said Heather Viele, general manager of the Interstate Municipal Gas Agency, an Illinois-based nonprofit that provides natural gas services in the Midwest. “I’ve never seen government work this fast. Some of our communities don’t have much reserves, and this enables them to spread out their customers’ payments over a longer period.”

In Minnesota, state Rep. Jamie Long, a Democrat, wants the state to offer cities zero-interest loans for up to five years to pay their natural gas bills. The bill would provide $15 million in loans to municipal utilities, with another $100 million designated for those utilities to provide bill credits to low-income customers.

“Municipal utilities have been hit particularly hard,” said Long, who chairs the House Climate and Energy Finance and Policy Committee. “We know a lot of low-income customers in the state are going to be seeing much higher bills. The average cost for a household ranges from $250 to $500, in a time when people are already bearing heavy costs due to the pandemic.”

He’s hopeful that his legislation, which was introduced March 15, will save cities and their customers from unbearable payments.

“The utilities have already taken the hit,” said Jack Kegel, CEO of the Minnesota Municipal Utilities Association. “It's the first time that anybody here has seen prices go up that much. By the time the polar vortex moved on, some municipal gas systems had spent their entire gas purchase budget for the year. Unless somebody else comes up with some money, all of it gets passed on to customers.”

'We Don't Have Much Left'

Cities that operate utilities in other states, including South Dakota and Oklahoma, were hit equally hard by the gas price spike, but lawmakers in those states have not yet introduced aid programs. That’s left places like Crooks, South Dakota, in deep trouble.

Crooks faced a February gas bill of more than $500,000, and the small town spent most of its savings to stay afloat. The town expects to pass the cost—about $350 per household—to its 900 customers over a six-month period. 

“It took most of our reserves to pay the bill,” said Mayor Butch Oseby. “We don’t have much left. We had to pay it right away, and it’s going to take six months to get that money back. We’ll end up losing $75,000 to $100,000 over the deal.”

The South Dakota legislature ended its session earlier this month, and Senate President Pro Tempore Lee Schoenbeck, a Republican, said in an email that he did not anticipate any relief bills to help cities that were hit with high gas costs.

In Oklahoma, Senate President Pro Tempore Greg Treat, a Republican, has formed a Senate select committee to examine the issue. Aaron Cooper, Treat’s communications director, said legislation is “in the works” to mitigate the effects of high utility bills for families and businesses, though he did not specify if municipal utilities would receive direct or indirect relief. Once that legislation is finalized, a public hearing will be held in the select committee, he said.

Many attorneys general have said they’ll try to determine whether any laws were broken by energy providers during the weather crisis, and whether an investigation is warranted. They include Oklahoma’s Mike Hunter, Arkansas’ Leslie Rutledge and Kansas’ Derek Schmidt, all Republicans, along with Minnesota’s Keith Ellison, a Democrat. 

Utility experts said it’s unclear whether the cost surges meet the legal definition of price gouging, and the complexity of the natural gas market will make it difficult to determine exactly what happened.

“It's unsatisfying to try to tell these member communities that we really don't know why it happened or where the dollars went, and we can't give you assurances that it won't happen again,” said Hansen, the Kansas utility leader. “It's really frustrating to not be able to point a finger at who benefited.”

Still Vulnerable

Whether any laws were broken, city leaders say the crisis has exposed flaws in the system that need to be corrected.

“It doesn't pass the reasonable test to see the price of natural gas going from the $2 range (per dekatherm) to over $2,000,” said Dave Schryver, president and CEO of the American Public Gas Association, a trade group that represents public gas systems. “It is a commodity, but it's an essential service commodity.”

Officials in small towns say it would be impossible for them to withstand another crisis of this magnitude. 

“If we get the loan and survive this, that's 10 years of making payments,” said Wold, the city councilor in Denison, Kansas. “Another issue like this and I don't we'd even be talking about trying to save it. We'd have to say, ‘That's it.’”

City leaders and utility experts alike say it’s unclear what changes need to be made to prevent future price surges, though such fixes would likely need to happen at the federal level. Several referenced Wall Street trading curbs that halt stock sales when the market reaches certain extremes as the type of mechanism that could be used in energy markets.

“Just like Wall Street has circuit breakers when things are going haywire, there ought to be something in the natural gas market so that a small city does not go bankrupt in two days’ time,” Hansen said. “They truly had no choice—you either turn off the gas to your town and people die or you pay the king’s ransom.”

Carl Pechman, director of the National Regulatory Research Institute, a research arm for state utility regulatory commissions, said the country has shifted rapidly from coal to natural gas for much of its electricity production. That’s left heating gas and electricity providers reliant on the same fuel, making it imperative for the two markets to increase their coordination. 

“This was a perfect storm, but this is an industry that's used to having perfect storms and it's incumbent on this industry to prepare for perfect storms,” he said.

“At the end of the day, the industry can only have so many before customers and political leaders start questioning what's going on.”

Alex Brown is a staff writer at Stateline

FEATURED CASE STUDIES
Powered By The Atlas
New Parking Plaza Adds Capacity & Embraces Sustainability at San Diego Airport
San Diego, CA, USA
Strategic Energy Plan & Energy Efficiency Projects Help Manage San Diego Airport Energy Resources
San Diego, CA, USA
Integrating Complete and Green Streets for Climate-Resilient Sustainable Streets
San Mateo County, CA, USA

NEXT STORY: There’s Only One State Where Falling Behind on Rent Could Mean Jail Time. That Could Change.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.