The February 2021 winter storm was a one-of-a-kind event. Energy utilities were stressed to their limits as frigid arctic temperatures gripped the central United States for a solid week. As a result of this storm event, consumer energy bills have spiked to unprecedented levels. News stories abound of communities and individual customers encountering extraordinary monthly utility bills larger than what they typically spend in a whole year. Here is what happened and how it will affect your energy bill as an Augusta customer going forward.
The Southwest Power Pool (SPP) manages the electric grid and wholesale power market for a 14-state region in the central United States spanning from Montana to Louisiana. Kansas falls under the SPP’s jurisdiction. The City of Augusta is one of 24 members of the Kansas Power Pool (KPP). The KPP is a municipal energy agency created to secure adequate, reliable, and economical electric power for its member cities. In addition to the 11 power plants operated by its member cities, KPP also has a portfolio of power generation resources in Kansas, Oklahoma, Missouri, and Nebraska. KPP utilizes SPP’s transmission infrastructure of poles, wires, and substations to access the electric grid and convey power from its generation resources to wherever it is needed.
The City of Augusta purchases all of its electric power from KPP. Augusta sells all of the electric power it generates to KPP. Augusta’s power plant does not generate very often because it is expensive. Our customers benefit from lower energy bills when Augusta purchases wholesale power from KPP the vast majority of the time. Still, municipal power plants play an important role during emergency events, as evidenced by the February storm. During the weeklong winter storm, a combination of supply failures and historic levels of customer demand caused natural gas prices to spike as electric generation sources of all types (i.e. wind, solar, coal, natural gas, and nuclear) failed during the extreme cold. Municipal plants, including the City of Augusta power plant, were called upon to fill the generation gaps and help stabilize the grid.
Natural gas supplies were so limited that some electric utilities, like Augusta, were not able to procure natural gas to run their generators because supplies were being diverted for home heating purposes. Fortunately, Augusta’s generators are dual fuel and can also operate off of diesel. Other power plants and utilities without dual fuel capability were forced to not operate or to purchase natural gas at prices marked up hundreds of times normal. To give you an idea of the scale of this event, take KPP’s own energy bill as an example. KPP’s budgeted February energy bill to pay SPP was $1.25 million, but SPP’s actual bill to KPP for February totaled over $43.5 million, a 3,500% increase above normal. KPP’s member cities, including Augusta, are responsible for splitting that bill proportionately based on the number of kWh used in each community. If KPP’s member cities are responsible for paying this bill, why aren’t Augusta’s customers energy bills 3,500% higher than normal?
Eight of eleven of KPP’s member cities with generating capacity operated their power plants in response to the February storm. These municipalities generated 3,120,000 kWh between February 15th and February 20th. Augusta produced 1,187,000 kWh (38%) of that total– the most of any member city. This is more electric power than Augusta generated in all of 2020 combined. KPP sold the electricity generated by its municipal power plants to SPP for about $25 million. This reduced the KPP’s financial obligation to about $18.8 million. After years of prudent financial planning from its member cities, including Augusta, KPP had accumulated over $18 million in various reserve funds, operating funds, emergency rate stabilization funds, and lines of credit. KPP’s member cities voted to use the cumulative cash from all of these sources to pay the SPP bill rather than immediately pass these costs on to its member cities and their electric customers. Instead, KPP exhausted its reserves and voted to recoup those reserves through a monthly surcharge of all customers over the next two years (learn more about why a two-year repayment plan was selected).
A number of Kansas cities, especially those operating natural gas utilities like Winfield, faced financial ruin in February and March when bills came due from their energy suppliers. These circumstances led the Kansas legislature to pass legislation with unprecedented speed to create a new $100 million loan fund to help municipal utilities pay their bills so they would not lose access to natural gas and electricity from their energy suppliers in the future. Augusta city staff provided testimony in support of the legislation, which passed almost unanimously through both the House and Senate and was signed by Governor Laura Kelly in record time. This was an incredible lifeline created by the state legislature after much advocacy from groups like the Kansas Municipal Energy Agency (KMEA), Kansas Municipal Gas Agency (KMGA), League of Kansas Municipalities (LKM), and Kansas Power Pool. All of the legislators and advocates deserve our gratitude for being proactive in responding to this crisis.
Despite Augusta’s support for the legislation, we did not seek financial assistance through the newly created loan program. The combination of Augusta’s generating capability, our city’s accumulated cash reserves, and KPP’s prudent financial planning and emergency actions, made application to the state loan program unnecessary. The loan program was created to help cities with municipal utilities pay the “extraordinary” costs for energy beyond their typical budget amounts. Augusta’s February bill from KPP was about 20% - 25% higher than normal. This amounted to about $90,000 in costs beyond our typical budget for the month of February. Our Electric Reserve Fund currently has $1.06 million in cash on hand and our electric operating funds have an additional capacity of about $2.0 million if needed. Given this level of cash reserves and KPP’s decision to spread the costs over the next two years through a $0.01 per kWh surcharge, Augusta’s need did not justify application to the state loan program.
So what does this mean to me as an Augusta electric customer? Your February 2021 electric bill was considerably higher than normal, but a lot of that cost was likely related to a much higher level of electric usage. Even if the temperature in your house remains the same on your thermostat, your HVAC system for heating and air conditioning has to work longer and harder to keep those temperatures stable in extreme weather conditions, which is why you see higher electric bills in the summer and winter months. Total electric customers (customers who do not utilize natural gas for heating) experienced the highest electric bills, but this was largely due to the increase in overall usage. All things considered, independent of usage, the cost of electricity plus the new KPP surcharge for February was about 20-30% higher than normal (which appeared in the EFA charge on your bill). Fortunately, KPP has agreed to credit the City of Augusta back for many of its operating expenditures during the February storm event (i.e. diesel fuel, oil & grease, natural gas, water treatment). The City of Augusta will utilize this credit to reduce customer bills in March.
In summary, February’s bill was quite high but Augusta will offset some of that by reducing March’s bill after we get reimbursed by KPP. Going forward, everyone’s electric bill will be $0.01 per kWh higher for the next two years to pay the surcharge to help rebuild KPP’s reserves and operating balances. Given the range of financial hardships experienced by many other cities as a result of this crisis, Augusta and its customers have fared quite well.
Augusta does not operate a natural gas utility. For more information about what to expect for your natural gas bill, contact your natural gas provider (Kansas Gas Service). Here is what has been reported from Kansas Gas Service so far.