Gas spikes slam Humboldt

City leaders declared an 'extraordinary financial emergency' for Humboldt as natural gas prices spiked during the two-week winter storm. The city could owe $1 million for two weeks of gas; its annual budget for gas is $375,000.

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February 23, 2021 - 9:44 AM

The price of natural gas spiked during last week’s storm. Photo by tOrange.biz

HUMBOLDT — City leaders officially declared an “extraordinary financial emergency” for Humboldt Monday night in response to recent spikes in natural gas prices.

Residents and businesses can expect an 80% increase in their per unit usage charges in statements issued later this week, Cole Herder, city administrator, told council members at a specially convened meeting where they voted on the resolution.

Households typically consume anywhere from 10 to 60 units a month, Herder said. 

Hopefully, the declaration overstates Humboldt’s predicament once things shake out, but Herder said he doesn’t expect to know more until “at least March.” 

Since 1992, Humboldt has been in partnership with the Kansas Municipal Gas Association to purchase its natural gas along with 48 other Kansas municipalities. 

The recent two-week cold spell held the entire Midwest in its grip, sending the price of natural gas soaring.

Herder said Humboldt normally pays $3 for MMBTU (one million British thermal units). In less than two weeks, that price skyrocketed to $622.785.

Almost as suddenly the price plummeted. On Monday, natural gas was selling for $4.385 per MMBTU.

Herder is convinced the roller coaster is due to “market manipulation” — price gouging.

EVEN SO, Humboldt is on the hook for an immediate $49,022 payment to KMGA to go toward a $1 million advance payment that one of the consortium’s suppliers demanded during the crisis. KMGA uses about 20 suppliers. Herder said one of those suppliers told KMGA that in order to reserve $30 million worth of gas for the weekend, it must pay $1 million in advance.

“So that’s our share,” Herder said. “It’s also one of the problems of an unregulated market,” he said. 

The city usually charges $3.63 per unit. The upcoming bill will reflect a charge of $6.54 per unit based on meter reads from last week. 

As for how the city will fare in the long haul, Herder is hoping for intervention, divine or otherwise. 

“Gov. Kelly has called for the Federal Energy Regulatory Commission to investigate possible market manipulation,” he said.

“I’m hoping that KMGA will hold off for a few months before it demands payment so that officials can determine there wasn’t any price gouging going on. 

“It’s just suspicious that the day after President Biden said he’s going to look into this the price plummets,” Herder said. “Again, that’s the trouble with an unregulated industry. You can have pockets of exploding prices when you’re vulnerable.”

On Monday, U.S. Sen. Jerry Moran also announced he would seek federal support for communities hit hard by the spike in gas prices.

“I respect KMGA for doing what they were supposed to do: getting us gas. I’m not saying we don’t owe them the money. I’m just hoping it’s not this much,” Herder said. 

Humboldt could owe in excess of $1 million for two weeks’ of gas. The city budgets $375,000 for gas for the entire year; $35,000 a month. 

Herder said he’s been trying to prepare residents for the severity of the situation, including issuing a Code Red during the cold spell warning people to lower their thermostats because of the increased cost of gas. 

Even so, council members know it’s going to come as a shock.

“What am I supposed to tell people when they get their bill?” asked newly appointed council member Sarah Hart.

“We’ll try our best to not let the full effect of this be passed on to the people,” said council member Paul Cloutier. 

Herder agreed, saying “Once we know what dollar amount we’re talking about, then we’ll need to decide whether we absorb it, get a loan, or pass it on to consumers. 

“That’s a discussion for later.”

Herder added, “I anticipate something is going to reduce the cost in the form of concessions from suppliers and relief at the federal level.

But I have no facts to back that up at this point.”

HUMBOLDT purchases its gas in stages. One-third is purchased several months in advance; another third is purchased one month in advance, and the remaining third is purchased on a daily basis to prevent over-buying. 

“This isn’t like Humboldt made a mistake. If we consistently bought excess gas to cover this once-in-a-40-year event, then we would have been wasting money for 39 years,” he said.

Herder commended local residents and businesses for their cooperation during the cold spell. 

Of special note was B&W Trailer Hitches, Humboldt’s largest consumer, which essentially shut down for the better part of a week in order to ease up the city’s overall consumption.

“They idled 500 employees and let work pile up for the benefit of everyone else,” Herder said. 

The February billing period, which goes from Jan. 20 to Feb. 20, will reflect 16,833 units, up from 13,045 units billed in January. 

“Overall, that’s not significantly higher,” Herder said. “So during the extreme cold, it is obvious that businesses and residents did conserve.” 

HERDER was to present the city’s resolution declaring a financial emergency to Allen County commissioners this morning in expectation they will declare the county as a state of Local Disaster Emergency. 

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