February brought record breaking low temperatures across the nation and many communities went without power including some homes in Marion County. Hillsboro residents were warned that they may face some rolling blackouts as well, but fortunately, it never happened thanks to the city’s partnership with the Kansas Power Pool (KPP).
According to Hillsboro Mayor Lou Thurston, who serves on the KPP Board of Directors as the Secretary/Treasurer, KPP is one of two municipal energy agencies in Kansas. It was founded in 2004 and currently consists of 24 municipal electric utilities.
“Municipal energy agencies are not-for-profit, quasi-municipal organizations and organized under state statute with operating policy overseen by a governing body as directed by the statute and approved by the Attorney General’s office,” said Thurston.
He explained that KPP is a member driven agency that is comprised strictly of Kansas municipalities.
“It was organized to take collective action to preserve and invest in the member’s energy facilities to satisfy, in the most efficient manner possible, the members’ collective future energy and transmission requirements,” said Thurston. “KPP operates in such a manner that all members equitably share resources and costs, utilizing member owned generation as well as collectively owned generation assets to provide cost effective and reliable power to its membership.”
This is good for Hillsboro since membership in KPP means local control. Decisions about operating policies, rate-setting, service priorities and community support are all made at the local level. Local control promotes transparency and accountability.
“We are beholden to the citizens of Hillsboro and not to a profit-driven organization outside of our control. Additional benefits of KPP are the combined financial strength of the organization (24 Cities) and the ‘buying power’ that this provides. KPP also owns generation assets, transmission assets that help control electric costs to our users,” said Thurston.
So while Hillsboro’s partnership with KPP was able to keep the rolling blackouts from happening, the cold temperatures led to an extremely high demand for natural gas and the prices for natural gas (critical to run electrical generation in this part of the country) spiked at unheard of levels. It was these costs that created the financial burden that we are now working through.
So what does this mean exactly for Hillsboro?
“The core of it is that the bills [from the weather in February] that KPP received amounted to $42 million beyond what is normally expected due to the outrageous spikes in natural gas prices. Because of the generation that KPP was able to sell in the market, the credits reduced the bill amount to $17 million.
While that is still high, it is manageable due to the fiscal responsibility of KPP,” said Hillsboro City Administrator Matt Stiles.
“This was more than 12 times the February budget for energy cost that was approved by the members before the start of 2021,” said Thurston.
Stiles explained that KPP has a $10 million rate stabilization fund that the KPP Board voted to utilize to help smooth the unforeseen costs out. KPP will also utilize its line of credit to pay the immediate bills.
“One thing is clear, our membership in KPP has once again proven itself to be extremely valuable. Purchasing power wholesale outside of the KPP organization could have led to massive bills which the city would not have been able to pay without outside assistance,” said Stiles.
At a special board meeting on Friday, March 12 the board also took action to begin recovering the rate stabilization fund via an Energy Cost Adjustment (ECA) surcharge of $.01 per kilowatt-hour (kWh) for the next three months until it is determined what the length of time and charge is best to recover the reserve funds. The discussion was around a 24-36 month time period using a surcharge method.
Stiles and Thurston proposed to the Hillsboro City Council that the city that the best option would be directly passing that surcharge through to our retail customers. The surcharge would be shown separately and stop after the repayment period for KPP is completed. The current consumption charge rate for both residential and commercial customers is $.1195 per kWh. If the surcharge were to remain at $.01 per kWh it would amount to an 8.4% increase for the proposed two year repayment period.
“To give an example of what this looks like, last year my personal highest electric usage came in August. My kWh were 2,100 for that month. Taking the 2,100 X .01 would add $21 to my bill. My average usage of approx 1,000 kWh per month would add $10.00 per month,” said Thurston. “While we don’t like having to increase the rate at all, if we were not members of KPP and acquiring power on our own, it could have been much worse.”
Thurston also pointed out that according to the Department of Energy, the average rate for Kansas residential is $0.1221 per kWh while Hillsboro’s rate is $0.1195 per kWh.
So when will the increase begin and how long will it go?
“We are going to be talking about it at the April 6 meeting. The charge will begin showing up on the June bills depending and be tied to the KPP surcharge. The current plan for KPP is to go 24 months, but it may end up being less if the reserve fund is recovered more quickly. Our surcharge will be terminate once the KPP surcharge terminates,” said Stiles.