The following is a to-the-day timeline of the severe weather-related utility price spikes experienced by the City of Osawatomie and the actions taken by staff and the Governing Body. A summarized news release regarding this continually evolving situation can be found here.
February 22, 2021 – Following the record-breaking cold weather and utility crisis that took place in mid-February, staff is notified by the Kansas Municipal Energy Agency (KMEA), an association of city utilities of which we are a member, that they are going to have a large bill and member cities would be moving to a weekly billing cycle the next two weeks instead of the regular monthly billing cycle. The reason for this is that KMEA’s Line of Credit that they could borrow against was $5,000,000 and the bill that they were going to get from Southwest Power Pool was for $9,000,000+; this imbalance meant that members needed to provide payment to the group on a more frequent basis to cover the gap in finances. As part of this temporary change in billing, KMEA provided all their member entities with an estimate and told Osawatomie to expect a bill between $700,000 and $1,000,000 for the total cost over the next two weeks (with the caveat it could go up or it could go down). KMEA said they wouldn’t know the final number for the first week’s payment until Friday (2/26/2021), but that we would need to have funds in the bank ready to be withdrawn by 12:00pm on Tuesday, March 2nd. So we were given notice that we needed to have some portion of $700,000 available by the following Tuesday, only two business days away. At that time, we only had about $500,000 in cash on hand in our Electric Utility Fund. We feared we were early in this financial/energy crisis and at this point there seemed to be a lot of guessing, so we started solving for a $1,000,000 problem, not knowing what it might be, but figuring that would give us some cushion.
February 24, 2021 – We amend our previously scheduled City Council Special Meeting Notice for a Special Meeting to be held on 2/25/2021. The only topic to be discussed is Resolution No. 849 – Declaring a Local State of Financial Emergency Relating to the February 2021 Energy Crisis. This mirrors the Miami County Commissioner’s declaration and the City of Louisburg’s declaration, and got the ball rolling on the State bringing assets to bear and helping with the problem.
February 25, 2021 – Working with our Bond Counsel and Financial Advisor, we identified KSA 10-116a which is a State Statute that allows city utilities to issue No Fund Warrants (borrow money) up to 25% of their annual revenues in a Utility Fund, if there is an extraordinary emergency in that utility. City Council meets in a special meeting and Resolution 849 is passed which then gave staff the ability to borrow up to $900,000 in No Fund Warrants. Remember, at this point we are still solving for what might be a $1,000,000 – we don’t know. That ability to borrow $900,000 and use $100,000 in cash on hand would get us to the $1,000,000.
February 26, 2021 – KMEA contacted the city at 10:57 am with what our first bill would be for the period of 2/10 through 2/16: the amount was $195,531.77. We asked if we could expect a similar amount for the following week, and the answer was probably, yes, but it could go up or go down. We then made an assumption that even if it did go up we could probably use some of our cash on hand to pay, but that we wanted to preserve as much cash as possible not knowing how all of this would eventually play out.
March 1, 2021 – We call for a special meeting for 3/2/2021 with the purpose of considering Resolution 850 – Authorizing the Issuance and Delivery of $400,000 in Principal Amount of No Fund Warrants Series 2021 (Electric Utility System). We arrived at that amount by doubling what our first payment was ($195,531.77), based on estimates received from KMEA. The goal from the beginning is to not borrow more money than we need in order to avoid interest expenses.
Simultaneous to all that was happening internally, we and several other cities/associations engaged the State in the problem. A bill was introduced and we submitted testimony in support of what became SB88, which created the City Utility Low-Interest Loan Program.Mike Scanlon, City Manager
March 2, 2021 – The first payment of $195,531.77 is withdrawn. We hold another Special Meeting of City Council so the Governing Body can discuss and vote on Resolution 850, which grants us the authority to issue NFW and sell them to First Option Bank. The Resolution is published, becomes law, warrants are issued, and First Option provides us with $400,000 to both replenish and have cash available before our next payment due on 3/9/2021. We negotiated with First Option Bank and they agreed to buy our NFW at 1.2% APR.
March 3, 2021 – At 2:49 pm we receive our second bill from KMEA, totaling $498,163.32 which covered the period of 2/17 through 2/23. This represents what we believe to be our last “spike” billing for the City of Osawatomie, which brings the total in received spike bills to $693,695.09. This bill is due for withdrawal on 3/9/2021, just three business days away.
March 3, 2021 – In Topeka, SB88 is published and becomes law. The bill was introduced in the morning and voted through both the House and the Senate in the same afternoon. Governor Kelly signs it into law that evening. City of Osawatomie and other municipal utilities are eligible to borrow money from the state at .25% (one quarter of one percent).
March 4, 2021 – State Treasure starts promulgating rules and holds a conference call with municipal utilities to provide an update on the what is now called “City Utility Low-Interest Loan Program”
March 5, 2021 – The City Utility Low-Interest Loan Program application portal opens, and applications are accepted until March 15th.
March 11, 2021 – At their regular meeting, City Council passes Resolution 851 (which tells the City Manager to come up with a plan on how to allocate this bill in the future), Resolution 852 (which authorizes the City to apply to the loan program), Ordinance 3794 (authorizing the City to enter into Loan Agreements between the City and State of Kansas, and to use the first proceeds of the loan to repay the $400,000 in No Fund Warrants issued under Resolution 850 on 3/2/2021). Administration has spent the last week preparing the necessary documents for these proposed Resolutions and Ordinances, as well as continuing conversations with other agencies regarding the issue at large.
March 12, 2021 – City staff completes documentation for a loan request of $700,000 – covering the spike bills of $195,531.77 and $498,163.32 (total $693,695.09) plus other minor associated costs.
March 15, 2021 – State Treasurer Lynn Rogers set the deadline for applications at 5:00 pm on Monday (3/15/2021) for a piece of the $100,000,000 loan program, and funding became first-come first-serve for applications received after the deadline. As of Tuesday (3/16/2021) 53 city utilities applied for $69,519,697.04 in loans to cover extraordinary expenses in either electric or natural gas utilities. The portion we applied for ($700,000) was approved for payment, which we received by ACH on 3/17/2021.
March 19, 2021 – The City paid off the NFW at First Option Bank as was specified in Ordinance 3794. At this point the City has a $700,000 loan with the State of Kansas with a current annual interest rate of .25% (one quarter of one percent). This rate is adjustable every January. The loan from the State was 1% below what we offered by First Option Bank, so we took advantage of the lower interest rate.
March 25, 2021 – At the regular City Council meeting, the City Manager provided a proposed payment framework (seen below) for the City Council to consider, presented as Resolution 857. After much discussion, and with feedback from residents in attendance, Council voted to approve Resolution 857 and a 36-month framework for calculating collection of the spike charges. A final calendar and calculations will be presented at the April 8th meeting for discussion and approval before staff will begin implementing payment options on the mid-April utility bill.
Our first estimate was that we needed $700,000 available for payment over the course of eight business days for the two weeks of spike billing from KMEA. We only had $500,000 in our Electric Fund on hand, and we used $1,000,000 as our planning number – there was some fear that the $700,000 estimate might grow. Between NFW and cash on hand, we had a plan. The first bill from KMEA came in lower then expected, and we used it as a base line number to issue $400,000 (not up to the full $900,000 that Resolution 849 allowed) in NFWs. However, the second bill came in much higher and our total was closer to the original estimate of $700,000. Simultaneous to us issuing NFWs, the State jumped in to help cities and came up with a low-interest loan program which we used to pay off the original $400,000 in NFWs and cover most of the increased costs seen between 2/10 – 2/23. We are now working on how to best pass this “price spike” on to our electric utility customers, and will have a final plan in place after the April 8th City Council meeting.
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