History of our gas group.
You may have wondered how did our gas group start. There is the story. Rather there are 2 stories. One of Kearny County gas project later named Finney /Kearny project (pipeline project) and Western Kansas Gas Consortium (gas purchasing). The construction project, (Finney/Kearny project) the plan was just planned to serve our local community but interest grew and by the time we were ready to start, Finney County needed service as well. The act of collective gas purchasing start before the pipeline was built.
In 1995 KN was our exclusive gas supplier. They had the franchise to serve our area and no other company could come in and offer us a gas supply. KN hooked us on the well head with only had 6 inches of 1 ¼ inch pipe and meter but they charged us over one dollar per MMBtu for delivery. There was no line loss because they bought the gas on the same meter that they sold the gas to us. But we were still charged a line loss. At one of KCC hearings in Garden City a customer told the KCC that he felt sorry for the local employees of KN because they were accommodating but the corporate office was less than agreeable.
The Federal Regulatory Commission passed bill, #888 on April 24, 1996 that said any entity wanting a tap on an interstate pipeline could not be denied. The tap cost was to be paid for by the customer. We hired a lawyer who had worked for KCC, when a change in government had him displaced, He helped us jump the hurdles. It took him 20 minutes to let us know that when he worked for the KCC, he had written a clause in a bill that allowed an overriding franchise to serve in the gathering field. We had a hearing with the KCC at 9 AM for approval for an overriding franchise to serve but it was cancelled because one the of commissioners got caught in fog so the hearing delayed till 1 PM. When we made our appeal at 1 PM, there were ½ dozen high priced lawyers representing other distribution companies. They were there to view the outcome. This was the first of many requests for an over overriding franchise to serve. Since we broke the ice there have been quite a number local farmer owned gas distribution companies have followed.
We started to make pipeline plans for the starting farmers but soon added about 300-400 irrigation wells in Kearny and Finney counties. We designed a plan with 16 miles of 4-inch steel line and 250 miles of poly line. The cost per well was $5800. We were about to begin when Midwest Energy was negotiating to buy KN and they wished to put in our system and operate it. It took a year to put their deal together. Some of the gas wells did not produce adequate gas to keep the irrigation wells running so MWE offered they would put propane at the wells that failed and charge NG price for the energy if we would wait till they had their purchase deal completed. We were going to pay the cost of installation so they were only going to charge us the cost of operation without a profit for recovery. Gene Argo, president of MWE said if it serves the customer well, they needed to figure how do it and not lose money on the deal. Their own plan for construction cost was alot more than ours because they had to buy right-of-way and damages and they followed the road allowance. Whereas, we went down the center of the section because all our meter were on the well head which were in the center of the section. They bought our plan for $85,000 which was credited to our collective system cost. We were not going to pay any damages or right of way. MWE had a cost overrun over our estimated cost was $100,000 but they replaced our 4inch steel with 6inch steel and added a few miles at southern lateral to serve southern Finney County. We agreed to let them tie their customers into our lines providing our wells would never be starved for gas. Our plan called for 2 taps at a cost $250,000 each.
Our legal fees amounted to less than $10,000 because MWE was very cooperative and helpful. One group down at Big Bow spent over $140,000 on legal fees. MWE energy were great to work with. For the operating cost they charged us a meter fee of $20 and volumetric charge of 12 cents per MMBtu. These fees increased annually by 2 national indexes of inflation, US Dept of Commerce and US Dept of Labor. Today we pay $30.44 meter fee and .22 cents delivery fee. Delivery cost on their line $40 meter fee plus over a dollar per MMBtu. We recover our construction cost every 2 years.
As the history of Western Kansas Gas Consortium, Walt Fletcher, Warren Bogel and a few others got the wild idea to put in our own gas lines and cut out KN. We went to KN with our plan and immediately they lowered the price gas near a dollar. If KN had called our bluff, we would have been hard pressed to perform. We continued using KN to supply our gas needs. This went on a couple of years with KN continuing to keep a lower price. We had only KN and another gas merchandizer bidding to provide gas for us. The other merchant had bid for several years but we had not used him. KN would match the competition. We thought maybe we should reward him because it was important to keep him on the string to keep KN in line. We accepted his bid. One of the first months he found out he had a $50,000 loss because he had to replace the gas inside the distribution system and not outside on the processed side. His boss was looking sideways at this deal and wanted decline any farther bids for our gas. So, we made up the lost by rising $300 per well as a supplement to our bill. The extra $50,000 we paid kept hm in the game
At the start there was only a few farmers in our purchasing group. As the number grew there were more suppliers wanting our business. The news had spread of our doings and more people wanted into our group. It slowly it evolved into not being just Kearny County irrigators but Finney, Haskel and Gray counties as well. Today we provide gas for 800-875 irrigation wells.
One year when we called for bids a Kansas City company offered us the lowest price but I forget why didn’t take their bid but that year the company went bankrupt and they didn’t pay the gas supplier. The customer had paid the bill monthly to the company but company failed to pay the supplier for the gas so the customers were obliged to pay a second time for the gas. We just missed an opportunity to get shafted. Another year we bought gas though a Nebraska company and as a closing request we wanted audit their billing. Low and behold they had made a $750,000 error in their favor. They refunded the overage to the customer without on objection. But needless to say, we did not buy from them anymore. To date, I think we have only had one person opted out of our group.
For Western Kansas Gas Consortium today there is board of seven that make a collective decision when to by gas. We are purchasing gas out 4 years now for a max of 80% of our average consumption. The excess gas needed or the surplus gas, we buy or sell on the open market. The people we are trading with take care of the margin calls. Our plan hasn’t always given us the cheapest gas price every year but we have traded off a lot of risk for a reasonable price. We buy 50% for March and October and 80% the balance summer months.