Thursday, July 7, 2011
Utility considers pipe plan
By SUE WATSON
A required cast-iron line replacement plan for natural gas is under consideration by the Holly Springs Utility Department and the board of aldermen.
A plan to increase the monthly cost of 100 cubic feet (ccf) of natural gas to customers is being considered – a 10-year assessment. Construction would take place in three phases.
Don Hollingsworth, general manger of the utility, offered two options – charge residential gas customers a surcharge of 5 cents a ccf or 10 cents a ccf of gas metered each month. The money would be set aside for three years and used as matching money to go with a Rural Development loan. The surcharge would continue for nine years until the cast iron system is replaced by modern gas lines.
A large portion of the inner city’s gas lines are made of cast iron, which needs replacing, and would be rolled out over 10 years under this plan.
Hollingsworth said he prefers the 5 cents per ccf surcharge because of the economy. The 10 cents per ccf would be a more aggressive way to fund and hedge against any unexpected rise in natural gas prices that could occur from some catastrophic event like Hurricane Katrina, he said.
The 10 cent surcharge would increase residential customers’ monthly bill by eight to nine percent while the 5-cent surcharge would increase it by about 4.5 percent. At the 10-cent level, the utility would raise about $280,000 a year so that in three years it would have accumulated enough to start construction with a pot of about $840,000 that would reduce the principal loan amount, and, in the long run, save customers money.
“If we start July 1, it will take three years to put the project together,” Hollingsworth said. “This would be the plan to submit to DOT for cast iron replacement.”
Mayor Andre’ DeBerry asked what the interest on a bond would be and Hollingsworth said the interest would be set at the time the bonds were sold, possibly at 4.25 percent.
DeBerry wondered what the interest rate would be a few years down the road.
“You don’t know,” Hollingsworth said. “We can choose option one, option two, or do nothing. There is no option to do nothing because of the Federal Natural Gas Act to remove all natural gas cast iron.”
Once the loan is approved with Rural Development, the interest rate ceiling would be set. It could decrease but never go beyond the ceiling, Hollingworth said.
He said the current operating margin on natural gas is 44.3 cents per ccf. If option 2 is selected, five cents would be added to that, coming to 49.3 cents per ccf.
Putting it simply, a customer who uses about 104 ccf a month would be billed about $10 more – $5 more for a customer based on the same use at a 5 cents per ccf surcharge.
The amount collected in the surcharge will be reflected in the use of gas and the fluctuating price of gas, he said.
As cast-iron pipes are replaced, the city will see a substantial savings and operating pressures can be made more efficient over the system including the outlying areas served in the county, Hollingsworth said. Safety will be maximized because the system can operate on higher pressures that will keep pilot lights on, he said.
“If the pressure gets too low, pilot lights on cold nights can become a dangerous situation,” he said.
The projected cost of the replacement is about $6.1 million and the surcharge could knock off about $1 million in the cost of the project.
Hollingworth said cast iron pipe replacement is a nationwide problem. The city had the money in 1984 to replace it but the mayor and board did not see fit to do so, he said.
“And here we are today,” Hollingsworth said.
DeBerry said he favors a 10 cent per ccf surcharge to hedge against any sudden increase in the cost of gas.
“I wish I had a simple answer to say this is going to go away,” Hollingsworth said. “We can choose any month to submit an application to Rural Development.”
DeBerry asked for an amortization schedule to be drawn up before the matter goes to the board for a vote.
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