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Friday, Apr. 29, 2016

Natural Gas a No Go

Thursday, June 24, 2010

Tammy Curtis

Staff Writer

Many have been waiting anxiously to hear the findings of the United States Department of Agricultural's (USDA) review to determine if a natural gas pipeline to serve customers in Sharp County was feasible.

After nearly three years of studies, meetings and finally a sign-up earlier in the year for the natural gas system, the findings of the Pre-Application Review have been delivered to Sharp County Judge Larry Brown.

Brown received a letter from the USDA June 11 citing the Preliminary Engineering Report (PER) as a basis for the outcome for their decision to advise the county not to move forward with the proposed natural gas system. Included in the report were several concerns the USDA had regarding the system.

Brown has said since the onset of the proposed project that he only wants it if it is economically feasible for the county. He said the system needed to generate enough revenue to pay the debt service.

The letter said that the projected cost of the project would be $14 million. During the initial sign up period, 830 local residents paid their $100 required deposit to help the USDA determine an approximate number of users who would take part in the system in the event it were to become a reality. As promised, if deemed not feasible, these monies will be returned beginning July 1.

Many of the USDA's numerous concerns regarding the project are listed below as addressed in the letter from Jeffery Spencer, area director for the USDA to Brown.

"The projected monthly minimum bill in the PER is shown to be $23. However, a minimum monthly bill per user just to met the debt service payments and reserves would have to be around $82. In addition, a portion of the projected operation and maintenance (O&M) costs that must be met on a monthly basis would also need to be included in the monthly minimum bill. The total projected O&M costs in the PER is $32.23 per user. If $18 of the total projected O & M is added to the $82 mentioned above, the total monthly bill would have to be at least $100 per user," Spencer said.

Further, Spencer's explanation of the concerns stated that since 100 percent of the those who signed up initially would most likely not take the service immediately. This could be either because the system would not reach their home during the initial phase or for other reasons, a 90 percent number of customers from the original 830 was used, creating a minimum bill for residential users of $130 and $323 for 90 percent of the 83 commercial users who signed up for the proposed project.

Spencer went on to state that there is no documentation or information available on projected usages for actual existing customers who signed up. Many of those who signed up for the natural gas also utilize other heating sources and had planned for the gas to be only used as back up. This meant the customer was planning to only be required to pay the minimum bill which was initially believed to have been only $23. This would also make the bills for other customers significantly higher.

In his letter to Brown, Spencer also addressed the fact that there was no information regarding the cost of butane or propane conversions for customers. He said customers might be required to purchase new appliances if theirs were not able to be converted. Other concerns included the additional financial burden on potential customers for the costs associated with converting transmission pipes that were not suitable for carrying the natural gas to the home or business.

Among the other concerns included the possible underestimate for the installation process of constructing the pipeline, including rock, which is plentiful in Sharp County and obviously more expensive to drill through.

Spencer also cited the fact that there has been no exact costs quoted for tapping the Ozark Transmission line, the main line that lies between Evening Shade and Cave City. That service would be required to bring the natural gas to Sharp County. Spencer noted that items such as land acquisition costs, system regulation, overpressure protection and or odorization facility costs should also be taken into consideration and were not.

His lengthy list of concerns also noted that there wasn't' enough specific information regarding the county operating the system. Spencer said items such as specialized equipment, training of employees and costs associated with them as well as consulting services were things that should also have been considered for the project.

Lastly, Spencer addressed a line item on the PER named "Interest During Construction." He said the amount of $275,640 was not an adequate amount for the interest only payments that would come due during the construction process at both 12 months and 24 months into the project. He said a more conservative estimate on these payments would be nearly $875,000.

Spencer concluded by stating, "At this stime, USDA-Rural Development staff does not encourage Sharp County to proceed with further processing of the application or obtaining a Financial Feasibility Study."

He went on to explain that the study itself would be very expensive and that, if the county does decide to pursue the program, all of the concerns listed must first be addressed before resubmitting the application.

Brown said that for the time being this option is not being explored any further. He said he will be exploring other options, but at this time, it is obvious, "We can't afford it now and be able to be competitive."

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