City council shows interest

By Staff | May 20, 2010

The prospects of natural gas piped into Rugby to serve commercial and residential customers is still preliminary, but the Rugby city council has signed a letter of intent with a Michigan-based pipeline company and a Bismarck engineering firm to continue the discussion.

At a special meeting on May 19, the council voted 5-1 to enter a non-binding agreement with Major Pipeline LLC, and Kadrmas Lee and Jackson.

Kurt Rushmore, of Major Pipeline, said the letter of intent does provide project officials credibility with debt lenders involved in financing this project.

Rushmore gave a 45-minute presentation to the city officials and about 15 others attending the meeting. The proposal is to bring a high pressure gas line to Rugby as well as building a distribution system and a series of low-pressure loop gas lines within the city.

The firm would likely tap into gas from the Alliance Pipeline just west of Towner, stripping out heavy gas properties until methane, a flammable gas, is produced which then would be piped down the line.

Preliminary costs to bring the pipeline to Rugby would be $4.4 million. The large price involved is the interconnect with the gas company. There would be an additional $2 to $3 million to complete the series of pipes in the city and to businesses and residences where meters would be hooked up.

Dave Bednarz, ward two councilman, asked how those lines would be installed. Would they require streets to be torn up?

Rushmore said Major would utilize alleys. Low-pressure lines would also be placed behind the inner curb on the boulevard and then trenched to the home or business.

Natural gas has price advantages over other heating sources. Rushmore said reduction in heating or other energy user expenditures could be as high as 25 percent compared to electricity, propane, fuel oil and coal.

However, Rushmore pointed out that electricity rates in Rugby through Otter Tail Power Company are among the lowest in the country. A closer examination of the price comparisons between gas and off-peak electricity rates would be necessary, but Rushmore is still confident there would be a noticeable savings.

There are five components in determining gas price. First, and foremost, is the supply cost by the gas producer. There is also the transport fees to get the product down the high-pressure pipeline as well as to bring it down low-pressure lines in the city. There are also fees associated to monitoring meter readings, Rushmore adds.

Natural gas is also an efficient form of energy and consumers would pay for it as they use it. It’s not a source which has to be purchased ahead, like fuel oil, propane or coal.

The gas could be piped to operate furnaces, water heaters, stoves, clothes dryers as well as yard and street lights. Crews would be contracted to convert appliances and furnaces for residences signed on for gas. Rushmore said conversion rates depend on just how much natural gas use the customer desires, but said the high end is estimated at $400.

Major’s goal would be to sign up at least 60 percent of the meters for this venture to move ahead. However, Rushmore pointed out that jut a handful of large users would pay for the lion’s share of this investment, including large businesses.

Among those users would be TBEI-Rugby that currently uses several thousands of gallons of propane. Barry Pomeroy, manager of TBEI-Rugby, said his manufacturing company is very interested in the proposal, and said it would be a tremendous annual savings – six figure savings.

Other positive spinoffs of the pipeline is bringing direct and indirect jobs to the community. Rushmore expects the presence of natural gas would encourage business development which relies heavily on a large heating source. A grain dryer operation, for example.

Rugby is the first of other towns in the region Major plans to contact about providing natural gas.

The proposal also offers an invitation for the city to set up a municipal utility to oversee the sale and operation of natural gas. If the city is not interested, Major would be interested in establishing a franchise to operate the system.

Resident John Ford asked what would be the startup costs for the city to operate a municipal gas utility. Rushmore said there likely be a transition period where Major would oversee the system until staffing could be trained. The costs for operation could be around $400,000.

Resident Dave Cichos said talk of bring natural gas to Rugby has surfaced over the decades, and the last serious proposal came 15 years ago from Montana-Dakota Utilities (MDU).

However, it was too great of an expense, Cichos said. He asked Rushmore what makes this proposal different?

Technology and less overhead expense.

The process to convert gas into a useable product for commercial and residential use, referred to as the JT or Joule-Thomson effect, is less expensive now. Reading meters no longer require personnel to go door-to-door, but rather they can be read using wireless communication.

Also, Major does not have the overhead as large corporations such as MDU.

Gerry Jacobson, ward two councilman, is interested in this proposal, but wants to see more hard numbers, namely the financial investment the city would need to make for a project like this to come to fruition.

Jim Hoffert, ward three councilman, agrees there is a lot of potential, but wants more data.

Bob Valeu, of Kadrmas Lee and Jackson, said the firm is ready to work with the city in breaking down the figures.

Bill Hartl, ward three councilman, was the only council member present to vote against signing the letter of intent. Hartl clarified his position, saying he is not against natural gas. However, he is concerned about the city’s financial participation and whether it’s a venture the city could handle.