PUC approves Hutchinson pipeline contract

Concerns remain about New Ulm's share of cost overruns

By KEVIN SWEENEY

Journal Editor

NEW ULM -- The New Ulm Public Utilities Commission approved its natural gas transportation agreement with Hutchinson Public Utilities Tuesday, despite concerns over its share of potential cost overruns on the project.

While the Hutchinson natural gas pipeline has been constructed, along with the New Ulm connection, Hutchinson won't know the total cost of the project until it completes court action and condemnation proceedings with a number of property owners for land acquisition and easements.

In the 22-year agreement with Hutchinson, Hutchinson reserves the right to pass on to New Ulm one-third of the pipeline construction and easement acquisition costs -- including legal costs related to the acquisition -- that exceed $26,817,739, which is the amount Hutchinson budgeted for the building and easement costs. The city would not be liable for any regulatory penalties and legal costs associated with them.

Hutchinson is still involved in legal actions and condemnation proceedings involved in the project. A number of landowners are challenging the amount Hutchinson is offering and are seeking damages for what they claim are faulty installation and land restoration damages.

New Ulm PUC members were concerned that the agreement contains no cap on the city's responsibility for cost overruns. Commissioners expressed their unease at approving the agreement without some idea of the final cost.

The commissioners were also concerned that Hutchinson has not been keeping New Ulm apprised of what its current costs are and what it might expect the final tab to be.

Commissioners likely would have tabled the contract to get more information, but the city is running out of time to get its connection to the Hutchinson pipeline running. The PUC's contract with Northern Natural Gas, the city's current supplier, runs out next week. The city could keep the gas flowing on a month-by-month basis, but the longer it waits, the longer it will be before the city begins to see the economic benefits of attaching to the Hutchinson pipeline.

The city would be paying an extra $250,000 a year for natural gas transportation costs -- the cost of having the gas delivered through Northern Natural Gas' pipeline. The city also expects to save another $150,000 a year in lost gas costs -- the purchased gas that is lost as it travels through the compressors and connections as it goes through the NNG pipeline. The Hutchinson pipeline is a straighter connection with fewer pumps, compressors and connections where gas can escape.

The city also is negotiating to sell the excess capacity it will get from the Hutchinson Pipeline to other communities, with possible revenue of $250,000 a year.

All told, the PUC expects to gain around $600,000 a year in saved expenses and new revenue with the Hutchinson pipeline. Commissioners felt that would more than offset possible cost overruns. These savings are expected to help pay the cost of building its 5-mile connection to the Hutchinson pipeline. While natural gas customers won't see rates go down, the new pipeline will help stabilize rates over the next 22 years.

New Ulm will be paying Hutchinson one-third the cost of the pipeline over the next 22 years, with the city getting one-third of the capacity of the pipeline. That will give New Ulm three times the capacity it has now, enough to cover future growth in demand in the city, and enough to sell its excess capacity to other cities.

In other action, the PUC adopted a resolution promoting and funding employee recognition and motivation programs, and adopted a meal and travel reimbursement policy to elected and appointed officials. The two policies simply give recognition and authorization to programs and practices that the city already follows.

The commission also adopted a Municipal Utility Distribution Reliability Standard that is required by legislation passed by the state last year.