PUC puts

baghouse

on hold

Project in

question due to changes in coal, natural gas costs

By RON LARSEN

Journal Staff Writer

NEW ULM -- The New Ulm Public Utilities Commission Tuesday rejected all bids for a $1.7 million baghouse air pollution control device for the city's coal-burning generator.

The unanimous vote proved that what looked like a prudent move as late as three months ago now was, in Utilities Director Bob Stevenson's words, "questionable."

The reason is the price for natural gas that is used to fuel other city generators is bouncing around like a ping-pong ball at a table tennis tournament.

"When we started this project (purchase of the baghouse) two years ago, gas prices were high and coal prices were low," Stevenson said. "Now, gas has gone down and coal is rising. With spot gas at $3.80 (wholesale rate), I can't recommend buying the baghouse. Right now, this project is questionable."

Providing a financial overview for the commissioners were Senior Managing Consultant Jon Burmeister and Managing Director Jeane Vanda of Public Financial Management, Des Moines, Iowa.

"Moody's Aa3 rating for the city is extremely strong ratings, disproportionate to your size," said Vanda.

Much of the strength in that rating came from the city's utilities performance in 2000, Burmeister explained. Adding to the impressive rating was 'we're at or above where we'd said we'd be.'"

But Burmeister cautioned electric's cash balance available for debt service is below 50 percent.

"Wastewater with a cash balance of 328 percent is carrying the public utilities right now," he said. "So, if you take $2 million from wastewater to pay for the baghouse, you're lowering wastewater and not increasing electric. The PUC needs to meet its responsibility across the board to maintain its strong bond rating."

"What we're looking at here is an insurance policy," City Manager Brian Gramentz said. "Let's get the electric reserves up to 50 percent, and then we can revisit the issue."

Several commissioners had concerns about what might happen down the road.

Commission President Rick Jensen wondered about trying to lock in gas prices up to 10 years and what Stevenson's current plan is.

"To go into the spot market right now to take care of our needs for the next six months," Stevenson replied. "Locking in a price for 10 years makes me nervous. I don't think we can afford a gamble like that."

Commissioner Phil Liesch asked if the PUC would be able to react quickly enough if gas prices went in the opposite direction.

"Probably right now we'd be eight months to finish (in getting a baghouse) with what we've done at this point," Stevenson said, "instead of two years out when we started."

Stevenson also felt confident that the PUC would be able to find new equipment at a comparable price if that happened.

Commissioner Tom Hendel said he came into Tuesday's meeting "fully ready to vote for the baghouse, but now I'm convinced I don't want to."

Jensen responded, "I don't know if anyone could come in here right now and sell us a baghouse."

In other business, the commission discussed a proposal for becoming a member of Central Minnesota Municipal Utilities Association which has purchased New Ulm's surplus capacity for the next five years.

While it appeared that in most years the monthly membership cost of $1,000 would be covered by brokerage fees received, commissioners were concerned about the PUC's liability if the association lost money. The matter was carried over to the next meeting at which time a CMMUA representative is expected to discuss that and other issues.