The Rockport City Council, at its regular meeting Tuesday, Sept. 10, discussed the pros and cons of keeping or selling all, or parts, of the city’s natural gas utility, which it has owned since April 2008.
City Manager Kevin Carruth said the city recently received another regulatory challenge from the Railroad Commission, and faces a couple of million dollars in improvements.
“We are at the stage where we need a consensus from the council as to where we want to go with the gas system,” he said. “Do we want to continue operating the utility, or enter into serious negotiations with buyers?”
Public Works Director Mike Donoho said the city is now required to replace eight percent of the 48 miles of cast iron pipe each year.
“There’s a lot of new development across the (Copano Bay Causeway), and that’s a good thing, but 90 percent of the pipe on the other side of the bridge is cast iron,” he said.
Adding to the problem of servicing the north end of the system is the new automated meter reader can’t be used in that area because meters can’t be read from that distance.
“The gas system is not making money for the city,” said Donoho.
“We’ve been given a break on a lot of things by the Railroad Commission since Harvey (i.e. – line breaks due to construction), but now the fines are coming in more frequently and they are higher.”
He said his bigger concern is safety.
“We have two inquiries about possibly buying all or part of the system,” said Donoho.
“The numbers it’s going to take to come into compliance (under new regulations) is very high.
“This is a hard discussion to have, but we have to have it.
“Will the gas system ever be profitable for the city?” he asked rhetorically.
Councilman Bob Cunningham asked, “Is there any positive reason for the city to keep the gas system other than possibly making a profit at some point in the future?”
Carruth noted gas and electric utilities are normally cash cows for many cities.
“But, we don’t have any large commercial customers (industries),” he said. “Our three biggest customers are HEB, Walmart, and the city (community pool).”
Finance Director Katie Griffin said the city will have to sell bonds in order to cover the costs for compliance, but it will cost the city either way it goes (keep gas system, or sell it).
Councilman Mike Saski asked what she meant by that statement.
“We would have to pay to stay in compliance until such time that it’s sold,” said Griffin.
Donoho said city staff is being stretched thin since Hurricane Harvey locating buried lines for construction projects.
“Before the storm we had one gas locater and one water locator,” he said. “Before the the storm we were having to locate three or four lines.
“Now we’re doing 15 to 25 per day.”
Carruth told the council if it considers selling the system, the city will need to hire a consultant because it is beyond what city staff can do.
When asked how selling the gas system will affect city finances, Griffin said, “The worst case scenario would be we break even. We might get a small profit.”
Donoho said the city will also have to address the future of those employees working in the gas department.
“I would hope any buyer would absorb our employees,” he said.
Saski noted in the EMS business, when his company bought another EMS group, it would always try to hire the group’s employees (primarily because they had the local knowledge and expertise, etc.).
Carruth said if the city does not choose to sell the gas utility, it will have to impose “significant” rate increases the next five years.
“This is not an action item (on the agenda), but we have to get this (topic) out (for discussion),” said Carruth.
Mayor Pat Rios closed the discussion saying, “I would like to get a consultant engaged.”
The council is expected to take action regarding the gas utility, one way or the other, in the near future.