12.12.03

M.U.D. expansion is shot down
by Nancy Gaarder, Omaha World-Herald

Actions by the Metropolitan Utilities District that would allow it to "leapfrog" into Sarpy County violate Nebraska law and are a poor use of the public's money, state regulators say.

As a result, the Nebraska Public Service Commission has ordered M.U.D. to abandon $110,250 worth of natural gas mains that it has built near Nebraska Highways 370 and 50 and to discontinue expansion in the area.

The ruling says the real cost of MUD's actions to its customers is closer to $4.4 million - a figure that M.U.D. strongly disputes.

The Public Service Commission made the observations in ruling on a complaint brought by Aquila Inc., the metro area's other provider of natural gas and MUD's only competitor.

Saying the ruling compromises its ability to run its utility, M.U.D. will appeal the decision today in Sarpy and Lancaster County District Courts.

"To remotely suggest that this deal, that was passed by our board, was not in the best interest of our ratepayers is tragically incorrect," said Tom Wurtz, M.U.D. general manager.

M.U.D. and Aquila frequently fight over valuable territory in Sarpy County. Based in Kansas City, Mo., Aquila is the former Peoples Natural Gas and serves most of eastern Nebraska. In Sarpy County, it serves Papillion and La Vista and parts of Bellevue and Gretna.

The project in dispute would have allowed M.U.D., which mostly serves Douglas County but also some of Sarpy County, to strengthen its position in undeveloped southern Sarpy County.

M.U.D. argues that it picked a logical site because it already serves Springfield, which is in the general area under contention. However, the site requires M.U.D. to cross over -- "leapfrog," in the state's view -- an area served by Aquila.

Wurtz said M.U.D. took the steps that it did because it wanted to make an Omaha neighborhood safer, not because it wanted to gain a better foothold in Sarpy County.

"By signing that order, the Public Service Commission is basically saying that public safety and system reliability are not in the public interest," Wurtz said. "I, as general manager, and our board strongly disagree."

The dispute is complicated.

At issue are three projects undertaken, in whole or in part, by M.U.D.: Its construction of the new gas mains in Sarpy County; its financing of a new gas transfer station northwest of Springfield; and changes at an existing transfer station in Omaha.

Transfer stations are the point where gas leaves the interstate pipeline and goes into a local utility's pipes.

Concerns about a transfer station at 84th Street and West Center Road in Omaha prompted M.U.D. to take action, Wurtz said. Built when the area was less developed, the station was an exchange point for high volumes of pressurized, unodorized gas. Development has grown up around the station, creating a situation that gas companies normally try to avoid.

The West Center Road station is owned by Northern Natural Gas Co. and is used by M.U.D.. Northern's interstate pipeline that serves the station also serves Aquila, which means that Aquila would have to sign off on any changes affecting its service.

For years, M.U.D. has wanted to close and replace the station, Wurtz said. Although Aquila is amenable to a replacement station in Douglas County, Wurtz said, there are no viable, unpopulated sites along the pipeline in the county. That is why, Wurtz said, M.U.D. turned to rural Sarpy County.

But Aquila has opposed all four sites in Sarpy County proposed by M.U.D..

Northern and M.U.D. found a solution that didn't involve Aquila, keeping the West Center Road station open but decreasing the amount of gas that M.U.D. uses from it. As a result, the amount and pressure of gas flowing into that area of Omaha has dropped. To increase reliability to its system, M.U.D. wanted to add a transfer station to help make up the difference.

M.U.D. had Northern build a new transfer station at 174th Street and Fairview Road in Sarpy County. M.U.D. then began laying mains to reach the station - those are the mains that M.U.D. must stop building.

The question that state regulators had to answer was whether the M.U.D. work in Sarpy County was cost-effective and in the public's interest.

Ultimately, the state commission found that it wasn't and, thus, in violation of state law.

The new construction in rural Sarpy County did not directly address the problems that M.U.D. was trying to solve, the commission found. Nor were the projects cost-effective, according to the commission's analysis.

The commission said the site and design of the new transfer station would not allow sufficient amounts of gas to reach MUD's current service area. Thus, the commission said, the station can't be used for its stated purpose.

M.U.D., the commission said, was positioning itself for future growth.

The ruling also criticized M.U.D. for not taking into account the full financial impact of $2.8 million in concessions that it made to Northern Natural Gas to resolve the problem at the West Center Road station. Among those concessions were:

• Paying Northern to build the new Sarpy transfer station, which cost $420,000. Originally, Northern was to pay for it.
• Agreeing to allow Northern to potentially be paid twice for the station - once by M.U.D. and again by customers of M.U.D. and other utilities. (That would happen if Northern were to fold the station's cost into the price it charges utilities for gas. Mike McGowan, a spokesman for Northern, said a pending federal review of Northern's rates will ensure that this won't happen.)
• Giving up about $1 million in work by Northern to shut down, not just reduce the flow through, the West Center Road station.

Those concessions were counted in the $4.4 million that the commission says M.U.D. is using unwisely. Also counted was $1.45 million that M.U.D. wants to spend to install mains connecting to the new transfer station. (Only $110,250 has actually been spent.)

The money would be better spent, the state says, fixing more pressing needs such as pressure problems in MUD's northwest service area.

Wurtz disputes the state's economic analysis. Instead of losing money, he said, M.U.D. has gained $3.9 million in concessions from Northern. Also, the utility says the work it is doing is the least costly solution to the West Center Road problem.

MUD's customers are better off, Wurtz said, because they are safer. The pressure at West Center Road has been lowered, and Northern is now odorizing the gas before it reaches the metro area.

Aquila says the commission's decision points to the need for the Legislature to draw boundaries for natural gas service areas. Those boundaries were left out of a landmark natural gas bill passed last year.

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