By Thomas Hadwin
Hadwin served as an executive for electric and gas utilities in Michigan and New York. He lives in Waynesboro.
Roanoke Gas Co. has 30 days to save its customers more than $100 million dollars. They should do it.
A clause in the utility’s contract with the Mountain Valley Pipeline (MVP) allows it to cancel its 20-year agreement if the pipeline is not in commercial operation by June 1, 2020. If Roanoke Gas fails to notify the MVP by the end of June that it wants to get out of its contract, the chance is gone forever.
If Roanoke Gas misses this chance, it will owe the MVP $112 million over 20-years, regardless of how much of the reserved capacity is actually used. The gas company expects to be allowed to pass this cost on to its customers.
The $112 million payment is based on what the rates will be if the cost of constructing the MVP is $5.7 billion, as currently estimated, rather than the $3.6 billion originally proposed.
Agreeing to a contract with the MVP was not about needing a greater gas supply. When Roanoke Gas had its highest gas deliveries ever in 2015, it still had extra capacity available in the pipelines that supply it and in its gas storage facility. In 2014, when nearly all of the gas storage output was used, plenty of pipeline capacity was available. During the bomb cyclone in 2019, most of the pipeline capacity was used, but 88% of the gas storage was still available.
Total gas deliveries dipped by almost 14% after 2015. In 2018 and 2019, gas usage returned to what it was in 2015.
If more pipeline capacity is needed, it would be much cheaper to get it from the existing suppliers. Columbia Gas and East Tennessee get their gas from the same area that the MVP would use, at about the same price. The East Tennessee pipeline would transport gas seven times cheaper than the MVP, based on published rates. Columbia Gas would transport gas at least 6 times cheaper than the MVP.
Smaller amounts of firm capacity could be obtained from the existing suppliers, as needed, rather than paying for many years of unused capacity from the MVP. Roanoke Gas has not made an official request for more service from its existing suppliers.
RGC Resources, the owner of Roanoke Gas, wants to make more money by owning part of the MVP. It is an unregulated company and how it spends its money is a matter between it and its shareholders. However, forcing its gas utility subsidiary into a 20-year agreement that does not benefit the ratepayers is another issue.
The high cost of using the MVP will deliver gas priced about twice as much as the gas currently flowing in the Transco pipeline, which is the MVP’s pathway to other markets. It will be hard for the MVP to attract buyers for the 99.5% of its capacity that lacks a final customer.
Roanoke Gas could extend service to new customers in Montgomery and Franklin Counties by adding new pipelines that would last 50 years or more. This would cost tens of millions less than the contract with the MVP that would have to be renewed every twenty years. Existing pipelines would provide delivered gas at a much lower price than would the MVP.
Roanoke Gas has been a valuable energy provider to the Roanoke Valley for decades. It will be of greatest service if it can maintain reasonable prices and avoid making customers pay for unnecessary projects. Furnaces and water heaters will continue to become more efficient. All but 0.1% of Roanoke Gas consumers are residential or commercial customers. The utility charges most industrial customers only for the use of its distribution system. The industries purchase their gas directly from suppliers.
Business leaders and local citizens should encourage Roanoke Gas to continue its long tradition of serving the needs of the region. Choosing to exit its contract with the MVP in June would relieve ratepayers from paying over $100 million in guaranteed payments to the MVP. Roanoke Gas has other cheaper options for providing reliable service to its customers.
However, if the MVP overcomes the significant permitting and financing challenges that remain and completes the pipeline, Roanoke Gas could obtain gas in the amounts it needed, when it needed, without paying $100 million for a 20-year contract.