Posted on: September 1, 2009
New natural gas contract to save city over $76,000
Tuesday, September 1, 2009
Members of the city’s gas committee approved a new contract for natural gas management, which will save the city $76,444.78 in fees during the next fiscal year.
At a gas committee meeting last week, City Purchasing Agent Greg Williams updated Mayor John Holden, gas committee chairman Lewis Norman and gas committee members Kevin Chaney and Freeman Dudley on negotiations with Fellon-McCord and Associates for Natural Gas Management services for the city of Dyersburg. Gas Department Director Mike Morgan, City Treasurer Steve Anderson and City Recorder Gleyn Twilla were also present at the meeting.
Williams reported that negotiations with the agency will cut management fees in half and eliminate $40,444.78 in discount fees in the 2009-2010 fiscal year. The contract will also allow the city to continue earning significant discounts through MuniGas, a program that has saved the city a total of $899,437 since January 2008. Those savings have been passed directly on to the city’s natural gas customers.
Williams invited third-party independent consultant Don Leet to the meeting to give his opinion on the issue. A CPA who worked as financial consultant for the city of Murray, Ky., for over 30 years before retiring, Leet began his own consulting firm three years ago. Williams called on Leet’s experience in the business of purchasing natural gas for municipalities for an opinion on the city’s pending contract.
Leet said he has customers in contracts with Tennergy, Constellation and Atmos and would not provide a recommendation on which company the city should contract with to supply its natural gas. He did say that discounts as high as $.80 per mmbtu of gas like the city has received through the MuniGas program are not common at all in the industry.
“You are locked into one of the largest discounts with MuniGas,” said Leet. “You want a management company that gives you the best value and secures the most discounts. The dollar amount is not as important as the service. You want to get value from your management fee.”
The city paid $.033 per mmbtu through Tennergy when they ended their contract with the corporation in January 2006. With the new Fellon-McCord contract, the city will now pay an equivalent of $.038 per mmbtu, but Williams said that the guidance received by Fellon-McCord management is worth the price difference. He also said the city would never have entered the MuniGas program if they would have stayed with Tennergy instead of changing contracts in January 2006.
“They communicate with me frequently,” said Williams. “They send me regular reports and recommendations on what the market is doing. I’m satisfied with Fellon-McCord. They are on it every day. And they are not one to encourage us to make big steps. I feel much better about purchasing the city’s gas with the Fellon-McCord management service than doing it all on my own. I don’t see a reason to change.”
“For the past two and one-half years, we’ve been looking at costs the city of Dyersburg pays (throughout all its departments),” said Holden. “We’ve been looking at phone services, faxes, fees (associated with) the EOC. … We all want to reduce costs and to keep the level of service (currently provided by the city). Greg does this every day. He deals with gas every day. I think he’s done a great job with the negotiations, personally. The cost is the bottom line, but we also have to look at what kind of service you are getting with that. With just the first swipe of this thing, we are going to save $80,000.”
The contract with Fellon-McCord does not link the city to any one natural gas supplier. While the management service began as a subsidiary of the Constellation-New Energy organization, Fellon-McCord has stood alone as an energy and management firm since May of 2008. The new contract allows Fellon-McCord to manage the delivery and storage of the city of Dyersburg’s natural gas volumes with any supplier.
The city is currently under contract with Fellon-McCord as long as there is a hedge in place to purchase gas through Constellation. Williams recommended altering the contract to a one-year term or a situation that disconnects Fellon-McCord from the supply of natural gas provided by Constellation.
Holden moved to accept the proposal presented to the committee by Williams and contract with Fellon-McCord to manage the city’s natural gas purchasing. The motion was seconded by Chaney and passed unanimously.
Also at the meeting, committee members approved a generic sales agreement requiring new industrial gas customers pay 2 1/2 times the average month’s bill for a 12-month period as a deposit. The deposit may be made in cash, or a cash-equivalent and may be negotiated to be paid over the first three months of the contract.
The committee also agreed to amend the new Briggs and Stratton agreement to better reflect an average month’s heating bill. The company, just now contracting with the city for natural gas instead of Tower, only uses gas during the winter months for heat. Williams said a yearly average would not secure a sufficient deposit for the industry.
Dudley moved to approve the both the generic contract and the amended Briggs and Stratton contract, with Holden adding a second. The motion passed unanimously.