Natural Gas Proposal Comparison - Town of Cumberland

cumberlandmaine.com

Natural Gas Proposal Comparison - Town of Cumberland

Cumberland Falmouth Yarmouth

Bill Shane Nathan Poore

Nat Tupper

NATURAL GAS

DISTRIBUTION PIPELINE

& UTILITY SERVICE

Presentation of Proposals

Thursday, February 21, 2013

1


WHAT IS NATURAL GAS

• Organic material (decayed matter from plants

and animals) buried under rock

• Pressure and heat change organic material to

fuel sources like coal, petroleum and natural gas

• The main ingredient in natural gas is methane –

byproducts are butane and propane

• Because natural gas is colorless, odorless and

tasteless, a chemical is added before distribution

to give it a sulfur-like smell so that it may be

detected in the atmosphere

2


WHERE DOES IT COME FROM

• Most of the natural gas consumed in the

U.S. is produced here

• In 2011, 90% of imports came by pipeline

from Canada and 10% LNG tankers

• 1.5 million miles of mainline and service

lines throughout the U.S.

• Delivered more than 24 trillion cubic feet of

natural gas in 2010 to 71 million customers

3


Source: U.S. Energy Information Administration, December 2008.

4


HOW DO WE GET IT

• Drilling on land and offshore – gas flows through

well to the surface (known as conventional

associated or non-associated gas)

• “Wet” natural gas is separated at a processing plant

and “dry” natural gas is sent through pipelines

Natural gas is often stored in large underground

systems and added to the pipeline during peak

seasons

Natural gas changes to liquid at approximately -

260°F and is often stored and transported in that

form because it is 600 times smaller than in its

gaseous state

5


Source: U.S. Energy Information Administration, 2013.

7


OTHER METHODS

• “Unconventional” sources of natural gas – coalbed,

“tight” gas, and shale gas

• Horizontal drilling and hydraulic fracturing are used

to produce natural gas from Shale “plays”

• Over the past decade, these processes have

produced large volumes of shale gas that were

previously uneconomical to access

• As of September 2012, U.S. shale gas production

contributed about 35% of total U.S. dry production

• Almost all projected increase in domestic natural gas

production is due to growth in shale gas

9


Source: U.S. Energy Information Administration, March 2010.

10


OTHER METHODS

• Hydraulic fracturing ("fracking“) – water, chemicals,

and sand pumped into well to unlock hydrocarbons

trapped in shale formations by opening fractures in

rock allowing natural gas to flow from the shale into

the well

• Used with horizontal drilling – enables gas

producers to extract shale gas economically and

more rapidly

• In conventional reservoirs, natural gas migrates into

permeable reservoir rock. The low permeability of the

shale inhibits gas from migrating to more permeable

reservoir rocks.

11


Source: ProPublica via U.S. Energy Information Administration.

12


COST OF NATURAL GAS

• The price that residential consumers pay for

natural gas has two main parts – the

commodity cost and the distribution cost

• Commodity is the cost of the natural gas

itself (wellhead cost – standard rate)

• Distribution is the cost to move natural gas

by pipeline from local gas company to the

customer (varies by gas company)

13


1 Mcf = 1 Dth

Source: U.S. Energy Information Administration, June 2012.

14


Natural gas price projections are significantly lower than past years

due to an expanded shale gas resource base

10

History

Projections

9

8

7

AEO2009

AEO2010

6

AEO2011

5

4

3

2

1

0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Source: U.S. Energy Information Administration, Annual Energy Outlook 2011.

Historical based on Henry Hub spot price – 2009 dollars per mmbtu

15


1 MMBtu = 1 Dth

Source: U.S. Energy Information Administration, Annual Energy Outlook 2012.

16


NATURAL GAS IN NEW ENGLAND

• Pipelines – three interstate pipelines in Maine

regulated by FERC (not PUC)

Maritimes & Northeast

Portland Natural Gas Transmission System

Granite State Gas Transmission Company

• Local Gas Utilities (regulated by PUC)

Northern Utilities (Unitil)

Maine Natural Gas (Iberdrola)

Bangor Gas (Energy West)

Summit Natural Gas (Summit Utilities)

17


THREE TOWN RFP

• Sept. 2011 – Managers invite gas companies to

meet – Unitil, Maine Natural Gas, Summit

• Dec. 2011 – retained consultants to model

financials

• Presented findings to joint meeting of Councils

• October 2012 – RFP issued to three utilities

• January 25, 2013 – proposals received from MNG

& Summit

• February 21, 2013 – Managers make

recommendation to Councils

19


PROPOSAL EVALUATION CRITERIA

• 33% Previous Experience

– Includes corporate structure, service of similar

communities, marketing, safety and reliability,

customer service, public outreach and related

considerations

• 33 % Saturation Plan

• 33% Pricing Structure

– Includes capacity to serve, construction

schedule and related considerations

20


PREVIOUS EXPERIENCE

Maine Natural Gas

(Pages 5-8)

Corporate Structure

• Owned by Iberdrola

• 14 Years

• Office in Brunswick

• Maine management team –

VP Gas Operations, VP

MNG, Lead Engineer, Gas

Operations Supervisor

Summit Natural Gas

(Pages 5-8)

Corporate Structure

• Owned by JP Morgan IIF

• 15 years

• Office in Augusta – will open

local district office

• Maine management team –

State Operations Manager,

Bus. Development Director

and Regulatory Manager

21


PREVIOUS EXPERIENCE

Maine Natural Gas

(Page 6, 8)

Similar Communities

• 560,000 customers in Maine,

NH & NY

• 3,200 customers in 2

counties in Maine

• Owns and manages 2 miles

of transmission lines and 134

miles of distribution lines in

Maine

Summit Natural Gas

(Page 5, 7)

Similar Communities

• 33,400 customers in

Colorado & Missouri

• Expected to serve 17,000 in

Kennebec Valley

• Projected 50,000 total

customers by 2014 including

Maine

22


PREVIOUS EXPERIENCE

Maine Natural Gas

(Page 9)

Maritimes & Northeast

• Owns and operates two

M&R stations that tap into

the M&NE line and currently

installing one other

Summit Natural Gas

(Page 14)

Maritimes & Northeast

• Very early in relationship

(2012) for Kennebec Valley

23


PREVIOUS EXPERIENCE

Maine Natural Gas

(Page 11)

Customer Service

• Maine PUC Consumer

Assistance Division has

received five complaints

since 1998

• Multiple payment options

Summit Natural Gas

(Page 14)

Customer Service

• No formal complaints in

Colorado or Missouri

• Multiple payment options

• 24-hour phone availability

• One-call resolutions

24


PREVIOUS EXPERIENCE

Maine Natural Gas

(Page 15)

Public Outreach

• Resources to communicate

with and recruit customers

• Work closely with Town

officials to offer forums,

meetings and newsletters

and educational campaigns

Summit Natural Gas

(Page 31-33)

Public Outreach

• Public meetings, door-todoor

marketing, distribution

of printed materials

• Member of PAPA & PHMSA

Natural gas price projection

• Local marketing firm

25


PREVIOUS EXPERIENCE

Maine Natural Gas

(Pages 11, 15)

Safety

• Systems comprised of coated

steel and MDPE and HDPE

pipe

• Safety/orientation training with

emergency personnel

Summit Natural Gas

(Page 11-12)

Safety

• Multiple in-house safety

programs and manuals

• Total recordable incidence rate

1.39 compared to 4.21 industry

average

• Training for local emergency

personnel

• Local Operator Qualification

program

26


SATURATION PLAN

Maine Natural Gas

(Page 14)

64% Saturation

• Within 5 years - assumes

100% of commercial

buildings & 80% of

residences

• 6,000 Customers

Summit Natural Gas

(Pages 21-22)

86 % Saturation

• Within 5 years

• 7,659 customers

95% Saturation

• Within 8 years

• 9,150 customers

27


SATURATION PLAN -SUMMIT

28


SATURATION PLAN -MNG

29


CONSTRUCTION

Maine Natural Gas

(Pages 12-14, 18)

Proposed Infrastructure

• Substation at Pleasant Valley

Road and Sturbridge Lane

• 18 miles of primary pipeline

• 95 miles of distribution lines

Construction Costs

• $60 million over 10 years

Tax Increment Financing

• 80% over 10 years – required

for proposed rates

Summit Natural Gas

(Pages 17-20, 27)

Proposed Infrastructure

• Substation at Blanchard Rd

• 32 miles of primary pipeline

• 213 miles of distribution lines

Construction Costs

• $72.5 million over 30 years

Tax Increment Financing

• 50% over 15 years - Optional

• Provide rebates for residential

customer conversion

30


TIMELINE

Maine Natural Gas

(Pages 11-12, 16)

PUC Process

• Currently hold authority to

furnish service in this area

• Require PUC approval for rate

structure (6-12 months)

Construction Schedule

• Begin construction Q2 2014

• Continue installation of lateral

mains through 2017

Summit Natural Gas

(Pages 15, 21)

PUC Process

• Require PUC approval to serve

as a second utility in this area

(3-4 months)

• Rate structure already

approved by PUC

Construction Schedule

• Begin construction Q2 2014

• Mainline complete & 86%

saturation by Q3 2017

31


PRICING STRUCTURE

Maine Natural Gas

(Pages 16)

Rate Plan

• Requires approval by PUC

• Guaranteed for five years

• No annual adjustments

proposed

• Includes customer charge,

delivery and construction

allowance

Summit Natural Gas

(Pages 24-26, 29)

Rate Plan

• Approved by PUC

• Effective through 12/31/22

• 4% annual adjustment

maximum

• Includes customer charge,

delivery and construction

allowance

32


PRICING STRUCTURE

(AS PROPOSED)

Maine Natural Gas

(Page 17)

Distribution Costs*

• Residential $13.02/Dth

• Commercial $8.69/Dth

Monthly Charge

• Residential $24.34/month

• Commercial $34.77/month

*Costs include monthly charge and 80% TIF

Summit Natural Gas

(Pages 25, 29)

Distribution Costs*

• Residential $8.50/Dth

• Sm Commercial $7.50/Dth

• Lg Commercial $5.50/Dth

Monthly Charge

• Residential $20/month

• Sm Commercial $33/month

• Lg Commercial $285/month

*Costs do not include monthly charge or TIF

33


PRICING STRUCTURE

(TRUE COMPARISON)

Maine Natural Gas Summit Natural Gas

Distribution Costs*

• Residential $14.65/Dth

Based on 120 Dth per year

• Commercial $10.32/Dth

Based on 600 Dth per year

Distribution Costs*

• Residential $10.50/Dth

Based on 120 Dth per year

• Sm Commercial $8.16/Dth

Based on 600 Dth per year

• Lg Commercial $7.78/Dth

Based on 1,500 Dth per year

*Without TIF and includes monthly charge

*Without TIF and includes monthly charge

34


PRICING STRUCTURE

Maine Natural Gas

(Page 16)

CIAC

• Construction Allowance

$6,900 (based on 120 Dth

annual usage)

Conversion Incentive

• Included in rate structure

• Residential –

50% of cost or up to $1,500

• Commercial –

50% of cost or up to $1,000

Summit Natural Gas

(Pages 26-27)

CIAC

• Construction Allowance $6,684

(based on 400 ft. density)

Conversion Incentive

• Included in rate structure

• Residential only –

75% of cost or up to $1,500

• LIHEAP customers –

100% of cost or up to $4,000

35


PRICING STRUCTURE

Maine Natural Gas

Conversion Costs

• Oil Conversion

$2,500 - $4,000

• Propane Conversion

$500 - $1,000

• Replace Furnace

$3,500 - $6,500

• Replace Boiler

$4,000 - $8,000

Summit Natural Gas

Conversion Costs

• Oil Conversion

$1,600 - $3,000

• Propane Conversion

$100 - $800

• Replace Furnace

$3,500

• Replace Boiler

$4,500

36


RESIDENTIAL SAVINGS

Fuel

Cost/

unit

Units/

year

Total

Cost

Natural Gas

(Summit)

Oil

(depending on system

efficiency, 870 gallons of

heating fuel is

equivalent to 120Dth)

$16.50/Dth 120Dth $1,980

$3.75/gal 870 Gallons $3,263

Savings $1,283

37


RESIDENTIAL SAVINGS

Fuel

Cost/

unit

Units/

year

Total

Cost

Natural Gas

(MNG)

Oil

(depending on system

efficiency, 870 gallons of

heating fuel is

equivalent to 120Dth)

$20.65/Dth 120Dth $2,478

$3.75/gal 870 Gallons $3,263

Savings $785

38


EVALUATION SUMMARY

Criteria

Experience

(As a utility)

Experience (With similar

projects/communities and business

plan supporting expansion in Maine)

Saturation

Pricing

Maine

Natural Gas

x

Summit

Natural Gas

x

x

x

39


MANAGERS’ RECOMMENDATION

The Managers recommend that the

Councils endorse the proposal from Summit

Natural Gas of Maine and authorize the

Managers to enter into a joint MOU with

Summit to pursue and support PUC

approvals as necessary to serve the

communities of Cumberland, Falmouth, and

Yarmouth as a natural gas utility in

accordance with their proposal.

40


NEXT STEPS…

Council

• Resolution to endorse proposal from

Summit Natural Gas of Maine

Managers

• Execute MOU with Summit

• File as Intervenors in PUC case

• Periodic reporting to Council

Public Process

• Informational Forums

41


UESTIONS

FOR MORE INFORMATION, PLEASE VISIT:

www.cumberlandmaine.com

www.town.falmouth.me.us

www.yarmouth.me.us

42

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