In a dramatic turn of events and a 3-2 vote the West Wendover City Council killed the Wendover Gas Company purchase in Tuesday’s council meeting.
City Council Meeting video:
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Long time opponents of the $2.4 million purchase councilmen Izzy Gutierrez and Gerado Rodriguez were joined by Roy Briggs previously one of the projects biggest boosters to kill the plan.
Until two weeks ago the purchase of the near bankrupt company seemed all but a done deal. Long a pet project of City Manager Chris Melville the idea was also supported by a solid three fifths majority of the city council, Briggs, Johnny Gorum and Saul Andrade and Mayor Emily Carter.
A $10,000 feasibility study prepared by Bob Springmeyer of Bonneville Research enthusiastically endorsed not only buying the beleaguered utility but also the natural gas pipeline in its synopsis.
It suggested that given the right conditions the city of West Wendover could purchase the gas company and operate it at either a profit or at least at the break even point.
That conclusion also gave the council political cover to support the project and to answer critics that the council had not done its due diligence in researching the project.
By Tuesday’s meeting all that seemed to remain was the vote or rather votes that would put the City West Wendover in the gas business.
But was once a foregone conclusion to a five year long process came apart when Gorum’s motion to proceed with the purchase died for lack of a second.
As reported last week since the feasibility came out two weeks ago, opposition to the purchase and the natural gas pipeline was growing most significantly from casino executives who reportedly not only read the report’s synopsis but also the numbers behind the conclusion.
“Except for the West Wendover City Council I really don’t think there was all that much support in the first place,” Crawford said Wednesday. “And if you read the report it raises some questions.
Wendover Gas has been in severe economic straights for over a decade primarily according to owner Nancy Green because the major casinos in town opted out of receiving their propane supplied through her companies gas lines and instead went with Wendover Gas’ own wholesaler.
According to the feasibility study West Wendover could purchase the gas company for just under $2.5 million and even without the casinos coming back on the system, the city could operate it without losing money and without raising rates.
“A lot of people, a lot of businessmen are questioning those conclusion,” Crawford said last . “My council is against it and even some executives from the casinos are having second thoughts. Wendover Gas is a failing business and we don’t see how the city could run it more efficiently.”
The withdrawal of casino support may have been crucial to Briggs about face and Andrade failure to second Gorum’s motion. Both men along with Gorum and Mayor Carter are employees of the Peppermill Corporation and have been accused of in the past of tailoring their votes to their bosses demands.
While initially favorable to the idea when it was first proposed and until late last year several executives in the casino industry began to weigh the savings offered by natural gas to the cost of the pipeline and the debt burden it would place on the city.
As the largest tax payers to West Wendover that indebtedness would have a direct impact on the industries already considerable property tax bill. And at least for the purchase of the gas company it is over $2 million that West Wendover need not have to borrow at all.
“For the city to buy the gas company for $2 million is insane,” former Nevada Public utilities financial analyst Paul Kvam said last November. “Anybody could pick up its assets for maybe $10,000 next year on the courthouse steps. Getting all the pipeline infrastructure for almost nothing would make the operations profitable. Then with those assets you could think about building the pipeline.”
However without a natural gas line that system would never see a profit, Kvam explained.
“As a financial analyst, I audited and worked on Wendover Gas before I retired from the PUC in June 2009. To this day, I do not know why Nancy Green built the system.” Kvam wrote last March. “It was doomed to failure from the beginning. Reading Staff’s original report and prefiled testimony on Green’s application for a license, I concluded it was full of hopeful assumptions as to system load (sales of propane) and unrealistic profit potential. I once asked Nancy during an audit why she built it in the first place and she said that another party had made preliminary plans to build it and she didn’t want this party to destroy her business. Well, she ended up building it, and destroying her business! “
The doubts whether the city could break even on the gas company was perhaps compounded with the question on the cost of the pipeline. While estimated in the feasibility report to cost just over $9 million Wendover has been burned before with overly optimistic projections.
“This kind of reminds me of the compost plant,” the Wendover, Utah Mayor said. “You would think that if there was a profit to be had private enterprise would be building a natural gas line.”
To arrive at the estimate the study used a rule of thumb equation where the diameter of the pipe (4 inches) multiplied by the number of miles (62) multiplied by $40,000.
“It is a pretty basic formula,” said Wendover Gas trustee Steven Shute. “I have been involved in building pipelines for over 20 years and it is pretty accurate.”
But while the estimate is attractive it may not be accurate.
Bringing natural gas to Wendover is an old dream. 15 years ago then Mayor Walt Sanders and City Manager Keyth Durham initiated talks with the company planning to build what would become the Ruby Pipeline. Those talks however led nowhere. The pipeline was still in its planning stage and the cost estimated to be over $20 million for a spur line to Wendover was considered to be too high.
“Laying pipe in Nevada is between $800,000 and $1 million a mile,” said Kvam. “If the City of West Wendover desires to purchase Wendover Gas, I ask the following question: Has the City conducted an engineering cost study to connect the present propane system to the Ruby Pipeline? How much would it cost? Does it make sense? How tough is the rock the trench would have to go through? (The cost of putting in natural gas pipelines can greatly vary depending on how tough the digging is). My point is that the value of the current system is dependent upon the cost of connecting the current system to natural gas. If it is not cost effective to connect Wendover Gas’ system to the Ruby Pipeline, then the City should not pay too much for the system.”
While the feasibility study gives its estimate there have been no geological studies yet connected on the route or proposed routes the pipeline would take. In fact very little is known of the area as it is one of the least explored parts of Nevada or for that matter the country.
“I flew over the proposed routes,” Shute said. “It looks like a pretty easy dig. It could either go through Montello or through Grouse Creek.”
“If West Wendover can build a 62 mile pipeline for that much send them to me,” Kvam said. “We are trying to build a 10 mile natural gas pipeline to Virginia City and our estimate is about $ 9 million.”
According to energy Kvam one of the largest impediments to a natural gas pipeline to Wendover is not the cost of the project but the incredibly low price for electric power.
“You folks in Wendover live in a whole other world,” he said Tuesday. “The price you pay for electricity is about the lowest in the country.”
A June 2011 survey by the Edison Electric Institute found that the national average rate was 12.07 cents per kilowatt hour. Nevada’s average was 12.16. WREC is well below both marks at just 7.2 cents per kWh.
“The price is so low that residents really have to think long and hard about spending the money to convert to gas,” Kvam said. “And many of them won’t.”
“I am all electric,” Crawford said. “Given the headache and the cost of laying the pipes, getting new gas appliances, ripping out the walls it would be years before the money I would save on gas would break even.”