City looks at selling more gas

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The Socorro City Council talked about an agreement to sell natural gas to Dicaperl during its regular meeting May 6.

Mayor Ravi Bhasker said the city has been working on the agreement with the company about six months.

Dicaperl mines perlite, which the company has to dry and then load on rail cars. Used oil currently fuels the furnaces used to dry the perlite, but Bhasker said the city talked to Dicaperl about using natural gas to fuel the furnaces — especially in the summer when gas usage is low.

Bhasker said the city has worked out an agreement with Dicaperl whereby the company will reimburse the city for the cost of installing the natural gas pipeline, which is estimated to cost $70,000. He said the company will reimburse the city over three years, and the city will give Dicaperl a discounted rate on the natural gas. He said the company has spent a considerable amount of money converting its burners to burn both natural gas and used oil.

Bhasker said Dicaperl employs about 40 to 45 people at its facility, and the company’s payroll has benefitted the city’s economy many years. He noted in the past there have been problems with dust from the facility, but the company spent a large sum for a scrubber that decreased dust pollution.

“I think they’re very good neighbors,” Bhasker said.

Jay Santillanes, city utilities division director, said the company will start using the city’s gas June 15, and expects to be fully operational with the natural gas by July 1.

According to the agreement included with the city’s agenda packet, the city charges customers the cost of natural gas plus 38.5 cents per therm. The city’s deal with Dicaperl is for 15 cents per therm.

Bhasker said although the city is giving the company a discount on its natural gas rates, it is not an unlimited contract. The contract will be up for renegotiation in three years. He said the discounted rate will allow the company to have more funds to reimburse the city for installing the gas line.

Santillanes said one important detail of the contract is that the gas supply to Dicaperl is interruptible.

“In the wintertime when we start needing more gas for our other customers, we can cut them off,” Santillanes said. “That’s why they have to have a dual-fuel system, so they can switch back to the waste oil if we shut them down.”

Santillanes noted Socorro winters are mild, and the city would like to sell natural gas to Dicaperl in winter also as long as it doesn’t disrupt gas service to city residents. He said the city has had problems with gas pressure during especially cold times, so staff will have to monitor gas service and shut Dicaperl’s down at the most critical times.

“I think that was very wise to put in there that we could cut them off when we needed it; first, we’ve got to protect our people,” Councilor Gordon Hicks said, adding he thought it was neat the company could retrofit its burners to use natural gas or used oil.

Santillanes said the company hasn’t provided him a conversion chart as to the cost of used oil versus natural gas. But he said natural gas is less expensive than used oil now, and the price of used motor oil is expected go up because more companies are recycling it.

“Natural gas is cheaper and probably more efficient, so they will actually have a twofold gain in using natural gas as opposed to the waste oil,” Santillanes said.

Santillanes said the city’s gas system has minimal use in summer months, so selling to Dicaperl will benefit the city’s coffers. In winter, the city will have the option of shutting off Dicaperl’s natural gas in order to maintain optimal service for city residents. He said if the temperatures get down as low as the teens the city may have to look at shutting off Dicaperl. As things stand, pressure in the city’s gas lines start dropping when the temperature goes down to about 10 degrees.

“It’s not too difficult to predict, but we’ll be very conservative,” Santillanes said.

Councilor Michael Olguin asked about the area by Bullock, which has issues with gas pressure in the winter, and how that area may be affected.
Santillanes said the city is doing projects to alleviate pressure issues in the Bullock area, but selling gas to Dicaperl won’t affect pressures because the city will shut them off before there is an issue.

Santillanes said a few different factors affect the gas pressure in the lines. He said the city is working on replacing its more narrow lines, including putting four-inch lines in the alleys. He said the gas system loses pressure at the valves on the main line, and to get more pressure the city will have to replace those.

Councilor Donald Monette asked if Dicaperl will pay retail price for the city’s natural gas in three years when the contract is up. Bhasker said that would be a discussion for executive session.

Salome said the city’s natural gas rates are set by ordinance, but customers that use large volumes, over a certain amount, have the ability to negotiate the rate they pay. When Dicaperl was looking at converting, they knew it would be a large up-front cost to them and to the city. The city must be reimbursed for putting in the gas line, and the company must also recoup its costs, which Salome presumed it can do in three years.

At that point, he said the city’s negotiations with Dicaperl should be a lot different because the city will no longer be out the capital outlay costs and the company will have recouped the costs of converting its burners.

Salome said the deal with Dicaperl is new from many perspectives. It is the first time the city has negotiated gas prices with a customer. He said the city is trying to create usage in the summer months to add to its revenue. It will be the first time the city has connected a customer with a shutoff option.

Santillanes said the city’s gas service to Dicaperl is expected to generate a minimum of about $30,000 to $40,000 in additional revenue per year, but the company could use more gas than anticipated.

“This first year is going to be a trial for both of us,” Santillanes said.

Bhasker said if natural gas continues to have an impact on energy reliance in the U.S., the city wants to be part of it. He said the city doesn’t sell a lot of gas during seven or eight months of the year; there are only about “three golden months” during the winter when there is a high natural gas usage.

Bhasker said if a fleet business wanted to convert its vehicles to natural gas power, the city would make the same kind of deal with that business as it has with Dicaperl. He added the city has been trying for a long time to get its own fleet of natural gas-powered vehicles.

He said vehicles powered by natural gas are about as efficient as gasoline vehicles, but natural gas costs about $1 per gallon while gasoline costs $3.30 or more.