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Natural gas not the best option for everyone

In a state that “flares,” or burns off, 29 percent of the gas it produces as it comes out of the ground, about 91 communities can use natural gas to heat their homes but it’s not an option for everyone.

“It’s not as easy as flipping a switch,” said MDU Resources spokesman Rick Matteson.

Installing natural gas in a community takes a lot of investment by both the utility company and the homeowner. In order for it to work, Matteson said it takes a larger concentration of customers.

“In a lot of places there’s just not enough customers to justify the cost,” he said.

In the utilities business, the cost of infrastructure is so high it doesn’t make sense to have more than one provider in an area because it ends up costing consumers a lot, said Public Service Commissioner Julie Fedorchak.

“It isn’t considered cost effective to pay for more than one,” she said, so there usually isn’t competition for those services.

Fedorchak said utilities companies are granted a natural monopoly, a monopoly that exists as a result of high fixed or start-up costs of operating a business, in exchange for being regulated. The PSC regulates companies’ spending and what they charge customers.

When a utility comes to the PSC with a plan, Fedorchak said the commisioners issue a Certificate of Public Convenience and Necessity. She said they evaluate the viability of the plan and the affect it will have.

Fedorchak said electric service does not necessarily keep natural gas out of an area, the commission does not regulate propane, and in at least 40 communities in the state there is both electric and natural gas.

Fedorchak said the PSC is “aggressively trying to reduce the flaring of natural gas” and home heating would be a great use for the resource. She also said consumers benefit from multiple utility options. The biggest hurdle for getting natural gas is the infrastructure is extremely expensive, she said.

“For folks that have looked at it (in some rural areas), they don’t think they can sell enough to recover their investments,” she said. “If it were profitable they would do it today.”

Matteson said the most common reason MDU would add gas to an area is if it was requested for an industrial park or large commercial user.

MDU spokesman Mark Hanson said the company looked into adding service to Beulah at the request of an industrial customer but residents didn’t want it.

When adding natural gas to a home, Hanson said residents have to buy new appliances that can burn natural gas and the piping in the house may have to be redone if it’s not up to grade.

“We’re going to basically rip up the town (installing pipe),” he said.

Hanson said just because natural gas is added it doesn’t mean every homeowner has to take it but in a town of 3,000, if only 1,000 take it, the cost per customer goes up because it is distributed among fewer people.

When natural gas comes into a small town it also impacts propane marketers.

Propane is not a huge portion of the business done by Cenex of Bismarck-Mandan, general manager Cy Fix said but any time natural gas goes into an area it does affect the co-op.

Fix said as more people choose natural gas around Bismarck-Mandan the distance to haul propane gets farther and the delivery expense goes up, cutting into profits. Insurance also is a big expense.

Fix said the co-op delivers within a 25- to 30-mile radius. The price is dictated by the market and is the same for all customers. Nothing extra is charged to deliver the product further.

“You just make less margin is all,” he said.

Fix said every time natural gas service has gone out further, he has lost customers. Propane is more expensive than gas. Right now 800 gallons costs about $960. Natural gas also offers the convenience of no tank in the backyard to mow around or paint, he said. Some customers will decide to stick with natural gas but a lot won’t.

Dave Walth, owner of Gray Oil in Mandan, said whenever natural gas comes into one of his service areas, more than 50 percent of his customers would switch over.

Walth said sometimes those that do switch regret it after spending $5,000 to $7,000 upgrading their homes.

“It’s not as big of savings as they thought it would be,” he said.

In a small town, like Beulah or Hazen, an operator usually sells 1 million to 1.5 million gallons per year, Fix said. To stay in business they may offer other services, like bulk fuel delivery or furnace installation. If they lose half their customer base to natural gas they may “have to let the hired man go” or sell the trucks and go out of business.

“Then where’s your competition?” he asked. “They may have that other thing they do to keep them going but if they lose a large chunk of one sector that might not be enough.”

Walth said natural gas won’t drive him out of business but it does cut into sales.

“If you go into those towns with natural gas you don’t see many tanks sitting around,” North Dakota Petroleum Gas Association Executive Director Mike Rud said.

When a couple of state legislators proposed a study of the viability of extending natural gas to rural communities during the 2011 session, the Petroleum Gas Association opposed it, Rud said.

Rud said propane company operators have invested millions in infrastructure in small towns in the form of tanks and piping. He said natural gas projects shouldn’t be funded by state or federal dollars because those propane operators never received aid on their investment.

Dennis Hill of the North Dakota Association of Rural Electric Cooperatives said he can’t think of a time that co-ops have brought up concerns about natural gas service being added to an area.

Hill said co-ops also work with propane dealers offering a dual fuel system. When electric is higher propane can be burned and during “off-peak” hours when electric is cheaper customers can use it instead.

Co-ops like Capital Electric Cooperative also offer an allelectric price break to customers for those that choose to use it for both heating and power. Member Services Director Doug Mork said Capital Electric has about 15,000

In a state that “flares,” or burns off, 29 percent of the gas it produces as it comes out of the ground, about 91 communities can use natural gas to heat their homes but it’s not an option for everyone.

“It’s not as easy as flipping a switch,” said MDU Resources spokesman Rick Matteson.

Installing natural gas in a community takes a lot of investment by both the utility company and the homeowner. In order for it to work, Matteson said it takes a larger concentration of customers.

“In a lot of places there’s just not enough customers to justify the cost,” he said.

In the utilities business, the cost of infrastructure is so high it doesn’t make sense to have more than one provider in an area because it ends up costing consumers a lot, said Public Service Commissioner Julie Fedorchak.

“It isn’t considered cost effective to pay for more than one,” she said, so there usually isn’t competition for those services.

Fedorchak said utilities companies are granted a natural monopoly, a monopoly that exists as a result of high fixed or start-up costs of operating a business, in exchange for being regulated. The PSC regulates companies’ spending and what they charge customers.

When a utility comes to the PSC with a plan, Fedorchak said the commisioners issue a Certificate of Public Convenience and Necessity. She said they evaluate the viability of the plan and the affect it will have.

Fedorchak said electric service does not necessarily keep natural gas out of an area, the commission does not regulate propane, and in at least 40 communities in the state there is both electric and natural gas.

Fedorchak said the PSC is “aggressively trying to reduce the flaring of natural gas” and home heating would be a great use for the resource. She also said consumers benefit from multiple utility options. The biggest hurdle for getting natural gas is the infrastructure is extremely expensive, she said.

“For folks that have looked at it (in some rural areas), they don’t think they can sell enough to recover their investments,” she said. “If it were profitable they would do it today.”

Matteson said the most common reason MDU would add gas to an area is if it was requested for an industrial park or large commercial user.

MDU spokesman Mark Hanson said the company looked into adding service to Beulah at the request of an industrial customer but residents didn’t want it.

When adding natural gas to a home, Hanson said residents have to buy new appliances that can burn natural gas and the piping in the house may have to be redone if it’s not up to grade.

“We’re going to basically rip up the town (installing pipe),” he said.

Hanson said just because natural gas is added it doesn’t mean every homeowner has to take it but in a town of 3,000, if only 1,000 take it, the cost per customer goes up because it is distributed among fewer people.

When natural gas comes into a small town it also impacts propane marketers.

Propane is not the largest part but is a portion of the business done by Cenex of Bismarck-Mandan, general manager Cy Fix said, but any time natural gas goes into an area it does affect the co-op.

Fix said as more people choose natural gas around Bismarck-Mandan the distance to haul propane gets farther and the delivery expense goes up, cutting into profits. Insurance also is a big expense.

Fix said the co-op delivers within a 25- to 30-mile radius. The price is dictated by the market and is the same for all customers. Nothing extra is charged to deliver the product further.

“You just make less margin is all,” he said.

Fix said every time natural gas service has gone out further, he has lost customers. Natural gas also offers the convenience of no tank in the backyard to mow around or paint, he said. Some customers will decide to stick with propane but a lot won’t.

Dave Walth, owner of Gray Oil in Mandan, said whenever natural gas comes into one of his service areas, more than 50 percent of his customers would switch over.

Walth said sometimes those that do switch regret it after spending $5,000 to $7,000 upgrading their homes.

“It’s not as big of savings as they thought it would be,” he said.

To stay in business in the off season Fix said companies may offer other services, like bulk fuel delivery or furnace installation. If they lose half their customer base to natural gas they may “have to let the hired man go” or sell the trucks and go out of business.

“Then where’s your competition?” he asked. “They may have that other thing they do to keep them going but if they lose a large chunk of one sector that might not be enough.”

Walth said natural gas won’t drive him out of business but it does cut into sales.

“If you go into those towns with natural gas you don’t see many tanks sitting around,” North Dakota Petroleum Gas Association Executive Director Mike Rud said.

When a couple of state legislators proposed a study of the viability of extending natural gas to rural communities during the 2011 session, the Petroleum Gas Association opposed it, Rud said.

Rud said propane company operators have invested millions in infrastructure in small towns in the form of tanks and piping. He said natural gas projects shouldn’t be funded by state or federal dollars because those propane operators never received aid on their investment.

Dennis Hill of the North Dakota Association of Rural Electric Cooperatives said he can’t think of a time that co-ops have brought up concerns about natural gas service being added to an area.

Hill said co-ops also work with propane dealers offering a dual fuel system. When electric is higher propane can be burned and during “off-peak” hours when electric is cheaper customers can use it instead.

Co-ops like Capital Electric Cooperative also offer an allelectric price break to customers for those that choose to use it for both heating and power. Member Services Director Doug Mork said Capital Electric has about 15,000 meters and about 1/3 to 1/2 are all-electric.

Mork said Plenum heaters also are another popular solution: “If prices are such that (electric) is less expensive they can turn it on.”

Hill said heating is only one part of the market though and the co-ops have the power side to fall back on: “Natural gas has been very competitive as of late. That’s the reality of the marketplace but it’s not going to replace (coops.)”

In a state that “flares,” or burns off, 29 percent of the gas it produces as it comes out of the ground, about 91 communities can use natural gas to heat their homes but it’s not an option for everyone.

“It’s not as easy as flipping a switch,” said MDU Resources spokesman Rick Matteson.

Installing natural gas in a community takes a lot of investment by both the utility company and the homeowner. In order for it to work, Matteson said it takes a larger concentration of customers.

“In a lot of places there’s just not enough customers to justify the cost,” he said.

In the utilities business, the cost of infrastructure is so high it doesn’t make sense to have more than one provider in an area because it ends up costing consumers a lot, said Public Service Commissioner Julie Fedorchak.

“It isn’t considered cost effective to pay for more than one,” she said, so there usually isn’t competition for those services.

Fedorchak said utilities companies are granted a natural monopoly, a monopoly that exists as a result of high fixed or start-up costs of operating a business, in exchange for being regulated. The PSC regulates companies’ spending and what they charge customers.

When a utility comes to the PSC with a plan, Fedorchak said the commisioners issue a Certificate of Public Convenience and Necessity. She said they evaluate the viability of the plan and the affect it will have.

Fedorchak said electric service does not necessarily keep natural gas out of an area, the commission does not regulate propane, and in at least 40 communities in the state there is both electric and natural gas.

Fedorchak said the PSC is “aggressively trying to reduce the flaring of natural gas” and home heating would be a great use for the resource. She also said consumers benefit from multiple utility options. The biggest hurdle for getting natural gas is the infrastructure is extremely expensive, she said.

“For folks that have looked at it (in some rural areas), they don’t think they can sell enough to recover their investments,” she said. “If it were profitable they would do it today.”

Matteson said the most common reason MDU would add gas to an area is if it was requested for an industrial park or large commercial user.

MDU spokesman Mark Hanson said the company looked into adding service to Beulah at the request of an industrial customer but residents didn’t want it.

When adding natural gas to a home, Hanson said residents have to buy new appliances that can burn natural gas and the piping in the house may have to be redone if it’s not up to grade.

“We’re going to basically rip up the town (installing pipe),” he said.

Hanson said just because natural gas is added it doesn’t mean every homeowner has to take it but in a town of 3,000, if only 1,000 take it, the cost per customer goes up because it is distributed among fewer people.

When natural gas comes into a small town it also impacts propane marketers.

Propane is not the largest part but is a portion of the business done by Cenex of Bismarck-Mandan, general manager Cy Fix said, but any time natural gas goes into an area it does affect the co-op.

Fix said as more people choose natural gas around Bismarck-Mandan the distance to haul propane gets farther and the delivery expense goes up, cutting into profits. Insurance also is a big expense.

Fix said the co-op delivers within a 25- to 30-mile radius. The price is dictated by the market and is the same for all customers. Nothing extra is charged to deliver the product further.

“You just make less margin is all,” he said.

Fix said every time natural gas service has gone out further, he has lost customers. Natural gas also offers the convenience of no tank in the backyard to mow around or paint, he said. Some customers will decide to stick with propane but a lot won’t.

Dave Walth, owner of Gray Oil in Mandan, said whenever natural gas comes into one of his service areas, more than 50 percent of his customers would switch over.

Walth said sometimes those that do switch regret it after spending $5,000 to $7,000 upgrading their homes.

“It’s not as big of savings as they thought it would be,” he said.

To stay in business in the off season Fix said companies may offer other services, like bulk fuel delivery or furnace installation. If they lose half their customer base to natural gas they may “have to let the hired man go” or sell the trucks and go out of business.

“Then where’s your competition?” he asked. “They may have that other thing they do to keep them going but if they lose a large chunk of one sector that might not be enough.”

Walth said natural gas won’t drive him out of business but it does cut into sales.

“If you go into those towns with natural gas you don’t see many tanks sitting around,” North Dakota Propane Gas Association Executive Director Mike Rud said.

When a couple of state legislators proposed a study of the viability of extending natural gas to rural communities during the 2011 session, the Propane Gas Association opposed it, Rud said.

Rud said propane company operators have invested millions in infrastructure in small towns in the form of tanks and piping. He said natural gas projects shouldn’t be funded by state or federal dollars because those propane operators never received aid on their investment.

Dennis Hill of the North Dakota Association of Rural Electric Cooperatives said he can’t think of a time that co-ops have brought up concerns about natural gas service being added to an area.

Hill said co-ops also work with propane dealers offering a dual fuel system. When electric is higher propane can be burned and during “off-peak” hours when electric is cheaper customers can use it instead.

Co-ops like Capital Electric Cooperative also offer an allelectric price break to customers for those that choose to use it for both heating and power. Member Services Director Doug Mork said Capital Electric has about 15,000 meters and about 1/3 have some form of electric heat.

Mork said Plenum heaters also are another popular solution: “If prices are such that (electric) is less expensive they can turn it on.”

Hill said heating is only one part of the market though and the co-ops have the power side to fall back on: “Natural gas has been very competitive as of late. That’s the reality of the marketplace but it’s not going to replace (coops.)”

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