Crossville Chronicle, Crossville, TN

Glade Sun

May 14, 2014

Upper Cumberland Gas explores merger

CROSSVILLE — Commissioners of the Upper Cumberland Gas Utility District (UCGUD) called a special meeting on May 8 to discuss a merger proposal by Middle Tennessee Natural Gas Utility District (MTNG). The merger would dissolve UCGUD as a utility district and connect the two systems separated by Interstate 40. Currently, UCGUD has franchise rights to everything north of I-40, while MTNG controls everything south of the interstate.

"So that everyone understands, this is not two businesses that are looking to merge," said UCGUD attorney Phillips Smalling. "We are non-profit entities. We're a quasi-governmental entity. We're controlled by the state. We meet state statutory requirements. We meet federal regulatory requirements. But this is not two businesses that are merging. These are two government entities, that are for the people, that are nonprofit, for the public benefit. And so, that's why public input, public information, and information to everybody that's involved is a crucial aspect."

UCGUD has been in existence since the mid 1980s. When General Manager Charlie Hercher came on board in 2005, the utility district was $1.8 million in default. Since then, it has doubled in size to 2,521 customers and has again become financially stable.

"Traditionally, you see mergers of utility districts when one of them is financially distressed," said Smalling. "We are not financially distressed. This is not a circumstance where anybody is in trouble, where there's bad debt service issues. This is a situation of two entities, that are both in good shape, looking to see what's best to do."

MTNG serves 56,000 customers across 21 counties in Tennessee. It has been serving Cumberland County since 1960.   

If the merger goes through, former UCGUD residential customers are expected to save more than $400 on average each year. Small commercial customers are expected to save more than $1,000 annually.

"I've got a question. Why all of a sudden have you decided you need this place?" asked UCGUD Commissioner Arthur Godsey.

"To answer your question, there are a couple of reasons," replied Mike Corley, general counsel and vice president at MTNG. "Number one, you're financially stable at this point. When you were having difficulty 10-12 years ago, the debt was higher, we were not in the financial position that we're in now and, while we think it's sort of marginal as far as financial position goes to do the merger, with the potential for growth on the north side of the interstate, we think we can justify it. We would still be paying more per customer than the customer base that we currently have, but it's close enough. And then the second reason is we need more gas supply on the south side of the interstate. While most of your gas supply is spoken for here, we could connect these two systems and depending on circumstances we could move gas to both sides of the interstate depending on what the needs are. It would add flexibility. You have a tap on East Tennessee we could make use of and help operate Cumberland County as a whole better than what we do right now. We think there's an economic benefit for our customers, we know we can lower the cost for your customers, and we think we can operate the gas system better."

"What I see is a decision based on sound business practices," said UCGUD Commissioner Steve Stone. "The reason they [MTNG] didn't want it 12 years ago was because it would have been a poor business decision. Today, this is a very healthy organization with $3 million in the bank."

The main disadvantage seems to be the dissolution of the current board, leaving Cumberland County without representation.

"I think the public needs to recognize there will be no mechanism for there to be a representative of Cumberland County on the board of Middle Tennessee," said Smalling.

"That will not change. That's state law," replied Corley. "That's not me speaking. The legislature in Nashville has written that into any utility district that has as many counties as we serve. We serve parts of 21 counties, We can't have 21 commissioners. We can have seven. The law provides that those commissioners will come from the counties that their predecessor came from, so that will mean Cumberland County will not have one, but that is as true as it is today over on the south side of the interstate, and I think you would be hard pressed to go to any road on the south side of I-40 and find a neighborhood that's within our expansion policy that doesn't have natural gas. Whether there is a commissioner here or not, this is one system, the pipes are all connected together and we have rules that apply district wide. If there are three or more gathered together, we're gonna be there. It's like the Holy Spirit, almost. Natural gas will be coming."

"There will be some other changes, but I think they would all be positive," said Corley. "Such as, if there were an emergency in this area, a localized emergency like a tornado or something to that effect, we have personnel district-wide that we could bring in, and bring a lot of people to solve a problem in a quick way, that is probably unique to us just because of our size.

"We have a strong financial position. We have a net position of over $150 million, and we use that to improve the area we serve. The last acquisition we had was Gainesboro, in Jackson County. They had intention for probably 25-30 years to run the gas system north of the Cumberland River to where the Jackson County High School is but, for 25 or 30 years following the building of that bridge, it never happened. Within three to four years of the time that we merged, now, Jackson County High School has natural gas service because we were able, had the financial position to be able, to actually span the river and get it over to the high school. The propane tanks are gone and they saved thousands of dollars last winter. Those are the positive changes I see, but what will have to be weighed by this board is whether those changes are outweighed by the fact that this board would no longer exist. If you happen to live in Fairfield Glade and were interested in talking to your commissioner, you might have to call somebody in Sparta."

According to their representative at the meeting, MTNG has a 98 percent customer satisfaction rating, with most issues able to be resolved at the local office without requiring a commissioner.

Concerns were raised by current staff of UCGUD regarding whether or not they would be able to keep their jobs.

"Middle Tennessee averages about 420-430 customers per employee," answered Corley. "There are four employees here [at UCGUD]. To be able to serve these 2,500 people, we're gonna need good, trained employees that know the area. And where are they? They're already here. So, we're willing to commit to those employees, that they would become, at the end of the merger, employees of Middle Tennessee Natural Gas, with all the benefits that any other employee of the district would have. "

Other concerns include an inability to enforce any agreements made in the merger contract.

"I don't think it's a good idea to go with the concept or idea that we can contract or dictate from the grave on what's going to happen in the future," said Smalling. "I'm not saying they wouldn't honor it, I'm just saying there is no mechanism for that."

"We can't set money aside because that would be taking away their authority," Smalling explained. "Further, even if Middle Tennessee said 'our policy is to do XYZ,' if circumstances change, they would still be under what we call the 'reasonable businessman rule,' where they've got to act reasonably under the facts at the time. I honestly don't believe there is a mechanism to enforce any agreements down the road as to what the management aspect will be in this geographic area."

The next regular meeting of UCGUD is scheduled May 20 at 4 p.m. at the office at 997 Woodland Circle (off Peavine Rd.), though it is still undecided when the commissioners will take up a vote on the merger proposal. If both utility district boards approve the merger, Cumberland County Mayor Kenneth Carey will then hold a public hearing after the petition is filed. Notice will be given and the public  make comments. Following a hearing, the mayor will decide whether to approve or disapprove the measure.

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