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TN Town Wrestles with Troubled Utility Business

The 1,500 residents of the tiny town of Red Boiling Springs, TN, face an uncertain future when it comes to their natural gas supply. Last Thursday the city council failed to approve a franchise for the private company that wants to buy the town's troubled gas utility.

Mayor Kenneth Hollis cast the deciding vote against a franchise for Community Initiative Inc. and said instead the city would come out ahead financially by buying the utility itself. "Without us there, the utility is going to close," Community Initiative President Glen Tilton told the Tennessean newspaper this week.

Hollis estimated it would cost about $250,000 to buy the utility, which serves 215 residential and commercial customers and one industrial customer. He prefers getting the city into the gas business to going along with the estimated $250,000 that Community Initiative would pay a management company, AUI LLC, each year to run the utility. That doesn't include the cost of natural gas.

Hollis said he thinks the city could run the utility more cheaply by using existing city office space and staff and obtaining financing as a municipality.

The city almost lost its gas supply last year after the utility's previous owner, RBS Utility, billed its customers erratically, went 17 years without a rate increase and failed to pay its gas supplier, Atmos Energy Marketing.

"While no one likes to see their rates increase, the citizens of Red Boiling Springs may be faced with higher rates, or no gas service at all," warned Tennessee Regulatory Authority (TRA) Director Ron Jones last week after regulators approved the utility's sale to Community Initiative, now quashed by the mayor's vote.

The utility is currently being run by a court-appointed receiver, Receivership Management, that wanted to sell the utility to Community Initiative. Jeanne Bryant of Receivership Management told the Tennessean that she will raise overall rates by 40% in order to pay debts still owed by the previous owner. The TRA has approved the rate increase.

Bryant said Community Initiative would not be subject to the same debt repayment. Tilton said a rate increase under Community Initiative management would have been about 17%.

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