The 1,500 residents of the tiny town of Red Boiling Springs, TN, face an uncertain future when it comes to who will be running their natural gas utility. The city council recently 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. Hollis told NGI last week that he has wanted to buy out the utility for a while but the idea has previously lacked support.

“Without us there, the utility is going to close,” Community Initiative President Glen Tilton told the Tennessean newspaper last 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.

According to the Tennessean report, 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.

“We are very sympathetic and understand the importance that we provide natural gas to that city,” Ron Bahr, Atmos vice president of credit and finance, told NGI. “Atmos has really worked hard to be sure that we’re providing reliable gas service.”

Charles Hover, Atmos manager of credit and finance, said the utility is current with its bills; however, it still owes from debt incurred before the utility was taken over by the Tennessee Regulatory Authority (TRA).

It is unclear how much, if any, of the old debt will be showing up in consumer rates. However, the utility is due for a rate increase regardless.

“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 TRA Director Ron Jones 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%.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.