Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, August 14, 1993 TAG: 9308140011
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: MAG POFF and JOEL TURNER STAFF WRITERS
DATELINE: LENGTH: Long
Any such effort by the city could lead to a protracted fight before the State Corporation Commission and the courts.
The dispute will have no immediate impact on the company's 43,000 customers.
The struggle over renewal of the franchise between the city and Roanoke Gas would not affect the company's lines and other assets in Salem, Vinton and the counties of Roanoke, Botetourt and Montgomery.
Nor would it have an impact on its subsidiary businesses: Bluefield Gas Co. and Highland Propane Co.
The takeover option is available under a franchise agreement between the city and Roanoke Gas that expires Aug. 30.
The city asked Roanoke Gas to extend the current franchise for one year so the parties could explore options that would benefit both.
Roanoke Gas denied the city's request. As a result, council will decide Aug. 23 whether to begin the process to acquire Roanoke Gas's assets in the city.
Roanoke Gas revealed the dispute at a news conference Friday.
The city responded at its own news conference later in the day.
Under the 20-year-old franchise agreement, Roanoke Gas pays the city about $30,000 a year for the right to run its lines under the streets. That is part of the $1.655 million that Roanoke Gas pays the city in various taxes and fees during the year.
Roanoke Gas officials said they contacted the city Aug. 4, 1992, asking for negotiations toward renewal of the contract.
The company said it swapped information with the city, which held several executive sessions on the matter.
The city asked for an initial meeting July 23, the company said, when it presented a report by a Connecticut consultant on the feasibility of public acquisition of the company.
Roanoke Gas rejected the city's request for a time extension to work out arrangements for an acquisition. The city's other option is to ask the state for immediate proceedings to determine a value of the assets for acquisition.
Company executives said the consultant's report is seriously flawed, including use of an average cost of serving all Roanoke Gas customers. It is more expensive to handle customers in the city, they said.
The consultant's proposed price of $14.5 million, they said, is based on book value, not market value, and is "far too low."
Roanoke Gas is 110 years old and is one of the city's last independent companies, the executives said. A public takeover is contrary to present industry trends, they said.
The company said it has the lowest rates in Virginia, which would be hard for the city to beat.
Among communities with publicly held gas operations, they said, Charlottesville and Richmond have significantly higher rates, while Danville's are about the same as Roanoke's.
The State Corporation Commission does not control utilities held by municipalities, they said, so Roanoke could raise rates at will.
And, they said, the city would lack the company's existing contracts with suppliers.
They estimated the cost of separating gas lines between the city and county at $7 million to $12 million. The lines have been laid without regard to boundaries, so city residents are served off lines in the county and vice versa.
The executives questioned using public funds to take over an investor-owned company.
"The acquisition clause in the franchise was not intended to provide a business opportunity for the city of Roanoke," the company said. "The language is archaic and was intended to protect citizens from the possible failure of a fledgling company at the turn of the century."
At its own news conference, the city said its consulting company - the Columbia Group of Ridgefield, Conn. - has estimated that up to $2 million could be saved annually if Roanoke Gas were operated by the city.
Kit Kiser, director of utilities and operations, said the savings could come from the lower cost of government borrowing for capital improvements and the fact that governments, unlike private corporations, do not have to pay income taxes.
"The question that we have to ask is why should that $2 million be sent outside of the Roanoke Valley when it's not necessary," Kiser said.
"We have an obligation to act in the best interest of the citizens of the city, and if we can identify $2 million in savings, it seems prudent to explore that possibility," he said.
But Kiser would not commit the city to cutting gas rates if it saved $2 million a year in costs. He would only say that the money would remain in the Roanoke Valley.
If council doesn't exercise its right by Aug. 30 to acquire the gas company's assets that serve the city, Kiser said, it will forever lose that option.
Kiser said city officials have worked with its consultants to determine the feasibility of acquiring the assets within the city.
"We want to know how much is saved, what benefits would be available to the city and its citizens, and if this is the right direction to go," he said.
Among the options that have been discussed is the city acquiring the assets and then hiring Roanoke Gas to operate the service.
While Roanoke Gas has raised Roanoke Valley cooperation as an issue, Kiser said, the city has no intention of serving customers outside the city if it acquires the assets.
by CNB