City considers deal with Savannah Energy
LaGRANGE – Less than an hour after returning from a walk through at Great Wolf Lodge, LaGrange City Council began its regular work session with discussion on another major project that is in the works for the city.
This time instead of harnessing the power (and funds) of out-of-town visitors, the city hopes to use the power of the gas generated by the LaGrange landfill to bring additional income into the city.
LaGrange has had a program to extract and use landfill gas for several years, but over time the equipment has required more and more repairs. So, when a global leader in energy services contacted the city asking to take over using their own funding, officials took the proposal very seriously.
“A few months ago, we came to the council meeting and we talked about the fact that we had been approached by a company called Savannah Energy about doing a new landfill gas project,” said Utilities Director Patrick Bowie. “Our existing project has been successful, but the equipment is worn out. It is actually offline as we speak because some of the air conditioning compressor is no longer manufactured, and we can’t get parts for it.”
While it would be possible to repair the system, experts indicated that it probably would not be the best use of city funds when the option of having Savannah Energy pay to keep the project running was available.
“Just to get it running again – which may last for two months, may last for six months – we are probably looking at well over $100,000 to get it working again,” said Public Services Director David Brown.
The company would be investing over $7 million dollars into the project, and would make payments for the gas extracted from the landfill to the city of LaGrange for as long as the project continues. Savannah Energy would also pay about $2,000 a month on a lease to the city for use of the land as well as standard utilities rates.
“Savannah Energy is going to be investing all the money,” said Bowie. “They are going to be investing close to $7 million in new equipment at the landfill that will be used to take the landfill gas and treat it to pipeline quality standards. What I mean by pipeline quality standards is that it will be just like natural gas, so we can put it directly into our natural gas system, rather than what we have now where it is landfill gas that can only be burned in a certain type of boiler.”
The city had not changed over to the type of system that is planned for Savannah Energy because of the cost of the project, but with this project Savanna would cover the full cost and risk associated with the project including other payments that will benefit the city as a result of the project.
“Savannah was going to invest up to $750,000 in upgrading the landfill gas collection system… that is where the pipes in the ground that pull the gas out of the landfill to sell,” said Bowie. “It needs some reworking in order to increase the volume, and so they are going to invest their money to do that as well.”
According to Bowie, the city will be paid for the landfill gas at a rate of close to $1 per 1 million British thermal units which on the current system would generate about $75,000 per year for the city, though with the proposed system upgrades that number could be closer to $250,000 per year.
“So, what is going to happen to the gas?” asked Bowie. “They are going to sell it to a third-party company called World Fuels, and World Fuels is going to use that gas… is going to turn around and sell that gas to us.”
The terms of the agreement would hold both Savannah and LaGrange to the agreement for 15 years with a five-year optional renewal following the end of the term, with an option to review the agreement every five year as conditions change.
“I guess the downside is that we’d be tying up this facility for 15 years, possibly 20 years from somebody else if there were to be some kind of upside in the market,” said Mayor Jim Thornton.
Bowie indicated that he didn’t expect for there to be a significant rise in the price of natural gas in the near future and that the price has actually gone down from $4 per dekatherm when the city initially invested in the project in 2004 to $3 per dekatherm at present.
“Every five years we can review that $0.98 royalty payment, so if the market changes – if things change – and they aren’t making the money they thought, we’ll negotiate adjusting that rate accordingly based on their topline revenue change.”
Any adjustments to the royalty payment would require the city’s approval. If Savanna were to pull out unexpectedly, they would have 6 months to remove all equipment or see it to the city at market value.
“We avoid pipeline fuel charges because when we purchase gas from this company – the pipeline quality gas – and sell it to our customers, we are buying it right here in LaGrange,” said Bowie. “So, we don’t have to pay interstate pipeline charges to get it here. When we buy gas, say in Louisiana, we have to pay Transco or National Gas a fuel charge in order to transport that gas from way out west to our city gate, and it runs anywhere from 2 to 3 percent, so we’ll save that 2 or 3 percent because we’ll be buying gas right here at the LaGrange market.”
In addition, the money that the project could potentially bring into the city, it would also prevent methane – a greenhouse gas – from entering the atmosphere more efficiently than the current city system. This prevention is part of Savannah Energy’s goal with the project to earn renewable energy credits that they will sell back to companies that are federally required to use a certain percentage of renewable energy, and the company’s representatives attended the council meeting on Tuesday night when the proposal went before the council.
“We are very excited to be here,” said Ryan Fitzpatrick of Savannah Energy, noting that LaGrange had been chosen because of its public utility infrastructure that the company hopes will help expedite the process, and the active involvement of its leadership.
According to Savannah Energy Representative Howard Hohl, the project could be up and running in as little as 8 to 9 months if the approval process goes smoothly.
The city hopes to not take on any additional liability under the contract with Savannah Energy, which has required some negotiation, but officials felt that final negotiations on the project should begin soon.
“A lot of what we’ve been going back and forth with on the project is to make sure that we are taking on as little risk as we can,” said City Attorney Jeff Todd. “… We are not there, but we are close.
Council approved City Manager Meg Kelsey’s ability to sign the contract when it is finalized during its regular meeting on Tuesday night.
The city council is scheduled to meet again on April 25 at 5:30 p.m. at 208 Ridley Ave.