Gallatin gives up on city gas utility

GALLATIN, Mo. -- After spending about $2 million from reserves and other funds, this Daviess County community is giving up, at least temporarily, on its eight-year struggle to profitably operate a natural-gas utility.

In 1996, the northwest Missouri city entered into a $4.8 million lease-purchase agreement for the utility, which has never met its projected revenue. Among the problems: fewer customers than expected and several mild winters.

Now, the city's board of aldermen has decided to stop making lease payments and is actively searching for a gas company to purchase the utility from the city's lender. Customers won't have an interruption in service during the process.

The city does not own the gas utility, instead making $450,000 annual lease payments. The utility has generated between $200,000 to $350,000 in revenue every year, and if the city had continued its lease payments, city administrator Toby Dougherty said there may have been times in 2004 when the city wouldn't have been able to cover costs or payroll.

"You can operate on a tight budget, but when you run on that tight of a budget, it's just a matter of time before you have a big-ticket item that you aren't going to be able to fix," he said.

Now that the city is free from the lease payment, its water and electric utilities will no longer have to cover the deficit, and the city can afford several much-needed improvements, including water mains and resurfacing streets.

The city will continue to send revenue from the utility to its lender, Bank of New York, while operating the utility with no gain or loss.

With its earning potential, Dougherty said it's unlikely the utility will shut down. Two gas companies have already shown interest in buying the utility from the bank.

"Even if something doesn't happen immediately, one or two years down the road there's going to be some interest in it," he said.