HIBBING — Members of the Hibbing Public Utilities Commission have been taking steps to entice rate-payers to convert from steam to natural gas, forcing them to face the big question: To build an upgraded version of the Town Border Station needed to handle a larger capacity of gas for the upcoming winter or not?
Earlier this month, the HPU Commission — a group of city residents chosen by the Hibbing City Council to develop policy and oversee management at the utility system — unanimously passed a motion to approve completing the build-out project for November.
Despite the consensus, HPU Commissioner James Bayliss, who also serves as a city councilor, shared his post-vote frustration with his fellow councilors during a Committee of the Whole meeting last week. Bayliss explained that Northern Natural Gas, a subsidiary of Berkshire Hathaway Energy providing services to the city, originally estimated the cost of the project at $1.975 million in November 2018. However, the company delivered the project bid results last month showing a substantial increase on the cost now estimated at $2.6 million.
“They’re the only one that has the gas,” Bayliss said. “We got bent over on that deal. We were forced to do the project because we don’t have the right pieces in place to protect users.”
Bayliss continued, saying that he expected natural gas prices to jump this year and again next year as the city weans people off the steam heating system and onto natural gas services.
The frustration stems from nearly a year of the HPU Commission working with Mike Underwood of Northern Natural Gas to plan what has become the utility’s largest single project.
Back in November 2018, HPU General Manager Scott Hautala penned a letter to the commissioners describing how they had “discussed that this project is a critical piece to have sufficient gas to either use in the power plant to make steam, or to provide directly to customers for their home heating fuel.” He went on to write that the project would nearly double the capability to HPU’s gas distribution system to 14,500 decatherm per day. An agreement was signed. NNG would manage the project.
Ten months later, Hautala presented the new estimated cost on Sept. 10 at the HPU Commission meeting, saying HPU has been reviewing options for cost reduction that includes pushing it until next year and considering other bidder quotes. Underwood, who shared that he has 39 years with Northern Natural Gas, explained that his company used the nationally recognized Sage Timberline Estimating Software to estimate the project cost. But there was one factor: the cost of contractors.
The project received five bids in total. The lowest bid clock in at $1.4 million, but the utility management thought it best to choose the bidder which would help revamp the entire border station to extend its capacity and its life into the future.
Hibbing’s border station was erected in 1965. Underwood said the aged station had two glaring problems: “the piping size is too small” and “the heater is small for the increased capacity that Hibbing wishes to use,” according to a recording of the meeting obtained and reviewed by the Hibbing Daily Tribune this week. What does that mean? “The increased velocity of gas in which the temperature of the gas decreases, and also heater may not have the capacity to keep gas warm enough to keep that station from freezing off.”
Basically, the station can currently handle the capacity of natural gas users. But more people are leaving steam for natural gas and that means more capacity, which results in the possible maxing out of the system and people not being able to warm up their homes, especially if the city gets hit by another cold winter akin to last year when the wind chill dropped down to 60-plus below.
Hautala posed four options: upgrade for November, extend time-frame to December, postpone until next year and hope for better bids or cancel the project and start from scratch.
What happened in the next 40-plus minutes involved much finger-pointing, as some HPU Commissioners put the blame on HPU management and everyone seemed to blame Underwood who in turn looked to the Timberline estimating tool and the uncertainty of bidders as the reason for cost to rise $600,000-plus.
“It’s double what was estimated,” said HPU Commissioner Jeff Hart. “It doesn’t seem like a very professional way to operate business.”
Underwood replied, “I agree with you on the estimating part of it. I had 12 projects this year and we use the program’s national data… I agree that it’s not even close. I wish there was a way to determine how contractors are going to bid here. It’s probably based on how much work there’s going to be and who’s approved to do the work. Gosh, I wish we could solve that issue.”
Members of the HPU management moved to tell commissioners that the upgrade was necessary. “It’s the peak-shave times that we will have our problems,” said Corey Lubovich, director of utility operations. “In years past, predominantly in the last couple of years, especially last year which was a colder year than the last three years, we’ve seen spikes and short terms of higher flow rates through our border station.” Lubovich continued, “It’s not continuous, but instantaneous flowing rate of half-hour to an hour that’s creating possible freeze ups of the heater and subsequent problems because of that.”
And what happens when more people are converting from steam to gas? “We’re going to have substantially more load of gas requirements than we had last year,” Lubovich said. “I believe it’s going to be more frequent than last year if we have a winter similar to last year.”
Hautala recommended that the HPU Commission vote to move forward on upgrading the station for November.
After some debate, Bayliss asked whether there was any chance of the new estimated cost increasing even higher. “Is that possible? It’s possible,” Underwood said. “Is it possible it could go lower? Yes, it’s possible it could go lower, too.” Though commissioners would eventually pass a similar motion, the first one failed in a stalemate: HPU Chair Dave Rian and Commissioner Jeffrey Stokes in favor with Bayliss and Hart opposed.
After the first motion failed, Bayliss directed his frustration toward Underwood, the Northern Natural Gas representative, saying, “I’ve never paid for anything in my life with this kind of concept behind it. I understand this is a large scale project and it doesn't work like you would buy something in a store. But we’re talking about doubling the number that we were originally told and now we’re talking about potentially it could be higher. I know potentially lower comes into play, but that doesn’t happen very often in this world.”
Bayliss addressed the representative directly, “In your experience, have you seen or is there anyway to potentially bidding this next year and seeing it come in lower?”
Underwood responded, “If I were to go by previous years, the prices are getting higher… My concern for Hibbing is there is capacity available here without building any pipelines and capacity, but if somebody moves in and contract that capacity and it’s gone, then your prices go up and we need to add in pipelines and compressors.” He added, “Your station is maxed out. What’s the risk you would want to take to possibly lose service and how much money are you willing to stake to not do that?”
The idea that Hibbing might not have enough natural gas weighed on the newly appointed commissioner. “We’ve never been given this red flag that we’re running low on gas coming into town,” Bayliss said. “If we have to have more gas for customers that we promised gas to, then we need to get this going, if that’s the case. But this is the first time I’m hearing that.”
Rian, a veteran of the HPU Commission, chimed in to say, “I believe we discussed that last year that we were low on capacity.” Bayliss replied, “We’ve been told that we have no problem with the capacity to serve what we have right now.”
Then Underwood attempted to clarify his position. “The station is designed for the capacity contracted and guaranteed you’re going to get that much. What I’m talking about is how much more was used last year above what you have contracted.”
Arguments finally winded down to one last back-and-forth before the commission ultimately voted in approval of upgrades to the border station.
Stokes, who also shared that he did not know about the shortfall of capacity, singled out Hautala in regards to the utility’s history of taking continuous financial hits, saying, “It’s irresponsible and someone has to be held accountable for doing this. Why should we have told everybody that this gas was available, hurry up and sign up for your services and we’re giving you free services and we didn’t have the capacity. That’s irresponsible of management.”
Hautala replied, “Northern Natural Gas is the only game in town… Management did not underestimate, overestimate this project. We were dependent on our provider Northern Natural Gas… And you heard Commissioner Hart rightly say your estimates are horrible. It’s not just this project. Like Underwood said — all the estimates are done by software resulted in dollars bid being more.” He added, “You could hold management responsible. We were dealt with the only contractor in agreement that was revised with legal and proposed to the commission. This is a joint effort, not just a management blame.”