State taxpayers financed construction of a $188 million pipeline in eastern North Carolina. Now Piedmont Natural Gas Co. Inc. customers may wind up covering the project's likely multimillion-dollar annual losses.
Piedmont wants to buy out its nonprofit, 50 percent partner in the pipeline, called Eastern North Carolina Natural Gas, according to a March 11 filing with the Securities and Exchange Commission.
This month, the utility is expected to ask state regulators to include the money-losing project in its overall operations when Piedmont asks for a rate increase.
North Carolina voters approved a $200 million bond issue in 1998 aimed at expanding natural gas into rural counties. Ninety percent of that money is going into the 750-mile eastern N.C. pipeline, which so far has attracted fewer than 1,000 customers in its 14 counties.
Projections suggest the pipeline will not be profitable for at least 15 years.
Expanding gas service into eastern North Carolina is a decades-old issue.
Fayetteville-based North Carolina Natural Gas Co., which had rights to distribute gas there, never thought it made economic sense because of the lack of industry and population density. The 14 counties' population in 2003 totaled about 286,000. By comparison, Guilford County alone has 433,789 residents, Forsyth County 317,810 and Mecklenburg County more than 750,000.
But state leaders, including Senate President Pro Tem Marc Basnight, D-Dare saw natural gas as critical to the region's development.
Raleigh-based Progress Energy Corp., which bought North Carolina Natural Gas in 1999, agreed to put $22 million into the project in a partnership with the nonprofit Albemarle Pamlico Economic Development Corp. Progress, through North Carolina Natural Gas, and Albemarle Pamlico Economic Development Corp. each owned a 50 percent share in the pipeline.
Now Piedmont, which bought North Carolina Natural Gas in 2003 from Progress, is proposing to buy Albemarle Pamlico Economic Development Corp.'s share, according to the March 11 filing.
APEC's board approved the sale of its shares to Piedmont Feb. 1, the filing states. The deal requires approval from Piedmont's board and the N.C. Utilities Commission, which will consider Piedmont's request for higher rates this spring.
Up to $15 million of operating losses from the pipeline can be deferred to an account covered by bond funds. Piedmont is on the hook for additional losses. In its first two years, the pipeline had operating losses of $4 million.
In its pending rate case, Piedmont is expected to seek state regulators' approval to include pipeline operating expenses in its entire North Carolina customer base. That would cost residential customers an additional $4 per year and small commercial users about $25, state regulators have said.
Piedmont spokesman David Trusty said details of the utility's plans will be disclosed in the rate case. He notes initial losses aren't unusual in pipeline projects. "It takes time for economic development to take place," he said.
Project organizers expected a distributor such as Piedmont, rather than a nonprofit, to eventually control the pipeline, said Jim Hoard, assistant director of accounting for the N.C. commission's public staff, which represents consumers. "APEC's role was to move the project forward," he said.
While Hoard said the project probably won't ever pay for itself, officials hope it will spur much-needed economic development.
David Mildenberg writes for the Charlotte Business Journal, a sister publication.