Minutes 12/30/1958 - Laserfiche WebLink

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J86 TUESDAY DECEI-'lB:EI{ 30. 1958 obligations concerning "rater and se'vTerage improvements, it is felt that if the City should decide to ta::e over the operation of the gas utility, the ',Iisest course of action ,.}'QuId be to operate the utility just as it now exists, without gffiubling uith an expansion program., and thus going into active competition vIi th its ele ctric system. Effe cc. of City Operation on Finances It is very probable that if the City decides to acquire the gas utili ty the price they ,.Jill have to pay for it will be approximately the replacement cost depreciated, some'vJhere bet\.reen $390,000 and $400,000. The annual interes and ammortization of the purchase price of the utility is by far the largest single item of expense the City (.muld eA~erience in the operation of the gas utility. (Approximately $27,900 per year). Exb.ibit "E", and Schedule 3, of the Accmmtant's Report list operating expenses incurred by the distribution company over the past five years. Table IV of our report lists the estiJnated changes in income and expenses that Hould proba'ci:Ly have occurred if the utility had been City- operated. Table IV shm,s an estimated rnax:i.rmJJl1 income of ~~14, 602.16 for 1957 if the utili t7 Here City-operated; hO'vlever, there are several factors that must be considered to ~~derstand tbe full meaning of this figure. 1. As can be seen by study of the table, depreciation has not been subtracted, but is left in to add to the income. It is true that this amount of money \,ill ;1e available as income, [)lIt if it is not set aside as depreciation, as the gas compa:1Y nm.! does, it \'lill I:lean that as the facilities wear out the City Hill be forced to borr01:! money for replacement instead of having a reserve set up to cover this expense. 2. The items listed as savings under customer's accounting and collectinp expenses, and ac1ministra ti 'Ie 0.:')(1 general expenses, are estimates only and may 'rary considerably. It is possible that the City 17l3.Y be able to make [;reater savings than shown by our estimate; hmmver, it is also possible that these savings may be STral1er than He have estimated, especially in the first few years of City operation. 3. Table IV assumes that the City '..Jill be able to purchase natural gas at the same rates that the distribution company nOH does. It is difficult to predict the type of contract that the City \.JOuld be able to negotiate ',rith the transmission cor,pa:1Y; but, it is very possible that the City \,01ud have to pay mOl~e for natural gas than is now being paid. This fact ,.rould, of C01ITSO, decrease income. Even if the City 'Nere to earn approximately t.he amow'lt '.Ie have esthla ted for 1957 in Table rJ (~~14,602.16), this ~.!Ould only represent a return of about 3.7% on invested capital, assuming the utility coulo. be FJTcJ'lased for the replacement value depreciated. Three and seven te1lths percent is a very small return \,hen the effort and rial: of operating a gas system are considered.