City Ready to Sign Supplemental Gas Authority Contract in Effort to Retain Gas Customers

At the March City Council meeting, the City staff asked the City Council to sign a contract for a program called Natural Gas Connections (NGC) with the Municipal Gas Association of Georgia (MGAG), from whom the City buys the gas for our system. The City Council had questions and tabled the measure. It will reappear at the April meeting on Monday, April 10.

By the City's calculations, the population and development in the Sugar Hill service area increased 34.8% from 2010 to 2023, while gas accounts increased by about 23%. Even though there was growth, City staff is concerned that the growth wasn't enough and will level out as we reach development capacity in the area. Furthermore, the service area of the Sugar Hill Gas Department is limited by the Public Service Commission, which caps market growth. There's also a push to direct consumers away from natural gas toward electricity.

According to City staff and the NGC representative, the program would provide personnel who guide customers through the process of replacing aging gas pipes and appliances or adding additional gas appliances. Those personnel would connect customers with contractors and vendors in the area, and let them know about rebates and financing options available from the City. They would also support City staff with billing.

They do all this through flyers in the gas bills, a customer service call center, special NGC kiosks, an online portal that they describe as being similar to Amazon, and showrooms (similar to what you would see in Lowe's or Home Depot).

There is not supposed to be an additional cost on the gas bills for these services. They are supposed to be paid for using money already budgeted for marketing, rebates, and services.

I can understand and appreciate the City staff's concern for the future affordability and viability of the Sugar Hill gas department, and I always appreciate a proactive approach to issues. However, both staff and the MGAG representative failed to prove that this was A solution, much less the BEST solution. And so far, although the City Council has asked some questions, they did not always get real answers, nor have we had an open, thoughtful, and thorough PUBLIC discussion about the issue.

The report written by staff for City Council for this request does not mention the profitability of the system, which seems like a key item to consider when you're talking about how the Gas Department is doing. As a courtesy to the City staff, I reached out to them for comment. I specifically asked about the current profitability of the Gas Department, and this question was dodged repeatedly.

I looked into it myself and pulled up some numbers, which I will share in another piece. In summary, since 2019, when I started following the City of Sugar Hill, the Gas Department has made an annual profit of around $2 million, and was consistently able to transfer about $2 million to the General Fund to support other departments and initiatives.

At no point in the staff report or presentation did staff mention or discuss possible alternatives to this plan. The City already has a marketing staff. MGAG already has a vested interest in increasing our gas market. I wonder if anyone from the City asked them what materials our marketing staff could get from MGAG now? I visited the MGAG website and found videos and written content that our marketing team could probably use. https://gasauthority.com/resources/

The MGAG representative mentioned that the Natural Gas Connections program has been around about four (4) years, and that out of MGAG's 82 customers (a number he gave in March), the NGC program is in three (3) areas. It was unclear if he meant they had three customers on the NGC program, or if the NGC customers were clustered in 3 areas. I asked City staff about it, and was told there were about 10 customers using NGC.

At the March meeting, Council Member Jenn Thatcher asked them about their level of success with existing NGC customers. The representative did not provide a real answer then. I expected that when he came back a month later, he would have more data and be able to answer the question. He did not.

In business, numbers are EVERYTHING. And when your numbers are good, you don't wait for people to ask. You VOLUNTEER them, especially when you work in SALES and MARKETING.

I've worked in software marketing, and when we had customers who were particularly successful with our products, we wrote case studies to showcase that success for prospective clients. The MGAG representative has not shown any case studies or even any concrete evidence that their existing customers are any better off from having this service, much less HOW MUCH their gas departments may have improved in any tangible way. He only sells to folks who spend other people's money, and it shows. The fact that City staff wants taxpayers to purchase sales and marketing services from someone who can't even do a good job selling and marketing their own services is a little pathetic.

In reviewing the paperwork, the first major drawback I see is the program's cost, which is "only" $1.03 per meter, per month. The City has 12,131 meters. The paperwork stops there, which seems a little too slick. Completing the simple math shows that the City will be paying $12,494.93 per month, and $149,939.16 per year, for a grand total of $449,817.48 for the entire three-year contract term.

According to the staff report, "Costs for the services are already budgeted in our existing line items for marketing, rebates, and services." In reviewing the 2023 budget, I saw two line items in the Gas Fund for that: $4000 for "Public Awareness" and $50,000 for "Mktg: Gas Appliance Rebates". There are another couple of line items for "Consultants" ($20,000) and "Other Contract Services" ($7500). All those together don't come close to meeting the $149,939.16 obligation just for the contract, and the City did not go into specifics about how they might shuffle things around to get there.

Also, do the costs of the contract end there? A provision in this proposed contract requires the City to provide space for the program to stand up a showroom for selling gas appliances if and when asked. Considering that the existing showrooms are nowhere close to Sugar Hill (East Central Alabama and Bainbridge in Southwest GA), I suspect there's a significant chance we'd be asked to do that. The City is also required to "provide secure space for storage, including video surveillance of limited inventory, and make personnel available for check-in and check-out of inventory, including assisting Customer with loading Appliances into his vehicle."

The contract would require that the City levy taxes to pay for the program costs if Gas Department revenues are not sufficient to cover all of the costs.

As currently proposed, the contract would begin on April 30 and run for three years. After that initial three-year term, the contract would automatically extend for another year each May 1 unless the City gives three-months' written notice to terminate it. Something like that with this government concerns me because I can easily see this contract extending into perpetuity, whether it's beneficial to residents or not. There was no mention of specific, measurable goals or benchmarks by which to judge the success or failure of the program.

In reviewing this, I have to wonder if there is a legitimate concern about the future viability of the Gas Department, or if the City has just become overly dependent on that almost $2 million transfer every year and is looking to increase it because they refuse to control their spending. Carelessly throwing money around won't fix that first problem, and would be the direct cause of the second problem.

The City needs to back up and remedy the lack of common sense and business acumen they've shown so far instead of committing taxpayers to an expensive program that may just make things worse.

To see the presentation from the April City Council Work Session yourself: