What I find amazing is that expending a distribution pipeline just 2 miles for a thousand customers will cost them an extra $70 per month for 25 years and the utility is kind enough to charge only a 11% interest rate and this is above the $4 per MCF delivery charge.

GALLITZIN — Like most of the buildings here, Penn Cambria Middle School’s energy supply is replenished by deliveries every couple of weeks. 

A janitor flips a switch to demonstrate how an auger mechanically sucks in coal from a mound deposited high in an adjoining room and feeds a flaming furnace. He points to another rounded furnace fed by a nearly full 10,000-gallon tank of oil.

Though the school’s boilers are equipped to burn natural gas in addition to coal and oil, the closest natural gas distribution lines have never extended beyond Cresson, a borough a few miles to the southwest. The cheap, abundant fuel therefore has remained tantalizingly close and yet too far to make a project economically viable. 

But due to prolific natural gas production from the Marcellus Shale, that stands to change. 

Upstairs in the school’s cafeteria, officials from Peoples Natural Gas discussed a plan to extend a pipeline nearly two miles to this community on the far eastern edge of Cambria County.  At its fourth public meeting, they explained that residents who want natural gas service need to commit to paying for the expansion as soon as possible.

“The more folks that join, the quicker this can happen,” said Jeffrey Nehr, vice president for commercial operations for the utility. “This is your best opportunity to get this at these prices.”

If all goes as local officials hope, nearly 1,000 households and small businesses would be the first to receive Peoples gas under a new financing model approved last month by the Pennsylvania Public Utility Commission. Where potential customers previously had to pay burdensome upfront costs, they now have the option to pay for the service expansion with a small monthly fee over a period of up to 25 years.

“They’ve been talking about this for years,” said Rick Acrie as he studied an enrollment packet during the public meeting. Despite getting a discount on propane as a general manager at U-Haul, which sells the fuel, he said, “I’m sure I’ll save a ton of money. It’s a no-brainer for me, for a lot of the people here.” 

Get with the program

The utility’s proposed $6.57 million project would extend an 8-inch distribution pipeline nearly two miles to the edge of Gallitzin. There it would branch off into a network of smaller gas lines buried under the streets. In all, the distribution line would feed more than 13 miles of pipe to be installed under Gallitzin, the neighboring borough of Tunnelhill and a sliver of Gallitzin Township.

The new tariff allows residents to pay an additional $55 per month for the main trunk line extension to the community, plus a flat $15 per month for the service pipe that extends from the street to a customer’s home. Small commercial customers will pay proportionate to their usage, which is typically more than residential customers.

The utility needs about 65 percent to 70 percent of residents and businesses to sign on before the project can begin. The enrollment goal hinges on how many people sign up, where those people live and how much power they consume, Mr. Nehr said.

“It’s a little bit of a moving target,” he said in response to residents who wanted an exact enrollment goal and asked how much they would pay for the program. 

At the meeting, Peoples handed out enrollment folders containing contracts for residents to fill out and sign. Local plumbers and electricians set up around the edge of the cafeteria to offer rough cost estimates to convert their appliances to natural gas.

Community banks joined the crowd to offer loans for those who wanted to pay upfront.

The interest rate on the monthly payments works out to be nearly 11 percent — based on the utility’s regulated rate of return and taxes, Mr. Nehr said. But while those who pay upfront may be able to secure a lower interest rate from a bank loan, they won’t see savings if more residents later join the program and lower Peoples’ project costs.

In other words, Peoples won’t return a portion of the money to customers who paid upfront if higher-than-expected enrollment shortens the repayment schedule for those on the tariff. Those who pay upfront will still be on the hook for their bank loan. 

Borough President Roger Renninger hopes to move fast. In June, a planned sewer replacement project will dig up much of the borough, meaning the gas and sewer lines could be placed in the same trenches without digging twice.

The idea of powering Gallitzin on natural gas “has been my baby from the beginning,” said Mr. Renninger, a long-time resident of Cambria County who reached out to Peoples three years ago. The utility and borough held off on formal discussions until about five months ago, when the state took up the expansion tariff.

After public meetings convened by Mr. Renninger to gauge interest, he believes enough of the community recognizes the need to join the program. 

“Businesses are eager to make the change,” he said, and the absence of natural gas service has been a deal-breaker for future development. “Any offer we’ve made to outside companies, one of the very first question they ask us is: ‘Is natural gas available?’”

Economic sense

Peoples has touted the program as supplying a more reliable, convenient and environmentally friendly alternative to heating oil, propane and coal.

But in launching their GoWithGas brand, the utility’s appeal has been overwhelmingly one of how natural gas could slash monthly bills in small communities.

The price of residential propane in Pennsylvania this spring hovered around $3 per gallon — more than triple prices in the late 1990s, according to the U.S. Energy Information Administration. Residential heating oil similarly has climbed from below $1 per gallon to nearly $4 per gallon in recent years. 

Meanwhile, U.S. residential natural gas prices have steadily declined from their peak in 2008 as domestic production from shale plays has soared, particularly in Pennsylvania. In March, Peoples said its cost to procure gas had dropped to the lowest price since October 1992.

Mr. Nehr said 90 percent of the gas supply to areas like Gallitzin would come from drillers in Pennsylvania’s Marcellus Shale, a region that is still showing robust production amid a national glut in supply. 

Peoples has provided some estimates of savings: Its typical residential customer uses the equivalent of about 1,000 gallons of propane and about 660 gallons of heating oil every year. Under current pricing, that amounts to about $2,900 to $3,600 annually — while natural gas would be close to $1,200.

Company officials, emphasizing that savings depend on a customer’s appliances and overall power consumption, in February launched an online calculator for potential customers to determine if and how much they could save by switching to natural gas.  

As one of the biggest energy consumers in town, the middle school stands to save $20,000 to $30,000 annually in energy costs if it were hooked up to natural gas, said Mary Beth Whited, superintendent of Penn Cambria Schools District. The high school in Cresson and already uses natural gas, she said, and saw the price decline by half in the last two years. 

She plans to bring the contract before the school board, which needs to approve it, in May.

“For us, it makes good sense,” Ms. Whited said. “We are looking to be the best stewards of the taxpayers’ money. [Natural gas] is certainly a viable, cost-effective resource.”

Columbia Gas of Pennsylvania has offered a similar program, called “Tap and Save” to residential consumers since the PUC approved it last October. Customers can pay for the extension project with a $35 monthly charge spanned over to 20 years, said Russell Budell, manager of communications and community relations.

In addition to serving individual households, Columbia has partnered with a developer in York County to provide natural gas to a new subdivision of 68 homes — averting about $125,000 in upfront costs.

“If you take a look at the recent pricing of natural gas, Pennsylvania residents who are using another resource could save up to 40 percent if you switch,” Mr. Budell said. “It’s a great time for people to be looking into that.”

Daniel Moore: dmoore@post-gazette.com, 412-263-2743 and Twitter @PGdanielmoore.