Elam Utility doesn't show where $688,000 went

WEST LIBERTY — One woman asked the question in the back of everyone's mind at a public meeting about the Elam Utility gas company in Morgan County.

The company is under investigation by the Public Service Commission and might have to shut off service if it hasn't paid its bills by July 26. But it's been collecting on bills from customers.

"Where's the $700,000?" a West Liberty resident asked Thursday night.

"We know where it hasn't gone," said PSC spokesman Andrew Melnykovych.

It hasn't gone to compensate Columbia Gas Transmission Co. for several years' worth of gas drawn from its pipeline. In September, Columbia won a judgment in federal court and now says it is owed $688,000.

Elam Utility has paid its employees and has apparently paid its bills to a second wholesaler, Jefferson Gas, which serves a few Elam customers in Wolfe County, Melnykovych said. Elam also owes debt service on a couple of private loans, taken out to pay off public loans from the state Department of Local Government and the Governor's Office of Local Development.

The company isn't making itself available to answer questions. No one from Elam showed up at a PSC hearing Friday, despite receiving subpoenas. The hearing was continued until July 26 — Columbia's shut-off date. Elam's attorney, Kim Gevedon, daughter of Elam owner and CEO Wilma Sorrell, said at the public meeting Thursday she couldn't answer specific questions about the debts owed. Sorrell has not returned two phone calls from the Herald-Leader.

The city of West Liberty has been preparing to buy the company by taking on the company's total debt of nearly $900,000. Elam's assets have been valued at about $700,000. The city hopes to reduce the dollar amount of the debt by buying gas at low summer rates to compensate Columbia.

Elam's financial troubles go back as far as 1986, and one sale to a private company fell through because of the debt two years ago.

"A small company with under 500 customers doesn't have a value equal to or greater than the debt," unless the buyer can aggregate with some other small companies, said Bob Oxford of Kentucky Frontier Gas, a Colorado company with an office in Prestonsburg.

Elam carried hundreds of thousands of dollars in loans from the state Governor's Office of Local Development, Oxford said, and Kentucky Frontier was trying to reduce the loans and buy Elam along with three other companies in similar straits: Belfry, Floyd County Gas and Mike Little Gas.

Kentucky Frontier eventually bought the other three, but Wilma Sorrell, whose name was then Wilma Ison, pulled Elam out of the sale, Oxford said.

The Morgan County gas company was incorporated in 1936, and Wilma and Doug Ison bought it in the 1990s. In 1998, the Isons put their personal debt from buying out their business partners onto the company's books instead of their own. The company was paying $42,000 a year to the other partners — money the PSC noted should have been used for operating expenses. Wilma Ison took sole ownership of Elam when she and Doug Ison divorced.

In 1999, Elam was investigated for billing customers more than was allowed. It refunded customers' money.

In August 2000, the PSC approved a state Department of Local Government loan of $180,000 to pay its bills, with the stipulation that the money not go toward the Isons' personal debt.

Since 2003, the PSC has several times fined the company for failing to file ledgers, bank statements and gas cost adjustments, and again fined the company for failing to pay the fines.

In 2005, the company was dissolved and then reformed because it hadn't made proper filings with the Kentucky secretary of state. According to documents filed with the PSC, Ison said at the time that Kentucky Frontier Gas was buying Elam and taking care of filings.

"The commission could have dropped the hammer on Elam earlier than we did," said Melnykovych, the PSC spokesman. But the commission tried to help Elam stay solvent and operating, to avoid shutting off the gas.

Last year, Elam was cited for failing to file quarterly gas cost adjustments, which led to the company's having to refund money from customers' bills, and, Melnykovych said, possibly contributing to the company's current cash flow problems.

Now, Elam's supplier, Columbia, says the company has failed to compensate for gas taken out of the pipeline, although Elam has charged customers for the delivery. A federal judge ruled in favor of Columbia in the fall, but Melnykovych said "to Columbia's credit" it decided not to shut off service heading into the winter. A spokeswoman for Columbia Gas Transmission — which is not the same company as Columbia Gas that serves Lexington — said Columbia's two priorities are collecting its debts and not shutting off gas during winter months.

The PSC is investigating whether Elam has abandoned its service. If its bills aren't paid by July 26, service will be cut off, and 410 customers — including a state prison, nursing homes, restaurants and other businesses — will have to figure out another way to heat and cook.

Elam's financial troubles center on its ownership, Melnykovych said, but small natural gas retailers, with a limited customer base and rising costs, often have to make tough decisions about whether to sell or simply stop operating.

Larger companies don't see small markets as valuable or efficient for competition, he said, and Kentucky's regulations don't allow for competition at that level of the natural gas market.

So far, Elam's customer base has been fairly stable.

The city of West Liberty hopes to submit an application to buy Elam by early next week, its attorneys said. Elam's system was upgraded about 15 years ago, so it's safe, City Clerk Sally Barker said. The city operates a water and sewer utility already, with around 800 customers. Elam's employees are certified and could be hired on with the city, officials said.

Other nearby gas companies have expressed interest if the city doesn't buy, officials said.

If the city does decide to buy the utility, it would like to do it before July 26, so customers don't have interrupted service. If Columbia is comfortable with interim management, it might decide not to shut off service, Melnykovych said.

If service is shut off, customers will have to switch to propane or electric appliances.

City officials, who first started proceedings to buy Elam on June 28, were confident at Thursday's public meeting. But nothing is certain — gas could be shut off for at least several days, even if the city is approved to buy Elam.

"We just feel like there's too much to do and too little time to do it in," Baker said.

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