by Timothy McQuiston Vermont Business Magazine The Vermont Public Service Department reached agreement today with Vermont Gas Systems to limit the cost to ratepayers for the Addison County Natural Gas Pipeline Project to $20 million less than the company's current cost estimate. The customer costs of the project will be capped at $134 million, according to the Memorandum of Understanding that was presented to the Vermont Public Service Board, which is the regulator and will determine whether the project will go forward. The original cost of the project was $86 million, now it is $154 million. Construction, land and legal issues have driven costs to nearly double just since early 2014.
PSD Commissioner Christopher Recchia issued the following statement regarding the Memorandum of Understanding (MOU):
“Today’s MOU between the Public Service Department and Vermont Gas Systems is an important step toward advancing the Addison County Natural Gas Project, both to promote its efficient completion and to protect ratepayers in the process. The agreement provides that, absent extraordinary circumstances, the maximum costs the Company may seek to recover for this Project will be $134 Million. This sum reflects the last cost estimate reviewed by the Board ($122 million) plus a 10% contingency. This is fully $20 million less than the current estimated cost of the Project, and it brings the potential costs to ratepayers down to a level more comparable to the last proceeding in which the Board continued to find the Project was in the public good. The only exceptions to this cap are if there are delays to the Project beyond the control of VGS.
"Importantly, the MOU preserves all rights of the Department to review, investigate and challenge costs associated with the Project at the proper time in a rate case. This is a cap, not a floor. If we find other costs were imprudently incurred, we will subtract those from the project costs. Other parties will also have the opportunity to participate, as is the standard practice in a rate case.”
Don Rendall, President & CEO of Vermont Gas issued the following statement regarding the MOU:
“This agreement between Vermont Gas and the Department of Public Service (DPS) will help achieve an important, shared goal: capping pipeline construction costs and providing energy value to natural gas customers in Vermont.
“Vermont Gas will not seek to recover costs above $134 million from customers –significantly less than the project’s estimated cost of $154 million announced last December – except for certain costs beyond our control if they occur.
“The Company has made excellent progress this year. We are near completion of the segment through Colchester, Essex, and Williston, which will achieve our 2015 construction goal on time and on budget.
“This project will provide energy choice and opportunity. Natural gas displaces higher-emitting fuels, reduces carbon emissions, and provides powerful energy value and reliability. This agreement will help provide this choice to Addison County households, businesses, schools and other public facilities – on time and on budget starting in late 2016.
“The agreement is great news for our customers and Vermont’s economy, and it’s great news for Vermont’s energy future.”
AARP Vermont has been one of the principal opponents to the pipeline because of the cost current ratepayers will have to bear. Greg Marchildon, AARP Vermont state director, said in a statement:
“This is a bad deal for ratepayers. The notion that capping costs at $134 million is somehow a benefit to ratepayers is simply ridiculous. Current VGS ratepayers would still be on the hook for a $134 million project that will provide them no benefit.
“This appears to be a blatant attempt to influence the Public Service Board as they consider the larger issue of VGS’s Certificate of Public Good and the overall economic impact on Vermonters.”
Governor Peter Shumlin has supported the pipeline as an economic development opportunity that will also save consumers money over higher-priced oil and propane costs.
Shumlin said: "I'm pleased that the Public Service Department was able to work with Vermont Gas to lower the cost of the project to ratepayers by $20 million. This agreement can give ratepayers confidence in the cost of the project. I continue to believe that expanding natural gas beyond Chittenden and Franklin counties will be good for Vermont, bringing a cheaper fuel choice and new energy efficiency services to Vermonters whose incomes are not keeping up with the rising costs of health care and property taxes and replacingdirty oil with a cleaner fuel source.I'm pleased in the steps Vermont Gas has taken in the last months to show their commitment to completing this project for the benefit of Vermonters."
The PSB is now considering whether to re-open the Certificate of Public Good it previously granted VGS to allow for the Colchester to Middlebury pipeline because of two cost increases in 2014 (from $86 million to $121.6 million to now $153.6 million).VGS has reiterated that its new projection from late last year is holding, that it has a new contractor (Michels Corp) and that the project is "on budget and on time" for a late 2016 completion. The PSB was expected to have ruled on the case by the end of summer. There is no fixed timetable.
The original project called for Vermont Gas to build the pipeline to Middlebury, followed by a leg under Lake Champlain and stretching all the way to the International Paper plant in Ticonderoga, NY. Eventually Vermont Gas anticipated extending the Middlebury line down to Rutland. However, the cost increase caused IP to cancel the New York leg. Vermont Gas has said it still wants to build a pipeline to Rutland, but that project has been put off indefinitely.
In his cover letter to the PSB presenting the MOU, Commissioner Recchia said:
“The Department feels very strongly that this Project remains in the interest of Vermont and is in the general good of the state. The price cap established by this MOU, in tandem with ensuing rate reviews, will ensure that the Project’s benefits will be substantial and ratepayers’ interests will be protected.
"We enter into this agreement because while we recognize this has been a challenging Project for all, this construction season we’ve seen a change in which the budget has been maintained and the construction work has been performed efficiently and with excellent quality control. We are confident going forward that VGS has the construction management procedures and people in place to complete this Project on time and on budget if they are allowed to move forward with certainty. However, we are concerned that an untimely resolution of the … proceeding may, in and of itself, actually increase the cost of the Project overall and jeopardize completion of the Project itself.”
“Thousands of Vermonters along this project route deserve the choice of a heating fuel that is both less expensive and more carbon-friendly than the current predominant options of oil and propane. It’s time to provide certainty to this project and I am hopeful the Board sees the wisdom of this approach, including the cost protections of this agreement, and concludes the project remains in the public good, and does so promptly.”