Vermont Gas issued the statement below following testimony Wednesday before the Vermont Public Service Board regarding the gas pipeline extension from Chittenden County to Addison County. Costoverruns have led VGS to cancel Phase 2 of the project, which would have extended the pipeline to the International Paper plant in Ticonderoga, NY. Because of the inflated cost, Vermont Gas had to go back to the regulator to continue Phase 1. The Vermont Department of Public Service recommended last yearthat Vermont Gas pay a $35,000 fine for violatingboard rule 5.409, which addresses cost overruns. Vermont Gas apparently will pay that fine and if so will become the first utility in the state to ever do so. The PSB ultimately will decide on the penalty and whether Phase 1 can proceed.
RELATED:State recommends $35000 fine for Vermont Gas cost overrun
Much of the justification for the extension was that International Paper would be picking up a significant share of the cost. However, because of the increase in cost, IP dropped out of the plan. According to Vermont Gas, Phase 2 would now cost $105 million, compared to $74.4 million as presented to the PSB last August. Under the agreement between Vermont Gas and IP, this would mean that IP’s total financial responsibility to Vermont Gas for Phase 2, including Phase 1 improvements, would have risen from $99 million to $135 million, resulting in Phase 2 no longer being commercially practical, Vermont Gas said at the time Phase 2 was cancelled on February 10, 2015. Phase 1 is a 41-mile, $154 million project. When Phase 1 was approved in 2013, the cost was estimated at $86 million.
Vermont Gas Statement March 25,2015
"In testimony before the Vermont Public Service Board (PSB) today, Vermont Gas continued to acknowledge that the company could and should have provided the PSB information about increasing cost estimates for its Chittenden to Middlebury gas pipeline extension project earlier in 2014 than it did. Since then the Company has both improved its cost estimation process and capabilities while providing quicker notice to the PSB when cost increases are anticipated.
"In explaining the timing of the information, the company’s witness in the case, Vice President for Regulatory Affairs Eileen Simollardes, pointed to uncertainties about the early-2014 cost estimate, including how pending permits and dialogue with a large potential future customer (International Paper), might affect construction costs.
"As Ms. Simollardes stated in testimony filed with the PSB in mid-December of 2014, paraphrasing a July 31, 2014 letter from Vermont Gas to the PSB, “(I)n hindsight, a better course of action by VGS would have been to report that the Company had reason to believe that a 20% increase in the budget would occur, and that (the company) was analyzing that possibility and would provide a more complete explanation once that analysis was completed.”
"The PSB is reviewing the timeliness of the Company’s decision in informing the PSB of the cost increases.
"In November, the company’s new CEO, Don Rendall, committed to being open and forthcoming with changes in the scope, cost, and schedule of the project. The company has followed through on that commitment twice with the December 2014 announcement of the updated Phase 1 cost estimate and again in February 2015 when it canceled the Phase 2 portion of the project.
"The company’s most recent cost analysis shows that the project continues to offer significant economic and environmental benefits for Vermont. Natural gas is an important choice that enables families and businesses to significantly reduce their energy costs and carbon emissions, because natural gas usually displaces higher-cost, higher-emitting fuels."
Source: Vermont Gas Systems. 3.25.2015