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Vt. Gas raises Phase I pipeline cost estimate again

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Posted on December 19, 2014 |
By Zach Despart



VGSguy6296.jpg
DON RENDALL

SOUTH BURLINGTON — Vermont Gas Systems on Friday announced that Phase I of the Addison Rutland Natural Gas Project pipeline will cost $33 million more than the company estimated in July, for a total cost of $154 million.

The company also said Phase I will be completed later than projected and asked the Public Service Board to delay its consideration of the second phase of the project, which the board has been reviewing for more than a year.

Incoming President and CEO Don Rendall said the company was “hitting the reset” on the Phase I project, the cost of which has ballooned since it was filed with the Public Service Board in late 2012.

That cost, as it stands now, is 78 percent higher than the $86.6 million figure the company told regulators the project would cost when the Public Service Board approved Phase I almost exactly a year ago.

The Addison Rutland Natural Gas Project is a proposed Vermont Gas pipeline. Phase I of the pipeline would run from Colchester to Middlebury and Vergennes. Phase II would run from Middlebury through Cornwall and Shoreham, under Lake Champlain, and end at the International Paper mill in Ticonderoga, N.Y.

This is the second time this year the South Burlington company has announced a significant cost increase.

In July, Vermont Gas announced a project hike of $36 million that brought the total cost for Phase I to $122 million. The company blamed those increases on several factors, including an increased demand for pipeline infrastructure in the U.S., increased oversight, increased costs for land acquisition and higher legal expenses.

Rendall on Friday told the Independent that the cost increases are divided into several categories, including: construction costs, Vermont Gas overhead, legal costs and land acquisition. He said the company filed a detailed cost estimate with the Public Service Board Friday afternoon, though that wasn’t available at press time.

He also said the company now projects crews to finish Phase I by early 2016, later than the late 2015 date the company touted this fall.

Rendall, who joined the company in November, declined to speculate on how the company’s July estimate could have been found to be off by $33 million just six months later.

“I’m focused on the future,” Rendall said. “I’m focused on how we proceed from today forward.”

Rendall said the company has adopted new, more rigorous methods to estimate costs, in line with accepted industry standards. In July, the company also said that after announcing the initial cost hike.

The incoming executive said he could not guarantee that the company will not at a later date announce another significant cost hike, but said he stands by the current $154 million projection, which has $16 million in overruns built into it.

“This is the best estimate we can do with the information we have which includes a schedule for completing the project and includes an understanding of all the challenges, including right-of-way acquisition,” Rendall said.

Vermont Gas broke ground on Phase I of the pipeline in June of this year. Crews laid several miles of pipe, all in Chittenden County, before breaking for the winter.

After the July cost increase, opponents of the pipeline asked the Public Service Board to reexamine its approval of the project, arguing that the hike was a substantial change that required an amendment to the project’s Certificate of Public Good.

In its filings, Vermont Gas lawyers argued that the Public Service Board should not revoke project approval due to the cost hike, citing a late-2000s Vermont Electric Co. case, in which costs increased by 65 percent but the board allowed the project to proceed. With Friday’s announcement, the Phase I pipeline will now cost 78 percent more than originally projected.

The Vermont Supreme Court, where the case was on appeal, agreed in August to remand the docket back to the Public Service Board, but the board ultimately decided not to alter its findings.

PHASE II DELAY

Vermont Gas said it will ask the Public Service Board to delay hearings for Phase II so the company can revise its application and budget for the project, in order to complete both Phase I and Phase II in the most cost-effective manner.

Rendall said the company did not ask for a delay in Phase II hearings for fear of the project being rejected. Rather, he said, Vermont Gas wants to be as transparent as possible.

“We want to be confident the Public Service Board has up-to-date numbers, and everyone has an opportunity to see them, so we don’t rush the process,” he said.

Several weeks after announcing in July the first Phase I cost hike, Vermont Gas announced a revised Phase II cost. That figure jumped from $49.3 million to $74.4 million.

PUBLIC SERVICE RESPONDS

The Public Service Department fined Vermont Gas $35,000 for failing to provide an updated budget to regulators for more than a year preceding the July cost hike. The company apologized for that oversight, which Gov. Peter Shumlin called “extremely disappointing.”

This time around, regulators said Vermont Gas kept them updated.

Department of Public Service Commissioner Chris Recchia said Friday that Vermont Gas first told him of the cost increase three days earlier. While disappointed in the news, Recchia said he was pleased that Vermont Gas did not wait months, as they had with the previous cost hike, to tell regulators and the public.

“This is a different scenario (than July),” Recchia said. “They are letting us and the board know immediately.”

Recchia said his staff will vet Vermont Gas officials’ testimony on the cost hike when the company files it in January, and decide whether to recommend sanctions against Vermont Gas.

In September, the department asked the Public Service Board not to alter its approval of the project after the July cost hike. But Recchia said it is possible that the department will arrive at a different opinion this time around.

“They will make the filing and we’ll review all the details as to why it happened,” Recchia said, adding that as the price tag rises, the margin by which the benefits exceed costs narrows.

Given that the project has already been approved and construction has begun, it is unlikely that the Public Service Board would halt the project, though it has the authority to do so. But Recchia explained that the board can take other actions against Vermont Gas, if it believes the company has violated the Certificate of Public Good.

“The board can impose conditions that prioritize certain aspects of the construction over others,” Recchia offered as an example of what regulators can require.

Under the current structure, after the project is complete, Vermont Gas will pass off the total price tag to ratepayers in Franklin, Chittenden and Addison counties in the form of rate increases. But the board can also change that structure and determine who pays for what.

“We can deal with who can shoulder the burden of various costs,” Recchia said. “That will be part of the discussion.”

Recchia’s boss, Gov. Peter Shumlin, said he was also disappointed by the rate hike.

“Although I am pleased that the new leadership at Vermont Gas is taking the time to reevaluate the proposed projects, this further cost increase is very troubling,” Shumlin said in a statement. He added that his administration will review the project to make sure it is still in the best interests of the state.

The next battle in the three-year history of the Addison Rutland Natural Gas Project will play out in front of the Public Service Board in January.

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