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Vermont Gas abandons Phase II pipeline

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Posted on February 12, 2015 |
By Zach Despart and John S. McCright



ADDISON COUNTY — Reaction to the announcement Tuesday that Vermont Gas Systems would abandon its proposal to build a $105 million pipeline from Middlebury to Ticonderoga, N.Y., was met with a mixture of joy and relief from Addison County residents who would have been directly affected.

“I was delighted because we spent more than two years trying to defeat this project,” said Cornwall Selectman Bruce Hiland.

Mary Martin, one of six Cornwall property owners who would have seen the pipeline cross their land, said that despite promises by Vermont Gas executives that they would be compensated, she never wanted any of the company’s money.

“I’m so happy, I woke with a smile on my face,” she said. “I don’t trust Vermont Gas.”

Vermont Gas CEO Don Rendall on Tuesday afternoon said the company last week completed a new cost estimate for Phase II of the Addison Rutland Natural Gas Project pipeline, and determined it would be much more expensive that previously anticipated. The new price tag for the pipeline, which would have run from Middlebury through Cornwall and Shoreham and then underneath Lake Champlain, is $105 million, up from the $74 million budget Vermont Gas initially filed with regulators.

International Paper, whose Ticonderoga mill would have been the pipeline’s main customer, effectively killed the project when it backed out of an agreement to finance most of the pipeline because of the increased cost, Rendall said.

“We had a number of very professional discussions about the reality of costs … and we were unable to find a path forward,” Rendall said. “At the increased cost and given the commercial realities for IP we couldn’t find a value proposition that would work for IP and provide appropriate value to Vermont.”

He added that the end of Phase II would not have a direct impact on Phase I of the Addison Rutland Natural Gas Project, a pipeline that will run from Colchester to Middlebury (see story, Page 1A).

IP BALKS AT COST

IP for years has been looking for ways to reduce costs with cheaper fuel. In the mid-2000s the company proposed burning tires for fuel but met with broad opposition in Vermont — and in Addison County in particular — because of the pollution that would rain down upon the region from tire burning. IP officials have said the Ticonderoga mill produces a more expensive, high-end paper that is costly to produce, and have held the prospect of plant closure as a reason for economic help.

International Paper spokeswoman Donna Wadsworth said the company dropped its support of the pipeline project because it became too expensive and would take too long to construct.

A 2012 agreement between IP and Vermont Gas called for IP to fund most of the Phase II project and cover the cost of improvements to Phase I. At that time, that combined cost of both phases was $69 million. By May 2014, it had jumped to $99 million. Last week, Wadsworth said Vermont Gas informed IP that cost was now $135 million.

Wadsworth said the costs had escalated beyond what IP was willing to pay, and the company was also disappointed Vermont Gas could not complete Phase II by the end of 2015; Phase I won’t be completed until at least spring of 2016.

“The costs were what they were, and there was no way to change that without changing the whole project,” Wadsworth said. “We tried to work it out with Vermont Gas, but ultimately the $135 million figure and time schedule made it impractical for us.”

Wadsworth said in light of the most recent cost jump, representatives from both companies tried to salvage the deal. But in the end, Wadsworth said the ballooning costs and missed deadlines made that impossible.

“I think Vermont Gas and our team here certainly discussed any option that was open, but nothing gave us a path forward,” she said.

Wadsworth said the cost of fuel oil, which has declined significantly since the summer of 2014, was not a factor in the company’s decision to pull out of the pipeline deal. She noted that the price of oil is cyclical, and will likely rebound.

Neither IP nor Vermont Gas ruled out resurrecting pipeline talks in the future, but Wadsworth said IP was confident in its decision to pull out for now.

“It’s not a closed door, but it’s not one in the foreseeable future we want to keep open,” she said.

PHASE II OPPOSITION

Rendall would not gauge the effect that opposition to the pipeline had on the increased cost projections, but said the $105 million budget included the cost of construction, project management, right of way and “community value.”

“It would not be correct to pin this decision on any single aspect of this project,” he said.

Nevertheless, there was plenty of opposition in Cornwall and Shoreham. A nonbinding resolution denouncing the pipeline was supported by a majority of voters at Cornwall and Shoreham town meetings last March. Cornwall also appropriated $50,000 for legal expenses to fight the pipeline.

Hiland said the Cornwall selectboard reasoned that the project was likely to be approved by the Public Service Board, so it also entered into negotiations with Vermont Gas to get a favorable deal for the town.

That agreement, which was announced late last year but never approved, would have paid Cornwall $1.5 million in cash over 10 years and other financial incentives. It also would have added the ability for many Cornwall residents to tap into the natural gas distribution pipeline.

Hiland said that now that Phase II is dead, the proposed agreement is moot and the town is better off, because the selectboard never wanted the pipeline, anyway.

“The entire effort to negotiate was predicated on the idea that … in our judgment that PSB, despite our objections, would grant a Certificate of Public Good,” Hiland said. “If that was the case, we wanted Cornwall to have some environmental and financial protections.”

Martin said her opposition, and that of others, has raised awareness of the true costs of a natural gas pipeline, and Vermont Gas may see more pushback in the future.

“Ratepayers in Chittenden County will be watching Phase I,” she said. “They weren’t aware how much the cost was being put on them.”

Martin doesn’t regret the lost opportunity to bring that $1.5 million of Vermont Gas money to Cornwall.

“I don’t think that was true,” she said. “The distribution they said they’d bring to town — Vermont Gas said for two years it wasn’t financially sound. The Public Service Board would have said you are nuts and not allowed it.”

While neither Vermont Gas nor International Paper have ruled out the resurrection of Phase II, Martin said she’d like to see the Public Service Board dismiss the proposal “with prejudice,” which might close off that prospect. She’d also like to see the town of Cornwall, and other towns along the Addison Rutland pipeline, sue Vermont Gas for the costs they have incurred.

“The town (of Cornwall) is owed $50,000,” Martin said. “The towns should get their money back.”

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