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Vermont Gas says pipeline spending is on target

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Posted on April 23, 2015 |
By Zach Despart



ADDISON COUNTY — Cost projections that are in line with expectations are rarely the subject of news stories, but in the case of Vermont Gas Systems, no news is, in fact, good news.

Before this month, two of the three previous cost estimates Vermont Gas issued for its Phase I natural gas pipeline turned out to be wildly inaccurate — necessitating increases that bumped the price tag for the project by 78 percent. But last Friday, in its quarterly budget filing with the Public Service Board, Vermont Gas indicated its Addison Rutland Natural Gas Project estimates from January remain accurate.

“The company’s overall cost estimate for Phase I remains at $154 million, with certain cost categories decreasing and others increasing,” wrote company vice president Jim Sinclair in the filing.

CEO Don Rendall, who pledged to restore the public’s confidence in Vermont Gas when he took the reins in December, said the new budget filing helps accomplish that goal.

“We have committed to reporting publicly where we are … both from a schedule and cost point of view,” Rendall told the Independent Wednesday. “We remain on budget and we are on a construction schedule that is very consistent with where we thought we would be.”

The cost decreases include line items for environmental expenses, land acquisition and construction. The new estimate includes increases due to a delayed completion of the pipeline and an extended regulatory process. These cost increases appear as a $4.6 million boost in the line item for “project management.”

The company also decreased its estimated contingency costs by $850,000. Rendall said as the project matures, it becomes easier to project costs because there are fewer variable factors that are difficult to predict.

To date, Vermont Gas has spent $61.5 million on Phase I. The company plans to pay for the project by, with permission from the Public Service Board, raising rates on customers.

Sinclair also stated that some of the management cost increase is due to the changing economies of scale due to the company’s cancellation of its Phase II project, which would have connected Phase I to the International Paper plant on the west bank of Lake Champlain in Ticonderoga, N.Y. The paper company withdrew its support for the project in February after the price tag for that project increased by $36 million.

The company noted that increased costs due to regulatory hearing is due in part to the Public Service Board’s investigation into the company’s failure to both anticipate and disclose cost hikes throughout 2013 and 2014. Vermont Gas does not contest that company officials waited for more than five months in 2014 to tell the Public Service Board that the cost projection for Phase I would need to be increased by 40 percent. The company also ignored repeated requests by the Department of Public Service to disclose the new cost figures.

The Public Service Board will in the coming months decide how to punish Vermont Gas for that failure. Both the company and the Department of Public Service have recommended a $35,000 fine.

DEADLINE PUSHED BACK

In its 2012 project application to the PSB, Vermont Gas estimated the project — which runs from Colchester to Middlebury and Vergennes — would be completed by the end of 2015. Late last year, the company hoped to finish Phase I by spring 2016. This spring it pushed that deadline back to the fall of 2016.

Rendall said even though the completion date is pushed back, it is more cost-effective to build only during warmer months, when the ground is not frozen.

“It’s better to construct in the regular construction season, in our point of view, than constructing through the winter.”

Rendall said the company by spring 2016 wants to have secured all the necessary easements to build the pipeline. Earlier this month, the company announced that it had negotiated rights for 85 percent of the 220 parcels along the route. But getting the rest may be a costly, lengthy process. Some landowners have refused for years to talk with the company, while others found the terms offered to be unacceptable.

At an impasse, Vermont Gas announced in April that it had begun eminent domain proceedings against two landowners in Monkton to gain access to parcels it needs. There is much historical precedent in Vermont for public utilities exercising eminent domain, but proceedings in some cases take months or years — threatening Vermont Gas’ ability to complete the pipeline on time.

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