Vermont gas eyes county for pipeline

ADDISON COUNTY — A Chittenden County-based utility is working on a $60 million-$70 million plan to extend natural gas pipeline through Vergennes and Middlebury within the next five years.
Proponents contend the project would offer a cheaper, cleaner heating fuel source for area businesses and homes; though some critics urge that environmental and cost claims not be taken at face value.
It’s a plan that some local entrepreneurs believe could blossom into a local electricity generating plant, while also providing Middlebury College with a delivery system for bio-methane gas from farms en route to its objective of becoming a carbon-neutral institution.
“The state is very supportive of it,” said Don Gilbert, president of Vermont Gas Systems Inc., a regulated utility that is currently supplying natural gas from Canada to more than 40,000 customers in Chittenden and Franklin counties.
“We have tested the waters here in (Middlebury) and have a sense that people want a choice.”
That choice, according to Gilbert, is a fuel source that currently offers a 37-percent savings over conventional heating oil and a 55-percent advantage over propane and electricity. It is a product he said burns cleaner than oil and is in great abundance in North America.
Vermont Gas Systems was created in 1965 to supply product to 6,400 customers in Chittenden and Franklin counties. That gas comes from underground in Alberta, Canada, and is taken cross-country through the TransCanada Pipeline to Vermont Gas’s main pipeline entry point at Highgate. There, it enters a network of 678 miles of distribution pipe and 70 miles of transmission pipe to serve the company’s client base of homes, businesses and industries.
Gaz Métro of Montréal, Québec, owns Northern New England Energy Corp., which in turn owns Vermont Gas. Gaz Métro is Quebec’s largest natural gas company.
Gilbert touted the fact that natural gas produces less carbon emissions that other fossil fuels. It contains fewer carbon molecules than propane, oil and wood.
“One of the things that people are concerned about is carbon dioxide,” Gilbert said. “We do produce it, however there is much less carbon dioxide produced with natural gas. And there are much higher efficiencies, which results in less fuel used, which results in less emissions — in addition to the fuel being cleaner to start with.”
While there are rich natural gas reserves in the U.S., all of Vermont’s current supply comes from Canada. Producers of the product drill into shale to extract and harvest natural gas reserves.
“We don’t have a connection to the U.S. system,” Gilbert said, noting a geographic gap in the domestic pipeline network. Officials would like to see Vermont eventually fed with a second, U.S. source of natural gas to further enhance reliability and price stability.
The Canadian product, when it arrives in Vermont, has already been processed and stripped of butane, propane and other elements (that are sold off separately).
“What comes to us,” Gilbert said, “is essentially pure methane.”
That gas is then piped directly to Vermont Gas’s customers through a feed that includes direct connections to users’ buildings. Inside, it is used to fuel heating systems, stoves, gas fireplaces. cooling and even, in some cases, grills.
It costs Vermont Gas around $1,700 to connect each customer, a fee that is waived if the customer is within 100 feet of the main line according to Timothy Lyons, the company’s vice president for sales and marketing. A customer is expected to chip in if the home or business is more than 100 feet away.
New customers, Lyons said, would have to pay to retrofit their oil furnaces with burners to make them compatible for natural gas.
Natural gas prices figure to remain fairly stable well into the future, according to Gilbert. As a regulated utility, Vermont Gas’s rates are set by the Vermont Public Service Board.
“We are seeing some of the highest levels of reserves we have seen in history,” Gilbert said. “Natural gas reserves are measured by how much gas we know is in the ground in areas we have explored, versus how much gas is being consumed. It used to be we were running about 10 years ahead on reserves; today we are over 100 years.”
Meanwhile, Gilbert noted the rising cost of oil, a product much of which is imported from the Middle East — an increasingly unstable part of the world.
Vermont Gas has been trying to expand to the south in small steps. The company conducted its first expansion into Jericho, in 2008, then quickly moved into Underhill in 2009 and Hinesburg in 2010.
In Jericho, Vermont Gas anticipated getting 200 to 250 customers. Ultimately, 450 homes and businesses (out of a potential total of 850) in the small community made the switch to natural gas.
“We were saving customers $1,450 to $1,600 per year,” Gilbert said, acknowledging the move into Jericho occurred at a time when oil prices were at an all-time high. “That translated into a $650,000 savings. And we eliminated over 900 tons of greenhouse gases from these conversions.”
Lyons furnished statistics showing the average residence can count on paying $2,338 for heating oil per year based on 687 gallons of consumption at the current price ($3.40 per gallon). Based on British Thermal Units (BTUs) generated by natural gas, Lyons said the same homeowner could count on spending $1,470 per year to generate the same amount of heat based on current natural gas prices, which include distribution and access charges.
Ultimately, Vermont Gas would like to extend its service into Rutland County via Addison County. But that would come at a substantial price. It costs roughly $1.5 million per mile to lay new gas pipeline, according to Gilbert. The company is considering laying the new underground pipeline through the current Vermont Electric Power Company right of way, or along the state’s Route 7 right of way.
“Vermont is a very rural state and we have small load centers that are some distance apart,” Gilbert said. “What we need to do is see how we can do this economically. If we tried to pull gas all the way to Rutland, it would push up the rest of our rates to a point where it wouldn’t be competitive. How far and how fast we move toward Rutland will depend on whether there are additional funds available.”
Vermont Gas has looked at three different sources of financing an expansion project: federal funding, state dollars, or asking the Public Service Board for permission to reserve a portion of its current receipts for a reliability and expansion fund. The latter scenario appears most likely, according to Gilbert, noting the current scarcity of state and federal money.
“We have a competitive advantage (over oil) of 37 percent,” Gilbert said. “Instead of having those rates go down further, can we set those aside and have a fund? So far, the regulators have viewed this very favorably.”
The speed of Vermont Gas’s expansion into Addison County will depend on its ability to create an expansion fund and the rate at which major local businesses commit to adding natural gas to their respective energy portfolios.
Middlebury College — ever looking to reduce its carbon footprint — is definitely listening to Vermont Gas’s pitch.
“The college could potentially be a substantial user,” said Patrick Norton, vice president for finance and treasurer of Middlebury College.
Specifically, college officials see natural gas as complementing its bio-methane project. The college has an agreement with Integrated Energy Solutions to provide bio methane to offset at least 640,000 gallons of No. 6 fuel oil.
“Natural gas could provide co-generation opportunities to provide electricity and to offset the remaining No. 6 oil used at the college,” Norton said.
Meanwhile, Agri-Mark/Cabot is currently working to include natural gas as part of the fuel mixture at its cheese plant in Chateaugay, N.Y. Agri-Mark/Cabot spokesman Doug DiMento said natural gas could provide a more affordable option for heating as well as for operation of two massive dryers at the cheese company’s Middlebury plant. Those dryers, among other things, convert whey into protein solids used for fitness shakes, baby formula and geriatric supplements.
“Obviously, we would be very interested if natural gas comes into Middlebury,” DiMento said.
Other area businesses are also keen on the prospect of tapping into natural gas, according to Robin Scheu, executive director of the Addison County Economic Development Corp.
“Having energy options is important,” Scheu said. “The better our infrastructure, the better we can support our businesses, present and future.”
Rep. Paul Ralston, D-Middlebury, is also president of Vermont Coffee Co., based in the town’s industrial park. He is a supporter of natural gas and the greater fuel flexibility he believes it would provide to consumers.
“I recognize it is going to be a long time before we are not depending on fossil fuels for energy,” Ralston said. “Renewables are showing promise, but will always be a small part of Vermont’s energy mix.”
Ralston also imagines a “what if?” scenario through which natural gas could be used to power a small electricity generating facility in the Middlebury area, with the “waste” heat used to supply a five-acre, year-round greenhouse in town.
“I think this would be a great thing,” Ralston said. “This is an opportunity for a community like Middlebury to create a new industry, employer and tax base.”
Middlebury selectmen are also intrigued by the thought of having natural gas available locally.
“I think we ought to look hard at the possibilities here,” selectboard Chairman John Tenny said, noting rising oil prices and the current disenchantment with nuclear power in wake of incidents in Japan and controversy surrounding the Vermont Yankee plant in Vermont.
“We want to keep the door open,” agreed Selectman Nick Artim.
It’s a door that members of the Addison County Regional Planning Commission (ACRPC) do not want to see left open too wide.
Adam Lougee, director of the ACRPC, said his board recently heard a Vermont Gas presentation and has agreed to endorse a letter supporting the notion of extending natural gas infrastructure into the county — with a caveat.
“We don’t want (the project) to encourage sprawl along the pipeline,” Lougee said.
Natural gas extraction does not come without controversy. In some cases, producers use “hydraulic fracturing” to more effectively bore through rock to get at natural gas reserves. This practice involves pressure-drilling using water, sand and other substances to more effectively create underground fissures from which to collect the natural gas.
Opponents of this practice, also known “hydrofracking,” are concerned about the release of subsurface gases and chemicals that have the potential to contaminated aquifers and groundwater supplies. Filmmaker Josh Fox outlined those concerns in his recent documentary “Gasland.”
Gilbert acknowledged there is a debate surrounding hydrofracking and said Vermont Gas supports the notion of allowing states to regulate the circumstances surrounding natural gas drilling to minimize potential environmental impacts.
“We think that with (drilling regulations) this vast resource … can be developed,” Gilbert said. “We are optimistic.”
The nearest active natural gas fields are in Pennsylvania, according to Gilbert. There used to be some active fields in Quebec, he added.
The Vermont Fuel Dealers Association (VFDA) is one of several organizations keeping a close eye on Vermont Gas’s expansion plans. Matt Cota, director of the VFDA, said there were several flaws in Vermont Gas’s reasoning, including:
•  The cost of converting to natural gas, a process he said could amount to $12,000 per customer, taking into consideration the purchase of new equipment and removal of the oil tank and lines.
•  The volatility of the fuel market.
“Just because natural gas is cheaper right now doesn’t mean it will be cheaper in the long run,” Cota said.
•  An extraction and transportation process that Cota said is “more harmful to the environment than oil.”
•  A project financing plan that calls for contributions from Gaz Métro shareholders and Vermont Gas customers, even though they won’t directly benefit from the work.
Cota acknowledged there could be some serious financial consequences for area fuel dealers if the expansion project goes through.
“These fuel dealers provide jobs and pay taxes,” Cota said. “It is very hard for them to compete against utilities that have guaranteed rates of return … Utilities have special advantages over mom-and-pop businesses.”
If Vermont Gas is able to pin down what Gilbert called some “reasonable routes and a funding mechanism,” the company would move on to design, engineering and environmental analysis. Officials would then work with the town and state permitting authorities to get the project moving. The major permit Vermont Gas will need to secure is a section 248 approval from the Public Service Board.
“It is a project that is in its very early stages,” Gilbert stressed. “We have to make sure we have a funding mechanism in place, a corridor for the gas to come through and we have to be sensitive to interest along the (route).”
But Gilbert said Vermont Gas will not try to force the project on any community.
“We won’t come if people don’t want us,” Gilbert said.
Reporter John Flowers is at [email protected].

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