Price tag for Phase I natural gas pipeline gets bigger

ADDISON COUNTY — Vermont Gas Systems has already spent more than $1.5 million on securing land rights for Phase I of the Addison-Rutland Natural Gas Project, and last week announced it had increased its budget for land acquisitions by more than $1 million.
This increased projected cost is part of a $35.6 million cost hike for the entire project, a bill 40 percent higher than the company told the Public Service Board last February.
Vermont Gas informed the Public Service Board July 2 that the company expected to spend $121.6 million on the pipeline from Colchester to Middlebury, up from the $86.6 million budget the company filed with the board in 2013. The cost of the project will be borne by ratepayers.
The company said the cost jump was due to a number of factors, including design modifications, increased oversight and increased demand for natural gas infrastructure construction across the United States.
“This growth in demand for pipeline construction has resulted in increases in construction costs,” Kimberly Hayden, the attorney representing Vermont Gas, wrote to the board.
In the new budget, the company increased its projected costs for construction, land acquisition, piping and materials, engineering, inspection and overhead. Part of the project cost hike is due to increased costs the company has incurred in securing land rights along the pipeline route.
Vermont Gas spokesman Steve Wark told the Independent June 25 that the company had obtained 124 parcels. That represents 63 percent of the length of the pipeline route but has no bearing on the number of landowners that Vermont Gas has to deal with. According to land records accessed this month from each of the eight towns along the Phase 1 route, Vermont Gas has secured 128 land acquisitions, in the form of easements or outright land purchases, from 78 individual landowners.
There are 221 landowners along the route, meaning that Vermont Gas still has to purchase easements or land from 65 percent of landowners along the pipeline route.
This does not include any options for easements Vermont Gas may have negotiated with landowners, which do not appear in public land records unless Vermont Gas exercises the option and purchases an easement. Wark did not by press time respond to a request to disclose how many options for easements Vermont Gas has signed.
For land acquisition costs, the company originally budgeted $4.08 million. Now, they’re projecting $5.17 million, an increase of 26 percent. The company told the Public Service Board this was due to moving the pipeline route off of public roads and onto private property, at the request of communities.
Vermont Gas said this has “resulted in the need to acquire additional easements and purchases at higher costs than anticipated.”
The company added that it also increased projected land acquisition costs because payments to landowners have been higher than expected.
The most expensive land acquisitions to date have been land purchases in the three towns — 53 acres in Monkton for $185,000 in February, 1 acre in New Haven for $116,000 in March and 22.6 acres in Essex for $315,000 in May.
Vermont Gas said it plans to use the Monkton parcel for a gate station, but did not disclose the purpose of the other two land purchases by press time. According to testimony submitted to the Public Service Board, the company plans to build a gate station in New Haven.
While the company expects land acquisition to be more expensive, the lion’s share of the $35.6 million price tag for the project is due to construction costs, which Vermont Gas estimates will be $19.5 million higher than in the original budget. The company said this is due to both increased market rates for construction and the expensive process known as horizontal drilling.
Horizontal drilling allows the pipeline to be run underground between two points without digging a trench. The process is used to protect environmentally sensitive areas such as streams, rivers and wetlands. According to the Certificate of Public Good for the project, Vermont Gas plans to use the horizontal drilling process in at least 15 locations along the 49-mile route, at a cost of $5.5 million.
In its July 2 letter to the Public Service Board, the company said it will spend another $2.5 million for an additional 850 feet of horizontal drilling, a cost of $2,941 per foot.
The company said it is also spending more money on safety. New costs include $350,000 for additional pipe testing and $650,000 to increase the thickness of pipe walls in some areas. In total, the company increased its budget construction management and inspection by $4.3 million.
Costs Vermont Gas categorized as “other,” which include legal fees, have increased by $3.7 million, more than triple what the company originally told regulators.
“The legal budget has also increased due to the complexity of this case,” Hayden wrote in the company’s letter to the Public Service Board.
Landowners along the pipeline route have asked Vermont Gas to create a legal fund to help them negotiate the complex easement process. The company has declined to cover landowners’ legal fees, and the increased budget for legal costs does not include such a fund.
Vermont Gas argued that the ballooning project costs should not alter the Public Service Board’s approval of the project.
Hayden cited a previous instance where a public utility project went over budget — VELCO’s Northwest Reliability Project, which the Public Service Board approved in 2005. VELCO originally told the board the project would cost $120 million, then amended that figure to $198 million, an increase of 65 percent.
In that case, the Public Service Board determined that although much more expensive, the project was still in the public good, and did not rescind its approval.
“The estimated cost changes will not alter the Board’s finding that the project is needed and will promote the general good of the state,” Hayden wrote.
The company further argued that the project, albeit placing a higher burden on ratepayers, will still reduce energy costs in Addison County, reduce property taxes and lessen Vermont’s dependence on heating oil.
Vermont Gas in June received the final federal and state permits it needed, and began construction on the project. Wark told the Independent in May that in the best-case scenario, the pipeline will be complete by the end of the year.
Given that the company still needs to acquire land from two-thirds of the landowners along the route, that seems increasingly unlikely. Dozens of Monkton landowners told the head of the Department of Public Service last month that negotiations with Vermont Gas had stalled.
If Vermont Gas is unable to reach agreements with landowners, it will be forced to seek land rights through eminent domain, a process that could take months or years to adjudicate. For the Northwest Reliability Project, VELCO sought land via eminent domain in 21 cases, a process that lasted from 2005 to 2008.

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