Opinion: Natural gas project doesn’t add up for ratepayers

The Public Service Board will decide this week whether to reconsider the benefits of Phase I of the fracked gas pipeline in light of the $35 million (41 percent) cost overrun. The CEO of Vermont Gas Systems (VGS) exclaimed at last week’s hearing that no price was too high for this “once-in-a-lifetime project,” confirming what astute observers already knew: Phase I is, by definition, economically irrational.
Time is running out for Vermonters to digest the implications of runaway costs for new fossil fuel infrastructure in Vermont. Here’s what current ratepayers in Chittenden and Franklin counties, future ratepayers in Addison County, and families hoping for cheap gas in Rutland should know about this pipeline boondoggle:
•  To cover $121.6 million in construction costs, Chittenden and Franklin County customers will spend around $47,500 to hook up each Addison County business or family to gas service. Yep, VGS said at a Sept. 26 hearing that it projects serving 2,563 Addison County customers by year 10.
•  The $47,500 does not include new customers’ costs to convert to gas, which Gaz Métro/VGS admits can cost several thousands of dollars. The company says customers can use existing systems by renting equipment from GM/VGS. Current customers say rental costs around $70 per month.
•  That $47,500 also excludes landowner expenses and taxpayer dollars spent by state agencies to hire extra staff and consultants for review and oversight of the project.
•  As of today, the real cost to Vermonters to hook up just one Addison County customer will actually be at least $55,000.
•  Pipeline construction costs are on the rise. The project could become even more expensive. GM/VGS leadership admitted two weeks ago that they “don’t know” whether their contracts have caps or could escalate along with the market.
Who will pay for this? Not VGS.
•  Franklin and Chittenden county customers will pay up to 15.2 percent more than they do now — in addition to a 5.4 percent rate reduction, due in 2011, which has been and will continue to go into GM/VGS’ “System Expansion and Reliability Fund” — to the tune of $4.4 million per year until 2031. (Get into the regulatory weeds and it gets very complicated; ask me and I’ll try to walk you through it.)
•  The 15.2 percent higher rate, and a 5.4 percent surcharge, will be also be paid by unsuspecting Addison County families who expect to cut their heating bills by switching fuels. GM/VGS advertising ignores the effects of the cost overrun — even though the company has known since March.
•  Sixty percent of total projected fuel bill savings in Addison County will go to just four customers, including Agri-Mark/Cabot and Middlebury College. If Phase II is built, International Paper will take a portion of the savings. Small business and residential customers could see less than 25 percent of the total available savings. VGS rate design is very complicated, but rest assured that the touted savings benefit to families is simply not what most people think it is.
GM/VGS also claims that natural gas rates are likely to stay low, but some analysts disagree. Rates depend, in part, on Europe’s growing need for North American liquid natural gas exports. Increased European demand could spell higher natural gas prices for Vermonters.
There are other risks, too. The Canadian pipeline system that transports Gaz Métro’s fracked gas from Alberta is near capacity. Gaz Métro Partnership’s 2013 Annual Report notes “any significant increase in transportation rates could mitigate (natural gas’) competitive advantage over petroleum products.” If gas transportation demand outstrips existing pipeline capacity, the cost of shipping gas to Vermont will rise, and Vermont customers, new and old, will see an increase in their rates. Families could pay as much for natural gas as they would for oil or propane.
GM/VGS has been relying on a Vermont legal precedent that “any economic benefit” is enough for a utility project to serve a “public good of the state.” As members of the PSB review the cost overrun, they risk missing the forest for the trees by sanctioning Vermont Gas’ spendthrift approach to our energy future. It cannot possibly be a public good to take so much away from ratepayers, landowners, and our landscape to produce just “any benefit.” Vermonters need to know that this project’s real benefits (profits, not jobs) go largely to six large entities, only four of which are based in Vermont.
We are counting on the PSB to see the big picture of this project so that we don’t wake up one day and realize how much we miss our forests (and our pastures and our way of life) for mythical economic benefits and real environmental degradation brought to us by “VeeGees” of Vermont Gas Systems, Inc.
Melanie Peyser

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