Phase I cost hike, Phase II cancellation could be bad news for Vt. Gas ratepayers

ADDISON COUNTY — As regulators sort through the fallout of Vermont Gas Systems’ decision last week to cancel its application for its Phase II pipeline and announcement in December of a massive cost hike for Phase I, opponents of the pipeline warn that both events will significantly raise the burden ratepayers will be asked to bear for the Phase I project.
Some are asking the Public Service Board to revoke the project’s approval.
“The (project) cost has nearly doubled, and there is no longer the possibility that Ticonderoga will be paying for a portion of the project,” said Conservation Law Foundation attorney Sandra Levine. “Both of these potentially burden ratepayers with huge burdens.”
While the Phase II pipeline, which would have run from Middlebury southwest to the International Paper plant in Ticonderoga, N.Y., was being reviewed by the Public Service Board separately from Phase I, the paper company had tentatively committed to pay for most of Phase II and contribute $31 million to Phase I. When the paper company withdrew from its agreement with Vermont Gas, the utility was left with financing of the Phase I project on its own.
The current Phase I cost estimate is $154 million, 78 percent more than when the PSB approved the project in December 2013. After Vermont Gas announced the second cost increase of more than $30 million this past December, the Public Service Board decided to ask the Supreme Court, where the case was on appeal, to send Phase I back so it could investigate.
The Supreme Court this month granted remand without any limits on time and scope, in contrast to the remand it granted last September after a July cost hike, in which the court limited the PSB investigation to 30 days. In that review, the PSB concluded the $122 million budget Vermont Gas presented was accurate, and allowed the project to go forward without imposing any sanctions.
But there is no guarantee that will be the case this time. The Department of Public Service raised concerns that Vermont Gas has been unable to stick to its budgets, and said it will withdraw its support for the project if its burden on ratepayers is too onerous, or it no longer makes economic sense for the state.
The new PSB investigation will play out in the coming weeks.
As is typically the case, Vermont Gas intends to pay for Phase I by raising rates on its almost 50,000 customers and using earlier funds from ratepayers set aside in the System Expansion and Reliability Fund (SERF). After the project is complete, Vermont Gas must seek permission to raise rates from the Public Service Board, which regulates Vermont’s utilities and has the sole authority to set rates.
In September 2014, Vermont Gas Vice President for Regulatory Affairs Eileen Simollardes told the PSB that if IP did not contribute funds, that would necessitate an initial rate increase of 10.2 percent, based on a budget of $122 million.
That percentage is higher than the 4.5 percent rate increase assuming no IP contribution that Vermont Gas estimated exactly a year earlier, based on the budget at that time, which totaled $87 million.
In testimony submitted to the PSB in January 2015, Simollardes said that without any contribution from IP, the $154 million budget would increase rates 3.2 percent over 10 years compared to September estimates.
Vermont Gas spokeswoman Beth Parent said Tuesday that Simollardes’ January estimate represents an 11.1 percent rate hike overall.
Bristol attorney James Dumont, who represents several opponents of the pipeline, said this rate increase is too high for the PSB to pass onto customers.
“There’s no justification for this,” he said. “What this means is that people who are struggling to pay fuel bills will pay 10 or 15 or maybe 20 percent more (if rates exceed current estimates) to the gas company.”
Dumont also said it is possible that the PSB could prohibit Vermont Gas from taking funds from the SERF, if it determines that the company incurred costs imprudently. Simollardes testified last fall that the absence of SERF funds would mean an additional 15.2 percent rate hike.
While the Public Service Board prepares to launch its newest investigation into Phase I, opponents of the pipeline hope the board takes a harder look at the project than it did in the fall.
Dumont said he hopes the board asks Vermont Gas officials why the company this past fall expressed confidence in a budget estimate of $122 million, which later turned out to be $32 million off the mark.
“When Vermont Gas testified in September that they were confident in the costs, that most of it was under contract, did they not know what they were testifying about?” Dumont said.
Dumont said he expects the new investigation to be longer than the previous one last fall, and hopes the board will permit the introduction of new evidence into the proceeding.
Greg Marchildon of the Vermont branch of the AARP, which has taken an active interest in the case and is a party to it, said his organization hopes the Department of Public Service takes a harder line against the gas company. In the last investigation, the department concurred with Vermont Gas that the project should move forward as scheduled.
“We are certainly hoping for a wide-ranging investigation,” Marchildon said. “We felt all along that the Department of Public Service hadn’t asked the right questions.”
The board rejected requests by project opponents to halt construction on the project, a move the company opposes and argues will add to the price tag, but Marchildon said it is a good idea. “I think it makes sense for us to put the brakes on until a full review is complete,” he said.  “I think ratepayers are owed that much.”
Levine said the narrow scope of the last remand limited the PSB investigation to costs rather than other factors like pollution. This time around everything is on the table, and she said the board should examine what she said were the company’s repeated failures to estimate costs accurately and manage pollution.
Levine said the CLF believes the project should be halted during the investigation, and said Vermont Gas would be unwise to keep spending money.
“It seems foolish to move forward with construction of a project that you don’t know you have approval for.”  
Department of Public Service Commissioner Chris Recchia said while rates will ultimately be decided by the PSB after the project is complete, the department will vet Vermont Gas’ rate projections to make sure customers are not unfairly burdened.
He expects the new PSB investigation to be more in-depth than last time, and possibly last until April or May. The department’s goal, he explained, is to evaluate if the economic benefits of the project outweigh the costs.
“I think the board will take the time to look at the information and make a judgment on it,” he said.
Recchia said the department found in September that the benefits far exceeded costs, but since then the margin between those positions has narrowed considerably.
Recchia did not endorse halting the project, noting that it would drive up costs, but cautioned that any expenses the company incurs during the review are done at its own peril.
“It’s a risk the company is bearing,” Recchia said.
Should the PSB revoke the project’s approval, or Vermont Gas decide not to complete it, Recchia said that the company would likely not be able to raise rates to pay for parts of the pipeline not put into use.
“Unless it becomes used and useful, it won’t become recovered in rates,” he said.
Recchia said that aside from pulling the plug on the project or letting it continue as planned, the PSB could exercise a third option by amending the Certificate of Public Good. This would allow the board to, for example, change how the project is financed to protect ratepayers.

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