A South Burlington based natural gas utility began its expansion south into Addison County this month, hiring a New York-based engineering firm to plan the estimated $57 million project. The move would bring natural gas to 3,000 new customers in Middlebury and the surrounding area.
Vermont Gas Systems, which is owned by Gaz Metro, currently serves 45,000 customers in Chittenden and Franklin counties, according to spokesman Stephen Wark.
The expansion would increase the company’s customer base by about 7 percent, and it would bring pipeline infrastructure closer to the Rutland market.
“The long-term goal would be for us to connect to Rutland,” Wark said, “but that’s many many years out.”
For now, Vermont Gas Systems hopes to build into Addison County using a combination of funding from Gaz Metro and ratepayers.
“In this particular case, what we did is we’ve had 13 rate reductions since 2008 … so what we did is instead of returning one of those rate reductions to ratepayers, we asked the ratepayers if we could put it into a special fund” to finance the buildout, Wark said.
The Public Service Board approved the plan, so the company is amassing roughly $4 million a year every year until 2031, when the fund sunsets. All expenditures out of the fund must be approved by the Public Service Board, but they have the possibility of going toward the Addison expansion and perhaps a later move toward Rutland.
While New York-based CHA Associates is responsible for planning the project, Vermont Gas Systems can’t begin a buildout until it gets a certificate of public good for the project from the Vermont Public Service Board. Wark said the company plans to apply in December.
In that process, it will have to prove, among other things, that the project will bring a net benefit to the community. Wark said it will.
“We do a calculation based upon [census] information and then we apply a very conservative estimate as to what the fuel savings would be for them,” he said. The estimated benefit to the community for the plan is $44 million over 20 years, Wark said.
Matt Cota, executive director of the Vermont Fuel Dealers Association, argues the numbers are too good to be true. While he concedes that natural gas prices are low now, Cota says they face upward market pressure as companies pull out of the Marcellus Shale Basin, a large Pennsylvania gas reserve.
“As these natural gas producers into shale determine that it’s not profitable, they’ll cap the gas and prices will continue to climb,” Cota said.
Cota said the “glut of supply” in recent years had driven natural gas prices down to a 10-year low, but trends will soon reverse as shifts in market supply for natural gas from the Marcellus Shale Basin slows down and an increase in oil drilling in North American infuses the fuel oil market with fresh supply.
Wark says government regulation keeps gas prices down. The state views Vermont Gas Systems as a utility, whereas heating fuel companies are seen as private companies. Regulation, Cota says, simply guarantees a return for the gas company. It doesn’t protect against fluctuations in the global market.
Wark says the gas rollout must necessarily benefit consumers, or the public service board won’t approve it.
Cota says it looks like the PSB is in favor of the expansion since it’s already given Gaz Metro permission to use ratepayer money for the buildout.
Clarification: We originally stated that the natural gas supply from Marcellus Shale would dry up. We have clarified that statement to ensure readers understand we were talking about the market supply not the quantity of natural gas in the geologic formation. Cota took issue with our characterization of his opinion of the Vermont Public Service Board, which we removed.