Vermont Gas Systems has abandoned its plan to bring natural gas under Lake Champlain to a New York paper mill after the plant withdrew its financial support.
Vermont Gas had proposed building a pipeline from Middlebury to the International Paper facility in Ticonderoga, New York. The mill was to pay a significant portion of the pipeline cost, but recent construction estimates proved unacceptable to the plant’s operators.
The utility’s latest cost estimate pegs the project at $105 million — up from the original $64 million estimate. On Monday, International Paper told Vermont Gas it was terminating its financial agreement to pay for nearly the entire project.
“This project was designed primarily to serve International Paper. Without their continued participation, the project doesn’t make sense anymore,” Vermont Gas CEO Don Rendall said Tuesday.
The project would have served fewer than 200 Vermont residents before crossing beneath Lake Champlain to the paper mill. The project has garnered political support as a stepping stone for delivering gas to Vermont customers in Rutland, but has seen pushback from landowners and environmental groups.
Gov. Peter Shumlin, who has consistently backed the pipeline, said he supports the company’s decision to “scrub the numbers” and make sure the project makes sense for ratepayers.
“I am gratified that Vermont Gas will be putting a renewed focus on offering strong public benefits and a choice for Vermonters of natural gas service through its ongoing expansion to Middlebury and continued exploration of how to drive farther south to Rutland,” Shumlin said in a statement.
Shumlin told reporters at a Montpelier news conference Tuesday that he has always said that he supports the pipeline project “only if it makes economic sense for Vermonters.” He said Vermont Gas “made the right decision,” given the cost increase.
Vermont Gas, a subsidiary of the Canadian energy company Gaz Metro, applied for a state permit to build the pipeline in November 2013. The project has since been held up by federal permits and revised cost estimates.
The decision to drop the project will also affect another pipeline project that stretches 41 miles from Colchester to Middlebury. The company received a permit for the project in December 2013 and it is under construction.
That project, known as phase one, is considered a separate project for regulatory purposes. But International Paper planned to contribute $25 million to $31 million toward phase one. The company has lost that investment, Rendall said.
According to company testimony filed with regulators last September, the rate impacts for existing customers are estimated to rise 3.6 percent in 2015 to 10.2 percent without phase two. Rendall said the company will still have to file a rate case with regulators before the impacts are finalized. He said the overall cost of the initial project will not change.
The cost for the first phase of the project has already jumped by 78 percent to $154 million, largely due to rising construction costs. The Public Service Board will consider whether to reevaluate the company’s permit, which could include making changes or revoking it altogether.
AARP, a membership organization representing 120,000 state residents, including some Vermont Gas customers, said the loss of International Paper’s contribution will represent the third cost increase for a project just barely underway.
Dave Reville, AARP Vermont state director, said regulators should give close scrutiny to the financial viability of phase one, and in particular to the burden it imposes on existing ratepayers.
“It is our opinion that to date consumers have not been well represented by regulators and we feel strongly that Vermonters deserve better,” he said.
Chris Recchia, commissioner of the Department of Public Service, said he will consider the project’s benefits in light of new cost estimates. He said if the project does not benefit Vermont ratepayers, he will not support it. The department, which represents the interests of ratepayers in utility matters, has supported phase one through the previous cost increases.
Donna Wadsworth, communications manager for International Paper, said the company was notified of the cost increase about 10 days ago. On Monday, it decided it would terminate its contract with Vermont Gas, known as the Facilities Development Agreement, or FDA.
Under the contract, the company was allowed to pull out if costs exceeded $104 million, Wadsworth said. The company would have had to pay $135 million under the recent cost estimates.
“We made that decision based on a significant increase in cost and the uncertainty of the timeline,” said Wadsworth.
IP is still planning to work with NG Advantage, a Milton company that delivers compressed natural gas to commercial and industrial customers, to supply its kiln and power boiler with natural gas.
Wadsworth said fuel is one of the company’s greatest input costs. She said the paper mill will remain financially strong without the pipeline.
Regulators have twice cleared the project for construction, ruling that the energy cost savings and greenhouse gas emission reductions are a good deal for the entire state.
But environmental groups were concerned about the project’s impacts on Lake Champlain and a continued dependence on natural gas, a fossil fuel that emits methane, a heat-trapping greenhouse gas more potent than carbon dioxide. Environmental groups say cost-competitive alternatives exist for residential and commercial customers, such as heat pumps or so-called gas islands.
Landowners and other pipeline opponents now want regulators to halt construction on the first phase of the pipeline until the new cost estimates and project benefits are fully vetted by regulators. Many of the pipeline opponents involved in phase two say they can now focus their attention on phase one.
“If it was on life support before, you’ve got to believe that someone is reaching for the plug now,” said Paul Burns, executive director of the Vermont Public Interest Research Group, a group supporting a landowner opposed to the pipeline.
Rendall said Vermont Gas still intends to seek ways to bring natural gas service to the Rutland area and has not ruled out construction of a pipeline.
