Editor’s note: This story was updated at 5 p.m.
[T]he state’s utility regulators have fined Vermont Gas Systems $100,000 for failing to report a cost increase in its natural gas pipeline expansion in a timely manner.
The Public Service Board wrote in an order Friday that Vermont Gas broke the public trust in its regulatory authority when it waited “nearly six months” to disclose its first cost increase on the project.
The fine is nearly three times the amount requested by the Public Service Department, which advocates for ratepayers in front of state regulators. Under state regulatory rules, companies must notify the Public Service Board when capital costs increase by 20 percent or $25,000.
The Public Service Board rule says companies that do not report cost increases can be fined not more than $40,000 for failing to report, plus $10,000 per day “in the case of a continuing violation.” However, the total cannot exceed $100,000.
When the board approved the Addison-Rutland Natural Gas Project to run between Colchester and Middlebury in December 2013, the cost was put at $86.6 million. Vermont Gas started building the project in June 2014 and announced an increase to $121.6 million in July 2014. That’s an increase of 41 percent, or $35 million.
The cost of the project has since increased to $153.6 million, prompting a second series of hearings in June, in which the board grilled Vermont Gas executives on why they should be trusted. However, the $100,000 fine is for the project’s original cost increase announced in July 2014.
“Trust and transparency are essential for effective regulation,” the board wrote in its Friday decision. “By waiting nearly six months before disclosing to the board a cost increase in excess of 20 percent … [Vermont Gas] failed in its obligation of transparency, thereby undermining the effectiveness of the regulatory process and creating mistrust in that process among the public.”
The Public Service Board cited a decision from May 2014, when it told the city of Burlington that its misconduct with regard to Burlington Telecom had “severely damaged the essential trust that is a prerequisite for effective regulation and regulatory relationships that serve the interests of the public efficiently.”
Don Rendall, the president and chief executive officer of Vermont Gas, said Friday that the company would comply with the board’s order. Rendall said he has been working since he took over from former CO Don Gilbert in January to increase the company’s transparency to its customers, the public and regulators.
“We understand and respect the board’s order with regard to events that occurred last year,” Rendall said. “I am confident that the board is very focused on ensuring that we have a healthy regulatory process, which means that regulated companies like ours are timely, and candid, and transparent in the reports that we make to the regulators.”
The Conservation Law Foundation, which opposes the natural gas pipeline project, argued that Vermont Gas had filed forms with federal regulators in 2013 showing the company knew the cost would go up, according to Friday’s Public Service Board document. The nonprofit organization asked for a $100,000 fine against the company.
The Public Service Department testified that it had been telling Vermont Gas since March 2014 that it needed to notify the Public Service Board of the cost increase. The department originally suggested a $35,000 fine.
Vermont Gas agreed to pay the $35,000 fine the department suggested. At the same time, the company called the Public Service Board rule vague, and argued that the company had reported as soon as reasonably possible, given the ambiguity of the regulatory rule.
However, the Public Service Board said the company performing Vermont Gas’ price estimates knew on Jan. 13, 2014, that the price would go up to $112.2 million, and on Jan. 17, 2014, that the price would go up to at least $121.2 million. Those represent 30 percent and 40 percent price increases, respectively.
“We find no merit in [Vermont Gas’] position that the company needed additional time to vet its numbers so that it could report the reasons for the cost estimate increase at the same time that it provided notice of the increase itself,” the board wrote Friday.
The Public Service Board also rejected Vermont Gas’ arguments that it needed to wait until PricewaterhouseCoopers developed a “re-baselined” budget, and the company’s argument that it waited to disclose the increase until it received all of its collateral permits.
Commissioner Chris Recchia said Friday that the department supported the board’s option to impose a fine higher than $35,000, but wanted to leave the final number up to the regulators. Under regulatory rules, the company cannot use ratepayer money to pay the fine.
“I think they correctly showed, as we felt, that there was too much delay in Vermont Gas getting back to the board and notifying them,” he said. “It shows that for regulated companies doing projects they need to pay attention to this.”
“Our job at Vermont Gas is completing this important infrastructure project for Vermont families and businesses, all the while respecting a healthy regulatory process and building the confidence of our customers, our regulators, and our public,” Rendall said. “Trust is earned, and I hope we’re earning it.”
The Public Service Board is expected to decide in the coming weeks whether to reopen the project’s state-level permit, called a certificate of public good.
