[R]atepayers will pick up most of the tab for a natural gas pipeline under a new agreement between the state and Vermont Gas.
The deal with the Department of Public Service allows the Gaz Metro subsidiary to recover up to $134 million of the cost of the 41-mile pipeline from ratepayers. The current budget for the project, which will extend existing pipeline infrastructure from Colchester to Middlebury is $154 million.
Vermont Gas will absorb the $20 million difference unless the construction project is delayed by factors deemed beyond the company’s control, such as inclement weather, right of way access disputes and demonstrations by protesters that interrupt construction work.
Don Rendall, the CEO of Vermont Gas, says the company agreed to the compromise with the state because “we have the confidence we will get the project done on time and on budget.” The deadline for the project is December 2016.
Critics say the pipeline extension will give Vermont Gas an opportunity to expand its market at the expense of ratepayers in Chittenden and Franklin counties. Gas rates are expected to go up 10 percent to 12 percent as a result of the buildout in Addison County.
Chris Recchia, the commissioner of the Department of Public Service, says the MOU with Vermont Gas limits the liability for ratepayers. It was never the state’s intention to allow ratepayers to be on the hook for the whole cost of the buildout, he said.
In addition to the cap, the pipeline expenditure will be subject to a “full cost review,” Recchia said.
“These costs are not going into rates without a full rate case,” Recchia said. “Other parties can participate and we will scrutinize at that point all the costs and expenditures and we’ll come up with a fair cost to ratepayers for the scope of the work, like we do for any rate case.”
Gov. Peter Shumlin lauded the agreement in a prepared statement sent moments after the department released an announcement about the memorandum of understanding to the press.
“I’m pleased that the Public Service Department was able to work with Vermont Gas to lower the cost of the project to ratepayers by $20 million,” Shumlin said. “This agreement can give ratepayers confidence in the cost of the project. I continue to believe that expanding natural gas beyond Chittenden and Franklin counties will be good for Vermont, bringing a cheaper fuel choice and new energy efficiency services to Vermonters whose incomes are not keeping up with the rising costs of health care and property taxes and replacing dirty oil with a cleaner fuel source.”
AARP Vermont, which has been critical of the pipeline expansion, says the MOU will hurt ratepayers. Greg Marchildon, state director of the advocacy group, accuses Shumlin, Rendall and Recchia of cutting a “fake deal.”
Under the deal, which was made outside the regulatory process, Marchildon says, ratepayers are expected to subsidize a $134 million project they won’t benefit from. The increase in gas rates will negatively impact AARP members who are on fixed incomes, he said.
“The notion that this is a great deal for Vermont ratepayers is the stuff fiction is made of; it’s laughable on its face,” Marchildon said.
Regulatory approvals for the project have been in limbo for months and have delayed construction this fall. Vermont Gas is seeking reaffirmation of a license from the state known as a certificate of public good.
The Montreal-based company came under scrutiny last year when news reports came out about a near doubling of cost estimates for the project. The company’s original cost estimate submitted in original filings to the state was $86.6 million.
Media reports about the 80 percent increase in construction costs prompted questions about the accuracy of Vermont Gas’ 2013 certificate of public good filing. In February, the department asked the quasi-judicial Public Service Board to reconsider whether the pipeline will benefit consumers.
The board concluded hearings in June on whether to reassess state approval of the pipeline. A decision from the board on the matter is expected in the next few days.
The MOU between the state and Vermont Gas was developed outside legal and regulatory proceedings. Intervenors in the case, Marchildon said, were not notified until after the Shumlin administration and the company sent statements to the press.
Marchildon says the agreement is a “complete PR ploy” and “blatant attempt” to influence the quasi-judicial Public Service Board on the eve of an expected decision in a contested case that was closed to testimony, discovery, cross-examination and briefs in June.
“This is a very clear demonstration of how badly broken the regulatory system is in Vermont,” Marchildon said. “We have a commissioner and a governor who are cutting a deal with the company that the department is supposed to be regulating. It’s supposed to be advocating for ratepayers instead of cutting weird, hollow deals with Vermont Gas.”
The provision in the MOU that allows Vermont Gas to recover from ratepayers unanticipated costs for delays could easily “balloon back to $154 million,” Marchildon says.
Recchia says the allowances are “very limited.”
“We’re attempting to provide the right incentives for everyone to do the right thing,” Recchia said. “I can hold Vermont Gas responsible for its own actions, but I can’t hold it accountable for other people’s actions.”
Delays could be caused by several factors, including right of way negotiations and protests.
The company has obtained right of way access from all but 10 landowners for three miles of the pipeline. Negotiations could lead to lengthy eminent domain proceedings.
When protesters interfere with the project or endanger themselves or others, Recchia says, it’s “not cool,” and resulting delays come at a cost to ratepayers. Rising Tide has held several demonstrations a month at pipeline construction sites in which protesters have chained their necks to equipment.
So far, Vermont Gas has spent $80 million for an 11-mile section from Colchester to Williston, and for pipe and materials and right of way costs for the entire 41-mile pipeline.
Recchia says if the regulatory process drags on through the spring, the utility wouldn’t be able to mobilize for construction in a timely way. If Vermont Gas isn’t able to finish the project by the end of next year, “the risks are quite high it couldn’t be done at the $154 cost, and then the project would be in jeopardy and would likely be canceled,” he said.
“The cost would be too much,” Recchia said. “We’re essentially making them absorb $20 million and they have no appetite for more.”
Rendall has said the pipeline project will deliver more than $90 million in economic benefits to Vermont over 20 years.
An economic analysis by AARP indicates the state will see a loss of $200 million in economic activity, due to a loss of jobs in the oil and propane delivery truck industry.
