Vermont Gas Pipeline Project Is In Jeopardy

by John MacKenna

A plan to expand natural gas service in Vermont that once looked like a done deal is now in jeopardy due to cost overruns.

The Vermont Supreme Court yesterday granted permission to the state Public Service Board to reconsider a permit it granted for the pipeline in December 2013. The Court gave regulators an unlimited timeframe and scope to hear the case, even though the project is already under way, with more than six miles of pipeline in the ground.

Numerous groups, including the Vermont Fuel Dealers Association (VFDA), the American Association or Retired Persons (AARP) and the Conservation Law Foundation, had pressured the Board to request the Supreme Court’s authority for the reconsideration. The pipeline project has come under widespread scrutiny following the announcement by Vermont Gas Systems (VGS) of two cost overruns in 2014 that increased the cost from $86 million to $154 million.

The Public Service Board had previously authorized VGS to bill ratepayers for the entire cost of the project, so the increases were a matter of public interest.

Matt Cota, Executive Director of VFDA, told Oil & Energy Online this morning that the Supreme Court’s decision is an important step that could mark “the beginning of the end for this project.”

The reconsideration could lead to several possible outcomes, according to the VFDA executive. The three-member panel could:

• Approve the new costs and allow VGS to pass all of them on to ratepayers, as previously approved;
• Approve the new costs with a different cost allocation that assigns some share of the burden to Vermont Gas Systems and/or passes more of the costs onto large industrial users;
• Deny the permit altogether after finding that the project no longer serves the public interest;
• Change the project terms such that VGS on its own elects not to proceed with the project.

If the permit is re-approved and VGS proceeds with the pipeline, Cota is confident that the utility will face difficulties in recruiting customers. “Based on the cost analysis that has been done, Oilheat marketers have a pretty good chance of beating them at their own game, because the cost would be too much to get homeowners to convert,” he said.

Vermont Gas Systems is now selling gas at the equivalent of $2.11/gallon heating oil, and more cost increases are expected from the pipeline project, Cota noted. The cost of converting a heating system is discouraging enough with today’s low heating oil prices, and there are other factors in play as well.

“There is a lot of anger about this project,” he said. “Vermonters are a proud people, and they don’t like giving up their land for the benefit of a Quebec-based for-profit corporation.” VGS has resorted to eminent domain to seize land and has been accused of trespassing on private property. “Don’t underestimate the will of a Vermont landowner who feels mistreated and sees their land trespassed on and their private property rights violated,” he added.

The project is expected to add only 2,000 to 4,000 new customers to the Vermont Gas Systems, and the pipeline cost is already at $3 million per mile. “The economics of it are becoming impossible. They just don’t have the customers to support this,” Cota said.

Vermonters who use natural gas are already paying for the project, because the Public Service Board authorized VGS to keep consumer gas prices steady while the company’s gas acquisition costs were falling in recent years. VGS has been collecting the difference and placing it in escrow to cover the pipeline costs.

The proposed pipeline has three separate phases. Phase 1 is a 41-mile pipeline running from Colchester south to Middlebury near the state’s western border. Phase 2 would extend the pipeline west from Middlebury and under Lake Champlain to the International Paper mill in Ticonderoga, N.Y. Phase 3 would extend the pipeline south from Middlebury to Rutland.

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