AARP Says Vermont Regulators Sat On News Of Gas Pipeline Overruns

Aug 13, 2014

A natural gas pipeline from Chittenden County to Addison County is going to cost $35 million more than the company building it had previously estimated. But state regulators knew about the cost overrun for months without disclosing the news publicly. And one consumer protection group says the Department of Public Service should have done more to defend ratepayers.

Vermont Gas Systems initially said it could extend its natural gas pipeline into the Middlebury area for about $86 million. The price tag was compelling enough to win regulatory approval.

"Why are we having a cost increase? Is this cost increase necessary? Is it reasonable? What can we do about it?" - Jim Dumont, lawyer for AARP Vermont

  But while the company didn’t disclose publicly until last month that it’s going to cost closer to $121 million, state regulators have known since at least March about the cost overrun. Greg Marchildon, director of AARP of Vermont, says the Department of Public Service should have immediately put the project under new scrutiny when it found out.

“And I think that if we asked 10 Vermonters on the street today, they would expect the people that are regulating their utilities, and are supposed to be protecting their interests, would be the ones that would tell them what was going on here,” Marchildon says. “And that clearly did not happen.”

Commissioner of Public Service Chris Recchia admits he’s known for months about the cost overrun. But he says it’s not his department’s job to relay that information to the Public Service Board, the three-person panel responsible for approving or denying utility projects like the pipeline.

“The obligation to disclose cost overruns ... is with the applicant… We asked them multiple times when they were planning on informing the board,” Recchia says.

Recchia’s department has since urged the Public Service Board to fine Vermont Gas Systems $35,000 for failing to make public more quickly the news of the rising cost estimates.

Recchia says he was told by Vermont Gas only that the overruns would be “significant.” He says no one in his department was provided with any information about the nature of the overrun, or the reasons for it.

“We had no data,” Recchia says. “All we had was statements by Vermont Gas that costs came in higher than expected. That was what I recall from that period of time. That’s what I think my staff knew.”

But James Dumont, a lawyer for AARP Vermont, says that if Recchia felt so strongly about the need for that information to become public, he could have solved the problem by disclosing it to the board himself.

Recchia’s department has a statutory responsibility to guard the interests of Vermont ratepayers. And Dumont says the department shirked that mandate by failing to ask even basic questions about the Vermont Gas overruns.

“Why are we having a cost increase? Is this cost increase necessary? Is it reasonable? What can we do about it?” Dumont says.

Dumont says the cost-benefit analysis originally used to justify the pipeline was rendered obsolete by a change of this magnitude. And Marchildon says the state’s failure to do anything with the information it had back in March prevented AARP and other interested parties from challenging the project in light of the new circumstances.

“Certainly if there was an opportunity … for AARP and others to have engaged appropriately … we would have had time to potentially seek injunctive relief … and figure out a way to put the brakes on this thing until we got it sorted out,” Marchildon says.

The Conservation Law Foundation has filed legal briefs seeking to have construction on the project halted, pending a new review by the Public Service Board.

Recchia says the department will review the legitimacy of the added pipeline costs, as well as whether they should be passed on to ratepayers. And he says the Public Service Board will have an opportunity to hold Vermont Gas’ feet to the fire in future regulatory hearings.

“The rate impact of the cost overrun estimate that has occurred here has not even come before the department or the board yet,” Recchia says. “And it will, and it should. And we will aggressively review what the costs are and whether they were justified or not.

But Recchia says there’s no question in his mind that the pipeline remains in the public good, higher costs notwithstanding.  

“So it’s not close. There is no reason to revisit the issue,” Recchia says. “And if you slow down, if you stop the progress and stop the construction now in this construction season, you will inevitably increase the costs.”

Marchildon says the episode highlights problems with a streamlined legal process for utility cases, known as alternative regulation. The so-called “alt reg” regime has been in place for about a decade, and was designed to reduce the time and expense of utility cases in ways that delivered financial benefits to ratepayers.

But Marchildon says the law has served to limit public intervention in regulatory cases.

“In essence that’s really bad for consumers, because these deals are done in the backrooms with a handful of lawyers. Only three or four of them probably know all these sort of arcane and very mystifying rules associated with alternative regulation,” Marchildon says.

Dumont says diminished opportunities for public intervention in the alt reg program mean the Department of Public Service has become an even more important backstop for the public interest. He says the generally “cozy” nature of the relationships between regulated utilities and the bureaucrats responsible for overseeing them make this an unreliable system of checks and balances.

“So instead of a public process where every important decision is made by Public Service Board members who have six-year tenure, it’s essentially a private process on a very short time frame with limited information … where the decision maker is someone who serves at the pleasure of the governor,” Dumont says.

Dumont notes that Gov. Peter Shumlin has come out in favor not only of this phase of the gas pipeline project, but also a future plan to extend the natural gas infrastructure into Rutland. He says commissioners and staffers at the Department of Public Service serve at the pleasure of the governor, and that the pressure to make him happy will undoubtedly color their regulatory judgments.

Recchia has stern words for Vermont Gas, and says the company shouldn’t have been so off the mark in its initial cost estimate.

“It’s really the issue of them monitoring the industry and knowing what the costs were going to be, to do this long before March, during the time when the (Certificate for Public Good) was pending.”

His department has also asked the Public Service Board to provide quarterly cost-estimate updates, so as to avoid future delays in the transfer of that kind of information.

But while Recchia says modest adjustments to the alt reg process might be in order, he says the program is a sound one. And he says denouncements of the process are coming from groups’ who’s real motivation is to kill the pipeline altogether.