Pipeline Filings Unclear On What's Driving Up Costs

Jan 19, 2015

Vermont Gas Systems last week filed a detailed breakdown of the updated costs of the Addison County natural gas pipeline last week.

The new filing to the quasi-judicial Vermont Public Service Board shows dramatically increased construction costs. But the documents obscure cost changes in other areas of the project because costs are categorized differently than in previous filings.

“It’s going to be impossible to do that,” said Vermont Gas spokesperson Elizabeth Parent when asked if a direct comparison of costs exists. “Everything was looked at all over again.”

The latest filing details the costs of the pipeline, now estimated at $154 million. It shows that construction costs have gone up by almost $10 million since a previous estimate filed in July. Those costs are now pegged at $76,417,509.

“If you look at it,” Parent said, “construction was a huge portion of the new estimates.”

The company has previously attributed rising construction costs to a national boom in pipeline construction in recent years. In initial filings that were current when the pipeline was approved in 2013, the company estimated construction costs at $37,851,000.

According to the company's latest calculations, the project is still an overall economic win for the state. The Department of Public Service, which represents ratepayers, says that assertion needs to be tested in detail. 

The rising cost of construction only explains about $10 million of the recent cost increase of almost $30 million, and it’s nearly impossible to see how much estimates have changed for other aspects of the project, including materials costs, right of way costs related to disputes with landowners, and engineering costs.

That’s because the company changed the way it goes about estimating and categorizing costs since its original filing and a July cost increase. As a result, the costs that the company started with before calculating the recent increase are different than the ones the company ended with after the previous increase was calculated in July, so it's impossible to know how the currently budgeted project compares to the project as approved by the Public Service Board.

Vermont Gas categorized its costs differently in July 2014 (left) than in January 2015 (right).
Credit Vermont Gas Filings / Vermont Public Service Board

For example, costs associated with “Engineering” in July were at $8.8 million, but the costs of “Engineering & Design,” based on the new methodology, were just $3.2 million before the recent cost increase. As a result, it’s unclear how the costs associated with what was considered "engineering" in July have changed over the past six months.

“The board and the other parties should be able to rely on the information that’s being provided from utilities about what a project will cost,” said Sandy Levine, a senior attorney at the Conservation Law Foundation who has been part of the pipeline proceedings.

The same is true for every cost category except “VGS Overhead,” which was consistent between filings in July 2014 and this month.

Levine said she thinks the discrepancies in how Vermont Gas categorizes its costs will be addressed in hearings related to the latest cost increase.

“I think it will come up,” she said. “More in terms of what’s driving the cost increases and how confident can we be to rely on them. The board certainly determined it felt confident to rely on the previous increases and they proved to be wrong.”