Regulators Seek Answers On Vermont Gas Cost Overruns

Jun 22, 2015

Vermont utility regulators are taking another look at the Vermont Gas Systems project designed to bring a gas pipeline into Addison County. 

The Public Service Board on Monday opened technical hearings in the case as it re-examines whether the project should proceed in light of sharp cost increases.

Members of the board showed a keen interest in what the company executives knew, and when.

When Vermont Gas President Don Rendall took the stand before the board Monday, board member Margaret Cheney asked a question critics of the pipeline have posed for months.

"Why should the board rely on Vermont Gas’ representations in this proceeding, given our arguably misplaced reliance last fall?" she asked.

"Why should the board rely on Vermont Gas' representations in this proceeding, given our arguably misplaced reliance last fall?" - Margaret Cheney, Public Service Board

Over the course of last year, cost estimates for the project ballooned from $87 million to $154 million, despite virtually no changes in the pipeline's design. This came in the form of multiple revisions to the cost estimates, most recently in December of last year.

The company is in the tricky position of trumpeting the accuracy of the current estimates while defending its use of previous estimates as reasonable at the time.

Then-CEO Don Gilbert left the company at the end of last year, just as the latest estimates came out. That makes things more complicated for regulators – and perhaps simpler for Vermont Gas.

It goes like this: Someone asks - like Cheney did - how it's possible to be confident in Vermont Gas estimates when so many previous ones have been wrong.

Vermont Gas President Don Rendall took the stand before the board Monday. "We undertook a very disciplined and rigorous review of the project, as I call it, from bottom up," Rendall said.
Credit Taylor Dobbs / VPR

In an interview Monday, Rendall answered this way:

"We undertook a very disciplined and rigorous review of the project, as I call it, from bottom up," he said. "We were very focused on doing it using best practices, industry standards for estimating these kinds of projects. We did it in the context of knowing much more about where we were in the cycle of the project and the progress of the project."

The new estimates were developed with widely recognized standards using a proven methodology. But how is it that the company was confident in the estimates that were generated with another methodology that wasn’t the one Rendall describes?

"I can't speak for what was driving the company's confidence at a time when I was not there to see it." - Vermont Gas CEO Don Rendall

This is where that leadership change comes in. Here's Rendall's answer to that question:

"Well, I can’t speak for what was driving the company’s confidence at a time when I was not there to see it."

The board is weighing whether to reconsider its approval of the Addison County pipeline now that the cost of the project has nearly doubled since that approval was granted.

Vermont Gas Vice President James Sinclair attributed the decision to switch cost methodologies to Gilbert.

"His testimony [at a previous hearing] was that any future re-estimating we would do would employ that type of a methodology," Sinclair said.

Protesters were in attendance at the hearing. Witnesses from some of the pipeline's opponents will testify in front of the board on Tuesday.
Credit Taylor Dobbs / VPR

He did not explain why the company needed to make the switch from its previous methodology, instead noting his confidence in the new one.

Vermont Gas Vice President Eileen Simollardes is scheduled to testify Tuesday morning, followed by witnesses from some of the pipeline's opponents.

A decision from the board is expected this summer. In the meantime, Vermont Gas is continuing construction on the pipeline despite risk that the board could rescind permission for the project.