Vermont Gas Cancels Second Phase Of Pipeline

Feb 10, 2015

Vermont Gas Systems has canceled plans for the second part of the company’s three-phase pipeline project.

Phase II was the company's plan to run a natural gas pipeline under Lake Champlain to a mill owned by International Paper in Ticonderoga, New York.

Vermont Gas said updated cost estimates for the second stage of the project were to blame for the changed plans. With the new estimates, Vermont Gas said in a filing to regulators, International Paper pulled out of the agreement after the companies could not agree on a path forward.

"Our updated cost estimate for Phase 2 is now $105 million, compared to $74.4 million as presented to the PSB last August," said Vermont Gas Vice President Jim Sinclair in a statement Tuesday.

The agreement between Vermont Gas and International Paper called on IP to shoulder most of the costs of the expansion, and the release said the increased costs would have driven those commitments (which included modifications to Phase I of the project) resulted in Phase II “no longer being commercially viable.”

The cancellation will likely change the company’s timeline to bring service to Rutland. A large part of the company’s argument for Phase II was that the funding from International Paper would allow Vermont Gas to expand service to Rutland years sooner than would otherwise be possible.

In a release, Sinclair was not firm on the company’s continuing commitment to reach Rutland soon.

"We will now focus our efforts on completing Phase 1 of our expansion plan to serve Addison County as far south as Middlebury, and explore creative options for extending service to more Vermont communities, including Rutland," he said.

Rutland Mayor Christopher Louras said Tuesday he was shocked by the news, which he considers a major blow to Rutland's future business prospects. 

"My reaction and Rutland's reaction as a whole will be the same which is disappointment frankly,” Louras said. “The fact of the matter is we had been working for years on this - it has now delayed the project and it will not be coming any time clearly before 2020 probably out to 2025."

While Vermont Gas made no firm commitment to their efforts to bring gas to Rutland, Louras says he spoke with company officials.

"I did have the discussion today with [Vermont Gas CEO Don] Rendall - and he did say that he's hoping to continuing the conversation to get gas to Rutland,” Louras said, “but it just doesn't have a book end at this point."

Rendall said in an interview Tuesday that Vermont Gas would continue to look at ways to expand service, but that there is no longer a target date.

"I don't have a time frame on what that means in terms of our expansion beyond Middlebury," Rendall said.

The pipeline project has been riddled with difficulties surrounding cost estimates. The price projection for Phase I of the project has gone up twice since state regulators approved that portion of the project. Phase I rose from an initial projected cost of $86.61 million to the latest estimate of $154 million. Regulators have yet to weigh in on whether they will reopen that case in light of the new estimates.

"There's no doubt that the earlier estimates did not reflect the real cost of going forward," Rendall said in an interview Tuesday, calling those estimates "inadequate."

Vermont Gas officials say the cancellation of Phase II will not affect the cost of Phase I.

And even before Phase II was called off for the latest cost increase, costs increased for that stage of the project last summer. When Vermont Gas initially filed for approval, the estimated cost of Phase II was about $64 million. That projection increased to $74 million over the summer.

Company officials have refused to address what may have gone wrong in the past with cost projections, emphasizing that the latest estimates are based on industry standard protocols.

Gov. Peter Shumlin said in a statement that he is pleased with the company's commitment to getting correct estimates and ensuring that the project still makes sense.

"In that process, it became clear that the costs and community challenges of the International Paper expansion have grown," he said. "Given the conclusions that the costs have exceeded International Paper’s threshold and the benefit to Vermonters from pursuing that project have decreased significantly, I support the companies’ decision to withdraw the project."

Update 3:33 p.m. This post was updated with comments from Rutland Mayor Christopher Louras.

Update 4:49 p.m. This post was updated with comments from Vermont Gas CEO Don Rendall as well as a link to the Vermont Gas filing to regulators.

VPR Correspondent Nina Keck contributed to this report.