Vermont Gas Cost Overruns Raise Questions About Project Management

Jul 3, 2014

Vermont Gas Systems has revised its plan for a pipeline from Chittenden County south to the Middlebury area, increasing the estimated cost of the project by $35 million – just over 40 percent.

Major changes in the cost of a utility project must be reported to the Vermont Public Service Board, which oversees utilities in the state. In its report to the board, Vermont Gas said construction for the project would be more than 50 percent more expensive than the company’s original estimates.

The new cost of construction for the project is estimated to be $57.53 million, and overall project costs went up from $86.61 million to $121.66 million.

The 40 percent increase in cost could lead to new proceedings before the Public Service Board, which has the authority to revoke or modify the company’s "certificate of public good" for the project. The certificate serves as a legal authorization to proceed with building.

Geoff Commons, director for public advocacy at the Public Service Department, said the change in cost raises questions among regulators.

“It may cause the board and [other] parties to look more closely at whether VGS is properly managing the project and the cost of the project,” he said. “That’s certainly a topic of discussion and conversation with the company, and I expect it will be a topic before the board.”

Project management is part of the new costs, according to the company’s filing.

Commons said major cost increases such as these could ultimately be passed on to ratepayers.

“The board is concerned and we the department are concerned because it’s anticipated that ultimately these costs will go into rates and will be paid by ratepayers,” he said.

One of the reasons for the cost increase, according to the company’s filing, is that the “legal budget has also increased due to the complexity of this case.”

Company spokesman Jim Sinclair said the economic fundamentals of the project remained strong.

"Upwards of $200 million in direct energy savings alone to Addison County residents and businesses," he said. "In addition, by switching to natural gas the greenhouse gas emissions will improve by 25 percent versus relying on oil or propane."

Plans for the pipeline have come under fire from activists and landowners who say the company has misled the public and who are opposed to the use of gas extracted from the earth using hydraulic fracturing, or fracking.

The company plans to extend the pipeline beyond the Middlebury area in another phase still under review by the Public Service Board. That extension, if approved, will bring service under Lake Champlain to the International Paper mill in Ticonderoga, N.Y. A third phase would extend the pipeline south to Rutland.

Updated at 9:00 p.m. 07.03.14 to include VGS comments