Vermont Gas Pipeline Costs Continue To Rise

Dec 19, 2014

Vermont Gas Systems announced Friday that it faces additional cost overruns for its pipeline to Addison County. 

The company is not ruling out a rate increase to pay for the new costs. And officials say they will ask regulators to delay proceedings on the the next phase of the project, pending revised cost estimates for that phase.  

Costs have gone up substantially since the project was first submitted to regulators a year ago.

Incoming Vermont Gas CEO Don Rendell, sitting in front of posters that read "Vermonters asked. Vermont Gas is delivering," said new cost estimates for the Phase I pipeline total $154 million. The new projection is the second cost increase in six months, now 78 percent above the $86.61 million estimate initially filed on Dec. 20, 2013.

But Rendall painted the announcement as a turning point.

"I'm committed to reporting that information openly, candidly and without delay," Rendall said at the  morning news conference.

The prompt announcement of cost changes is a change for the company. In July, company officials told regulators about a 40 percent cost increase that they'd known about since March.

Rendall said that with this increase, Vermont Gas didn't have the new numbers until earlier this week and officials planned to alert regulators by close of business Friday.

"The project, as you know, has encountered many challenges," Rendall said. "Today we're hitting the reset button."

Despite the new commitment to openness, significant questions remain about the pipeline's costs.

Rendall said Friday that the new estimates were calculated using "industry-accepted standards" for cost planning. But he had no definitive answer for why Vermont Gas hadn't been using those standards from the beginning, when it filed a cost estimate $67 million below current projections.

"Companies use different estimating approaches for jobs," he said. "That's what they do. From my standpoint coming in here in the last several weeks, my focus has been 'How can we make sure that this process is done effectively, is done in a disciplined way, and that when we finish, we report and we do that in an open, candid and direct way?'"

Rendall was reluctant to talk about past decisions under the company's outgoing CEO Don Gilbert.

"I'm here to talk about what we're doing going forward,"he said. "And I think there are a variety of reasons why the company used the methodologies and approaches that they used using the advisors that they had when they did the project earlier, and they didn't use this approach. We're using this approach now."

Another question: Who will pay the bill for the additional costs?

Rendall wouldn't rule out a rate increase for existing customers, even though "cross-subsidizing" projects using money from customers who don't benefit is usually not allowed by regulators in Vermont. Vermont Gas received an exception to that rule from regulators in order to establish a fund to save up for the pipeline project because it was considered to be in the public good.

"We will work with the Public Service Board and the Department of Public Service to look at what the impact will be on existing customers, and what the impact will be on new customers and how that works out in an appropriate way," Rendell said.

Despite the rising costs, Rendall said the pipeline is still worth building for Vermont.

"This is still a good deal for the customers in Addison County and will be a good deal for the state of Vermont," he said.

Chris Recchia, the commissioner of the Department of Public Service, said Friday that the increase is a point of concern for the department.

"Obviously this is concerning and disappointing that the number's going up," he said. "But I'll say that this situation is different than the last one."

Recchia commended the company's decision to bring the new estimates to regulators as soon as company officials found out about the cost increase.

Recchia said he would not yet weigh in on whether the increase would change the department's support of the project, though he said the department will conduct a review of the projected overruns.

"Even after the original 40 percent increase [in July], it was clear that the benefits still surpassed the costs by tens of millions of dollars," he said. But now with the new estimate $32 million above July's projection, "this obviously brings it closer, and I think it does require a more thorough evaluation to know that it is still cost beneficial for ratepayers and for Vermonters."

Update 12/19/14 1 p.m. Gov. Peter Shumlin, a longtime supporter of the Vermont Gas pipeline project, issued a statement about the cost increases expressing concern - and a desire to reevaluate whether the project is, in fact, a good deal for the state of Vermont.

Although I am pleased that the new leadership at Vermont Gas is taking the time to reevaluate the proposed projects, this further cost increase is very troubling. In the coming weeks my administration will be evaluating all of this new information and looking at these projects as a whole to ensure that they remain in the best interest of Vermont.  Meanwhile, I expect Vermont Gas to also reevaluate its communications and negotiations with affected landowners to help improve relations. I trust those steps will continue.

Update 4 p.m. This post was updated with comments from Recchia.