Is The Vermont Gas Pipeline Worth It? Regulators Confront Dueling Estimates

May 7, 2015

Vermont Gas Systems has a powerful new opponent in its efforts to build a controversial natural gas pipeline into Addison County. The Vermont chapter of the AARP filed testimony from a Louisiana economist who said his calculations show the project will result in a net loss of almost $200 million over 20 years to the state’s economy.

The study was the first comprehensive analysis of the project to be conducted by an outside group that estimates the project's economic impact. The Department of Public Service issued a separate analysis this week that came to a very different conclusion.

Now there are three, widely scattered estimates of the pipeline’s economic impact on the state. On the high end, Vermont Gas Vice President for Regulatory Affairs Eileen Simollardes testified to the Public Service Board in March that the project will yield a net benefit of $98.7 million to the Vermont economy over 20 years. The AARP study, conducted by David Dismukes of Acadian Consulting Group, says the project will shrink the state’s economy by $196 million. Between them is the analysis from the Department of Public Service, the state agency responsible for representing ratepayers, which says the project will benefit the state to the tune of $44 million over 20 years.

With a gap of nearly $300 million between the extreme estimates, it’s clear someone is wrong about how the Vermont Gas pipeline will affect the state’s economy.

“We stand by our math,” said Vermont Gas spokeswoman Beth Parent.

Vermont Gas has revised its estimates of the pipeline’s net economic benefit in light of cost increases announced in December. Before that $32 million increase, Vermont Gas estimated a net economic benefit of $122.5 million.

With a gap of nearly $300 million between the extreme estimates, it's clear someone is wrong about how the Vermont Gas pipeline will affect the state's economy.

David Dismukes, who was hired by AARP to study the project’s economic impact, said in testimony to state regulators that Vermont Gas failed to consider a number of key factors in calculating the economics of the pipeline.

Dismukes said Vermont Gas underestimated the economic costs related to customers switching from fuel oil to gas. While that process can be expensive, Dismukes also pointed out that the propane and fuel oil market in Vermont will suffer as a result of the pipeline. According to his analysis, the pipeline will cause fuel oil and propane sellers to lose $23.77 million before 2020, and $63.96 million over the first 20 years of the pipeline’s lifetime.

Dismukes also estimates that the fuel oil and propane industry in Vermont will bleed workers after the pipeline’s introduction, totaling 1,237 jobs lost over 20 years. According to Matt Cota of the Vermont Fuel Dealers Association, that’s about a quarter of the industry’s 4,000 to 5,000 jobs statewide.

The testimony filed by Dismukes comes as the Public Service Board considers whether or not it should take another look at the pipeline’s merits. The board approved the pipeline in 2013 when the company’s cost estimate was $86.6 million. The company has announced two major cost increases in the past year, and now says the pipeline will cost $153.6 million. Since the board’s approval requires the project to be an overall benefit to the state, the new costs could change the math and result in the project’s approval being revoked.

Whether or not the board chooses to reopen the case, Dismukes’ testimony raises questions about how the project’s economic impacts have been calculated.

"We stand by our math." - Beth Parent, Vermont Gas spokeswoman

Dismukes’ reputation has come into question in past cases. In Louisiana, a state-funded solar energy study by Dismukes has been called into question  because of his advocacy against renewable energy subsidies and questions about his ties to major oil companies like ExxonMobil and Chevron.

AARP’s Vermont state director Greg Marchildon said he’s confident in Dismukes’ work.

“Dr. Dismukes’ career and his academic career and his career as a consultant speaks for itself,” Marchildon said. “We were fully aware of all of Dr. Dismukes’ background, the issues that he has worked on over time, and we are very comfortable having Dr. Dismukes represent AARP in this matter.”

Marchildon said AARP was the only group that paid Dismukes to study the pipeline’s impact, though he would not disclose the amount.

The three estimates provide the Public Service Board with a range of possible outcomes for the project, and the board’s level of trust in each estimate could be a very important factor in the decision on whether to reopen the case or not. Both Vermont Gas and the Department of Public Service say the project is still worth it and should continue without reopening regulatory proceedings. The AARP analysis suggests the case should be reopened.

Whatever the outcome, Marchildon said the fact that these independent analyses are happening now – more than a year after the project was approved, and after the cost increases revealed serious problems with Vermont Gas’ initial estimates – shows that Vermont regulators aren’t doing their jobs.

"When a filing comes through and our regulators just accept it verbatim, we have to ask ourself the question 'Where's the regulation in that?' It's just not there." - Greg Marchildon, AARP Vermont State Director

“When a filing comes through and our regulators just accept it verbatim, we have to ask ourselves the question ‘Where’s the regulation in that?’ It’s just not there,” Marchildon said. “We wouldn’t be spending the kind of money and resources that we have spent on this case and others in the past, frankly, if our regulators were doing the job that they need to do.”

Chris Recchia, the commissioner of the Department of Public Service, disagrees.

Chris Recchia, the commissioner of the Department of Public Service, says the Vermont Gas pipeline will be an economic benefit to the state.
Credit Angela Evancie / VPR File

“I think that in retrospect, and we certainly have said this many times, that I would have done this a little differently,” Recchia said. “But I think it is primarily, and always will be primarily, the responsibility of the utility in the industry to understand what the industry pressures are and how the costs are likely to be affected by that and to present that fairly.”

Recchia said Vermont Gas is being held accountable for the failures of its earlier math – and not by AARP’s economist; the Department of Public Service recommended a $35,000 penalty for Vermont Gas over its mishandling of cost estimates on the pipeline.

“I think Vermont Gas dropped the ball on this one. I think they would admit that,” Recchia said. “That is why we recommended a penalty in the penalty phase for not really following the industry and reporting on that as quickly as they should have. So I don’t think that will happen again, but we do have the regulatory structure to enforce that concept and to make sure that they are paying attention.”

The addition of AARP, a powerful group with significant political sway in Vermont, to the ranks of pipeline opponents puts them in line with Rising Tide Vermont, the Conservation Law Foundation and the Vermont Fuel Dealers’ Association. Whether the unlikely alliance will convince the board to reopen regulatory proceedings remains to be seen. A hearing on the issue is scheduled for June.