Vermont Gas Won't Say If It Fired A Major Pipeline Contractor

Feb 17, 2016

The latest cost update for the Vermont Gas Systems pipeline to Addison County shows the project is still on schedule, but rising costs have cut into the company’s financial cushion for the project. Vermont Gas officials also refuse to answer questions about a pipeline contractor that has “issues relating to … contract performance and claims,” according to Vermont Gas filings.

In a letter to the Public Service Board, Vermont Gas Vice President Jim Sinclair explained why the project’s financial pad is shrinking. He wrote that costs related to permitting, right of way and construction were all rising above the company’s earlier estimates.

The increases were driven by the nearly year-long Public Service Board review of cost estimates for the project, increased construction costs and spending related to eminent domain proceedings with landowners who have refused to give the company permission to put a pipeline under their land.

Vermont Gas CEO Don Rendall said the company’s use of contingency funds does not worry him.

“We’ve got about $13 million of contingency remaining,” Rendall said of the fund, which was originally about $15 million. “That’s a very healthy contingency given the progress that we’ve made on the project. And the draws that we’ve made on the contingency have been modest compared to, frankly, what I would have expected for the project up until now.”

In 2014, Vermont Gas revised the cost estimates for the pipeline twice, bringing the price tag up from $86.6 million to $154.4 million. The company has stayed with the new estimate – 10 percent of which was a “contingency” cushion – for more than a year. During that time, the Public Service Board reviewed the company’s estimates in an effort to determine if the project could go forward at the new cost using its old permit.

Last month, the board ruled to allow the pipeline to continue.

Less than two weeks later, a cost update the company filed with the board showed that the company’s “contingency” budget for the project was now down to $13.3 million, reduced more than $1 million since October.

The majority of the increase comes from a $686,310 addition to the construction budget for the project.

In his letter, Sinclair said those costs were driven by “change orders with the mainline contractor and inspection services,” as well as extra work from that mainline contractor during a horizontal drilling stage of construction, when the pipe is threaded through a pre-drilled underground tunnel instead of laid in a trench.

Sinclair’s letter hints at some potential problems with the drilling contractor.

"We have initiated discussions with out HDD [Horizontal Directional Drill] contractor with respect to issues relating to HDD contract performance and claims." - Vermont Gas Vice President Jim Sinclair in a filing with the Public Service Board

“We have initiated discussions with out HDD [Horizontal Directional Drill] contractor with respect to issues relating to HDD contract performance and claims,” Sinclair wrote. “At this time we believe the project forecast reasonably reflects the potential impact of those discussions.”

Sinclair did not elaborate on what that impact might be. The company announced in May 2014 that Williston-based Engineers Construction, Inc. was hired to do horizontal drilling work for the pipeline.

Engineering reports from early 2015 – provided to VPR by AARP’s Vermont chapter, which is actively opposing the pipeline – show problems with the drilling. A March 25, 2015 report describes Vermont Gas officials inspected the leading section of an 800-foot stretch of pipe after it was installed under Interstate 89 using the HDD process.

“Inspection of the pipe’s corrosion-protection coating in this area indicated excessive damage and was determined to be unacceptable,” the March 25 report said.

The following week, another engineering report said that Vermont Gas “has not completed revisions to its inspection protocols and criteria for pipe condition following installation by horizontal directional drilling.”

The problem persisted well into the summer. A July 8, 2015 report shows that another stretch of pipe, installed with HDD under Route 2A in Essex, was also damaged.

“The [Vermont Public Service Department’s] Gas Engineer reiterated concern to VGS that the company has not established adequate construction methods and inspection techniques to reliably ensure appropriate condition of all pipe installed by HDD, including segments which will not be visually assessed,” the report said.

Rendall said he is confident that all work so far on the pipeline has been completed safely, but he refused to name the contractor in question or say if that company is still involved in the pipeline's construction.

"We'll take care of our contractual relationships and our contractual administration and our project management in an appropriate way." - Don Rendall, Vermont Gas

 Asked directly if Vermont Gas has an HDD contractor in place, Rendall refused to answer.

“This is a great day for Vermont Gas customers,” Rendall responded, “in our announcing a 3 percent rate decrease … and as I said we’ve been very direct and open about our progress on the project. I’ve shared with you what I’m prepared to talk to you about in the context of the work that we’re doing and the progress we’re making, and I’m going to leave it there for now. We’ll take care of our contractual relationships and our contractual administration and our project management in an appropriate way.”

In a separate interview, asked repeatedly if Vermont Gas has a HDD contractor for the coming construction season, Rendall said he expects "we will have a final contract and schedule for the drilling in the coming weeks. That’s been the plan all along.”