Vermont Gas to take financial hit for pipeline missteps

Vermont Gas pipeline contractors face off against protesters at the Williston worksite in 2014. Photo by John Herrick/VTDigger

By Mike Polhamus, VT Digger

Vermont Gas Systems acknowledged last Thursday that it “did not prudently plan and manage” a 41-mile pipeline extension in Addison County in the early stages of the project.

As a penalty, the company’s income will be capped for the next three years, according to a settlement with state regulators filed late Thursday afternoon.

Vermont Gas may earn no more than an 8.5 percent return on its capital assets through 2019.

The agreement is part of a regulatory action in which the Public Service Department sought to limit the impact of the pipeline’s escalating costs on ratepayers.

As is the case with other regulated monopolies in Vermont, Vermont Gas may profit only off its capital assets (such as pipelines and pumping stations), and not the fuel itself. Each year, through a rate case, VGS and state regulators agree to a rate of return.

The company’s profit on capital assets has been set yearly, pegged to market conditions and the company’s own performance. This year, Vermont Gas asked the Public Service Board to allow a 9.7 percent return on equity, and the Department of Public Service suggested 9 percent instead.

The Public Service Board reduced that number to 8.5 percent for the next three years as “the appropriate financial penalty for the impact of (VGS’) imprudence.”

The Public Service Department, under former Commissioner Chris Recchia, had sought to knock $35 million off the pipeline’s total cost to ratepayers because of imprudent expenditures. The pipeline was originally projected to cost about $86 million, but the total rose to $165.6 million. With certain exceptions, no more than $134 million of that can be passed on to ratepayers, according to an earlier agreement with the state.

Thursday’s settlement, however, acknowledges dramatic improvements in Vermont Gas’ handling of the project as it moved forward.

“Vermont Gas subsequently put leadership, management and systems in place to effectively manage and construct the project,” according to the settlement.

CEO Don Rendall, who took over management of the project two years ago, credited the Vermont Gas staff and contractors.

“I’ve been working with a team for two years that has been working incredibly hard to get this project back on track, and to get it completed safely, efficiently and responsibly, and I’m very proud of the work from our team at Vermont Gas, together with all the help we had from contractors, to get it done, over the last two years,” Rendall said.

The company initially faced “very significant challenges in management and the way this project was being undertaken, and we reset the project, got it back on track, and we’re now on the verge of completing it,” he said.

Environmental advocates welcomed the terms of the settlement, but said the pipeline remains a bad deal for ratepayers.

“It is good that Vermont Gas Systems recognizes the significant mismanagement of the project,” said Sandy Levine, senior attorney at the Conservation Law Foundation, one of the entities that litigated the case. “The gas pipeline remains a bungled project and a bad choice for Vermont. When smart investors are running from a fossil fuel future, Vermonters should not be yoked to this outdated, polluting and expensive pipeline.”

The order does not rule on whether the company can recover costs stemming from protests against the pipeline. The $134 million cap on what ratepayers must cover excludes costs related to protests and certain other events.

Rendall said he expects the pipeline to be completed by early April.

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