September 6, 2011

Big contracts are next step for natural gas pipeline

By Scott Monroe
Staff Writer

Now that a proposal for a $70 million to $80 million natural gas pipeline in central Maine has won conditional approval from state regulators, local officials are looking to see whether the project can attract large customers to justify the financial investment.


Kennebec Valley Gas Company is proposing a $70 million to $80 million natural gas pipeline for customers in Kennebec and Somerset counties.

Communities affected by the project include Augusta, Fairfield, Farmingdale, Gardiner, Hallowell, Madison, Norridgewock, Oakland, Richmond, Sidney, Skowhegan and Waterville.

About 56 miles of 8-inch diameter pipeline would be constructed along the west side of the Kennebec River from Richmond to Madison, with additional distribution loops potentially along the main line, totaling another 20 miles or so.

The gas would come from the Maritimes and Northeast pipeline that runs from Baileyville to Kittery. It crosses to the west side of the Kennebec River at Richmond.

The main line and most of the distribution network would be constructed in a single season in 2012 or 2013.

Source: Kennebec Valley Council of Governments

A dozen communities will soon be asked to approve an agreement that specifies tax breaks for the 56-mile gas pipeline project, which would run from Richmond to Madison. Another 20 miles of distribution loops to certain areas could bump the project close to 80 miles of piping.

"We're all anxiously awaiting to see if this thing is going to move forward," said Joshua Reny, town manager of Fairfield. "They have to secure big contracts, big suppliers, the big mills."

Portland-based Kennebec Valley Gas Co. won conditional approval from the Public Utilities Commission on Aug. 16.

The commission's chairman, Tom Welch, said the initial OK means the gas pipeline proposal would eventually win full approval from the commission if it meets state standards and files required project details.

"It is possible that one of the reasons the parties were seeking this conditional certificate is that in utility history, there's a tradition of monopoly franchises and regulatory requirements to become a provider. I think they may have wanted to be sure there wasn't any 'non-starter' in the sense of, we won't allow anyone else in this territory kind of thing, before we move forward," Welch said. "Nothing they can do at this point leads to sticking spades in the ground, but I can appreciate how they may have wanted to avoid the possibility of securing financing, a management approach, and not they didn't want that risk at the end of the day."

Key concerns for the commission are whether the gas company can provide a safe service and not be a risk to ratepayers, Welch said. The fact that the proposal has won conditional approval also means commissioners believe the gas pipeline could secure needed financing and become a reality, Welch said.

There is no set time when the gas company will go back before the three-member commission, according to Welch.

Seeking customers

Richard Silkman, a principal of the new gas company and a former state planning official under Gov. John McKernan, said the gas company has received some signed commitments from commercial users and others "have expressed a very strong interest," but he declined to identify them.

Silkman has previously told local officials that potential users include the Gardiner downtown business district and industrial park, the State House complex, the proposed new MaineGeneral Medical Center in north Augusta, Kennedy Memorial Drive and downtown Waterville, plus potential commercial customers such as Huhtamaki Packaging in Waterville, Sappi Paper in Skowhegan and Madison Paper.

Now, gas company officials are turning their attention to lining up those customers and then winning approvals from each of the dozen affected communities for tax breaks. Such tax-increment financing districts, or TIFs, would shelter the value of the pipeline in each community, funneling a portion of the property tax revenue back to the company to help finance the project. A draft agreement, brokered by the Kennebec Valley Council of Governments, calls for the TIFs to last 15 years.

The TIF agreement will require individual approval in each community, by either municipal councils, selectmen, or by citizens at special town meetings.

"What we got to do now is get the approval of towns for the TIFs we have negotiated among all the towns and then commitments from major customers along the route, and then secure financing, at which point we go back to the Public Utilities Commission for final approval," Silkman said.

(Continued on page 2)

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