January 18, 2012

Pipeline finance bill up for review

A bill being discussed today by the state energy committee would expand the ability of private companies to seek loans backed by the state in order to build natural gas pipelines, and some Madison officials aren't pleased.

The issue of financing for natural gas infrastructure is especially pertinent now as Portland-based Kennebec Valley Gas Co. attempts to secure about $86 million for the construction of 120 miles of main and distribution lines through central Maine.

"I just think that this particular (natural gas pipeline) is so critical to the economic health of central Maine that I think we ought to do everything we can to try to make it a reality," said the bill's sponsor, Sen. Roger Katz, R-Augusta. The bill "might make the difference between the project being viable or not."

The proposed bill would allow the Finance Authority of Maine to back a larger portion of a loan for pipeline projects than currently permitted by law and would be beneficial for natural gas pipelines across the state, Tony Buxton, an investor in Kennebec Valley Gas, said.

Officials in the town of Madison, who are considering a competing project, are unhappy with some parts of the bill. Kennebec Valley Gas previously campaigned against Madison's plan to borrow money to build its pipeline, saying that taking out a loan was risky for Madison residents.

"If the bonding isn't a good idea for Madison, why is it all of a sudden a good idea to Tony Buxton?" Joy Hikel, Madison's economic development director, said.

The Committee on Energy, Utilities and Technology is holding a public hearing on the bill, L.D. 1644, at 11 a.m. in room 211 of the Burton M. Cross Building.

Because of legislation passed last year, the Finance Authority of Maine is already able to help finance gas lines. The new law would remove a cap that previously limited it to a maximum amount of $4.75 million for any one project.

Beth Bordowitz, chief executive officer of FAME, explained that the legislation would allow her agency to pledge the moral obligation of the state to repay the bonds for a qualifying pipeline project. FAME would issue the bonds, and they would be sold on the public market.

The backing would create lower interest costs and provide greater security for the bond holders.

"Basically FAME stands behind the debt, which makes the credit rating of the debt better and makes it easier to finance projects," Buxton said.

FAME would issue a certificate of approval to an applicant only if the applicant contributed at least 25 percent of the expected cost of the project.

An applicant would also have to undergo an extensive review process if it wanted backing, Bordowitz said, and there are several mechanisms to ensure that the state does not become responsible for loan payments in the case of a default.

In addition to specified collateral, the applicant is required ahead of time to establish a capital reserve account. In the unusual instance that those fail-safes do not work, she said, FAME would request the money from the state.

Katz said he is satisfied that there is minimal risk to Maine residents, especially because FAME completes its own independent analysis.

Helping to bring natural gas to central Maine would reduce energy costs for the state Capitol complex and for many businesses and mills, he said. The largest potential users include Huhtamaki Packaging in Fairfield and Waterville, Sappi Fine Paper in Skowhegan and Madison Paper Industries.

Financing questions

Madison Town Manager Dana Berry said he doesn't oppose the idea of a company being able to seek state-backed bonds for a pipeline, but he does question the campaign tactics used by Kennebec Valley Gas.

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