State picks CMP-affiliated company to build natural gas pipeline over larger competitor

By Keith Edwards, Kennebec Journal
Posted June 22, 2012, at 8:21 a.m.

AUGUSTA, Maine — The state government has selected a company affiliated with Central Maine Power Co.’s parent company to build a natural gas pipeline system in the Augusta area to distribute the gas to state property throughout the region.

Officials with Brunswick-based Maine Natural Gas, a subsidiary of Spain-based Iberdrola USA, plan to begin construction on the east side of Augusta this summer, about 10 miles from a pipeline in Windsor.

In 2013, the company plans to bring the pipeline across the Kennebec River, extending along Western Avenue and Leighton Road to the state’s west side properties, and continue into the north Augusta area. It will serve residential, commercial and industrial users “as soon as possible, and then continue to expand service to other areas in the Kennebec Valley for years to come,” according to a news release.

Both phases are estimated to cost about $20 million.

The state’s selection of Maine Natural Gas comes as an apparent blow to a competing and much larger proposal from Summit Natural Gas of Maine, which plans a $150 million natural gas distribution system in the region. That proposal would come from the same pipeline in Windsor, coming into Augusta and distributing natural gas to users south to Richmond and north to Madison.

There could be savings of between $2 million and $3 million a year if state property switched from fuel oil to natural gas, according to Alan Henry, director of special projects for the state Bureau of General Services.

“Now that we’ll be getting it in Augusta — we’re hoping by the end of this calendar year — then we can start converting these state facilities and start saving taxpayers’ money,” Henry said. “We do that, and we can start saving some of these programs that are being cut every year.”

Maine Natural Gas already provides gas to nearly 2,900 users in Sagadahoc and Cumberland counties.

Henry said competing proposals from Maine Natural Gas and Summit Natural Gas of Maine were determined by the reviewing panel to be essentially even in terms of experience, references, job creation, fiscal stability and most other measures.

“It came down to cost,” Henry said. “Theirs was cheaper than Summit’s. They were very close other than that. We would have been very happy with either.”

The per million British thermal unit price in the proposal from Maine Natural Gas was $11.98, compared to Summit’s $12.67.

The first phase of Maine Natural Gas’s winning pipeline project is expected to cost about $10 million and provide 22 jobs starting this summer. The second phase would get under way in 2013, also costing about $10 million, and creating about 20 jobs.

“We’re pleased and we want to get this started, get pipe in the ground and start delivering savings to the state of Maine, residents, and businesses,” Dan Hucko, spokesman for Iberdrola, said Wednesday. “We’ll follow the pattern we’ve followed in other areas we’ve gone into. Put the main pipeline, the backbone, in the ground, then start very quickly to do distribution to residential and industry, and continue to expand that distribution network for years. That’s our goal, to service as many people as we can.”

Competing plans

The two gas companies, as well as Self-Gen, a Scarborough-based company that had proposed to partner with Summit, submitted competing bids for the state natural gas distribution proposal.

Colorado-based holding company Summit Utilities, owned by a JP Morgan investment fund, is in the process of buying Kennebec Valley Gas Co. That firm has been pursuing plans for more than a year to build a pipeline from Richmond to Madison, and has gotten tax breaks from most of the municipalities along the route to help finance the project.

Summit’s plans also included providing natural gas to state property in Augusta, as well as industrial and residential users throughout the region. Residents in Farmingdale will vote on the tax break during a ballot vote Friday.

Summit representatives could not be reached for comment on Wednesday on how the state’s decision would affect its plans.

Maine Natural Gas officials have said they do not plan to seek tax breaks for their smaller project.

Gov. Paul LePage has said Maine needs natural gas to help reduce the cost of energy.

“There are many voices across Maine, including those in the Capitol, calling for energy alternatives that will save money and reduce dependence on oil,” Bob Kump, CEO of Iberdrola USA, said in a news release. “Iberdrola USA is committed to investing in Maine’s energy infrastructure to do just that.”

Depending on the price relationship between natural gas and heating oil, the state could save up to $18 million over the next decade by converting state property to natural gas, Kump said.

The state’s request for proposals specified that whatever pipeline system proposed should be capable of providing natural gas not just to state property, but also throughout the region, as far north as Madison. That way, businesses and other users in the region could also potentially convert to gas.

Henry said both the Maine Natural Gas and Summit proposals met that requirement, though neither were required to provide firm plans to do so; only the capability to expand to those areas in the future was essential.

Hucko said Maine Natural Gas’s initial focus will be on the Augusta area, but the pipeline distribution system could later be expanded to areas including Hallowell and Gardiner to the south and Waterville, Winslow and Fairfield to the north.

Extending farther north to Madison, is possible, he said, but not a given.

“It is designed to be expanded, but Madison is another 26 miles away — that’s a long way,” Hucko said. “It depends on the economics of it. Are there enough customers to pay for that big an expansion? We would need firm commitments from businesses and residents.”

What the selection means

Hucko said the company already has approval from the state Public Utilities Commission to deliver gas to the Augusta area, is working on or has received permits from the state Department of Environmental Protection and has spoken to the state Department of Transportation.

The award of the bid, issued Tuesday, does not give Maine Natural Gas a supply contract to provide natural gas to state property. Rather, the award gives the firm the rights to build a natural gas distribution system, and the state agrees to use that system.

The state could choose another natural gas supplier, even though Maine Natural Gas will own the pipelines used to distribute the gas to the state. Henry likened that to the system in which Central Maine Power distributes electricity on its power lines, but that electricity can come from a variety of providers.

“We’ll use their pipelines, but we could get the gas from whichever company we can get it the cheapest from,” Henry said. “We’ll put the supply portion out to bid when the distribution system is built.”

Henry said some state property, such as Riverview Psychiatric Center in Augusta, are already capable of being heated with natural gas, while others will require more work. He said no money is budgeted to convert state buildings to natural gas, but he speculated that savings from the cheaper fuel could be used to help pay those costs.

The award to Maine Natural Gas is still subject to approval by the State Purchases Review Committee.

While work on the pipeline will start this summer on the east side of Augusta, there likely isn’t enough time to pressurize and test the line over the summer, Hucko said. That means users will not be able to tap into the new gas lines until next year.

© 2012 Kennebec Journal

Distributed by MCT Information Services

http://bangordailynews.com/2012/06/22/energy/state-picks-cmp-affiliated-company-to-build-natural-gas-pipeline-over-larger-competitor/ printed on April 23, 2014