Natural gas companies in race to connect Kennebec Valley

By Matthew Stone, BDN Staff
Posted Dec. 21, 2012, at 2:52 p.m.

AUGUSTA, Maine — Two natural gas companies are duking it out in court, before state and local governments, and in the marketplace as they battle for the upper hand in the race to supply natural gas to the Kennebec Valley.

Soon, Maine Natural Gas and Summit Natural Gas of Maine could be competing to lay down pipeline in the trenches along central Maine roadways. The first company to install pipe in the region and hook up customers, after all, could emerge the victor with rights to act as the area’s natural gas distributor.

The race between the two companies has intensified since the summer, when Summit successfully appealed a state decision to award Maine Natural Gas the rights to build a pipeline stretching from Windsor to Augusta that would serve state offices and position the company to expand service throughout Kennebec Valley.

Maine Natural Gas has appealed the rejection of its award in Kennebec County Superior Court, and the state has yet to issue another request for bids from companies hoping to supply gas to state-owned facilities in Augusta and Gardiner.

Meanwhile, Summit Natural Gas is awaiting full approval from the state to operate as a gas utility in Maine, a designation that would allow the company to start installing pipeline in Kennebec Valley and hooking up customers.

Michelle Moorman, Summit’s regulatory affairs manager, said the company hopes to have that unconditional approval in hand at the beginning of January. Summit is negotiating its rate structure before the Maine Public Utilities Commission.

Timing is critical. Maine doesn’t grant natural gas utilities monopolies to serve particular regions. Instead, the state’s regulatory policy makes it “a race to the customer to put pipes in the ground,” said Wayne Jortner, senior counsel with the state Office of the Public Advocate, which represents utility customers before the PUC.

And since “it’s not economic to have two gas utilities serving the same street,” Jortner said, the sooner one company builds a pipeline and starts serving customers, the less feasible it becomes for the other to do business in the same region.

Gov. Paul LePage has pushed to develop Maine’s natural gas infrastructure as a way to lower the state’s energy costs. He made reference to Summit Natural Gas and Maine Natural Gas in Bangor on Wednesday when he spoke at a Bangor Region Chamber of Commerce event.

“Every time one makes a step forward, the other one sues them. We’re not going to get it done that way,” he said. “If they both sat down and figured it out, they probably could work together. One start at one end, meet in the middle, and let’s get some gas going.”

If 20,000 households convert from oil to natural gas, they could save at least $20 million annually based on current oil and gas prices, said Ken Fletcher, who runs LePage’s energy office.

“Think of the economic impact, if all the sudden people had $20 million more to spend in the community,” he said. Of Maine Natural Gas and Summit, he said, “I just hope they get it done soon. A lot of people are waiting for it.”

Maine Natural Gas

While Maine Natural Gas suffered a setback when its state award was overturned, the company wasted little time trying to show it’s ready to provide gas in Augusta. The company laid pipe this fall along Route 17 in Windsor and a handful of roads in Augusta; it’s planning a metering station near Windsor, where the company’s pipeline will hook into the 684-mile Maritimes and Northeast Pipeline; and it’s determining where and how its pipeline will cross the Kennebec River.

Maine Natural Gas also announced in October that it’s signed a 10-year agreement to supply natural gas to a major Augusta customer: the new MaineGeneral Medical Center that’s expected to open in late 2013.

“Rather than just talking about building the pipeline, we’re building it,” said Maine Natural Gas spokesman Dan Hucko. “We have all the permitting to do it. We have the funding. We’ve gone ahead and started to build the pipeline into Augusta.”

Maine Natural Gas received its PUC approval in 1998 and says it serves more than 3,000 customers in the Brunswick area; 70 percent are residential customers, according to the company.

The company is owned by the Spanish energy giant Iberdrola, which also owns Central Maine Power Co. Its major customers include Bowdoin College, Bath Iron Works, L.L.Bean, both of Brunswick’s hospitals and schools in the Brunswick region.

While Maine Natural Gas would like to sign on the state as a customer, Hucko said the state’s business isn’t critical to the company’s plans.

Summit Natural Gas

Not to be outdone, Summit Natural Gas announced in early November it had signed on Mattson Development, a major Augusta-area developer, as a customer. Mattson controls more than 750,000 square feet of real estate in the area and recently acquired MaineGeneral’s current hospital property on the east side of Augusta.

Summit and Maine Natural Gas also have been visiting town officials and potential customers throughout Kennebec Valley to pitch their plans.

Summit says it is in talks with a number of industrial customers in the area, including the Sappi Fine Paper mill in Skowhegan, the Huhtamaki packaging manufacturing facility in Waterville and Fairfield and Backyard Farms tomato growers in Madison.

“As of right now, there’s enough load for us to justify running our pipeline without serving the new hospital,” said Eric Earnest, Summit’s vice president and chief operating officer. “We can justify building our system.”

Based in Colorado, Summit is owned by a private equity fund: J.P. Morgan Infrastructure Investments Fund. It emerged on the scene in Maine as the buyer for Kennebec Valley Gas, a local company that formed to build a pipeline stretching through central Maine. The sale is pending approval before the PUC. Summit has subsidiaries in Colorado and Missouri that serve about 34,000 customers.

The company also says it’s working on plans to build pipeline in the Millinocket, Rockland and Farmington areas.

Public rivalry

Summit and Maine Natural Gas have been highly critical of each other’s pipeline proposals in public. Summit officials have questioned whether Maine Natural Gas has a solid plan in place that will allow it to serve residential customers.

Summit is proposing a $240 million project that would install 67 miles of pipeline stretching through 12 communities, from Richmond in the south to Madison in the north. The company says it plans to build distribution lines to serve all 52,000 potential customers throughout the region. It says it will reach 15,000 customers within the first four years of its project and negotiate tax increment financing deals with the communities it’s serving, using funds from the tax deals to help customers convert their homes to natural gas.

“It’s our full intention to get pipeline in front of all 52,000 customers,” Earnest said.

Maine Natural Gas proposed a less expansive, $19.3 million Windsor-to-Augusta pipeline when bidding to serve the state facilities. Since then, the company has been pitching a proposal for a pipeline that serves nine towns, from Gardiner to Madison.

“We will go up to Madison if it’s financially viable,” Hucko said. “It’s really dependent on gaining these energy purchase contracts with the anchor customers.”

Meanwhile, Maine Natural Gas is criticizing Summit for proposing to charge customers higher rates for natural gas service.

“Our required rates of return are lower,” Hucko said. “That’s why we can offer lower tariff rates to residential people and small businesses.”

Summit concedes its proposed rates are higher but says the higher rates are what will make it possible to serve 52,000 customers and convert a greater number of customers to natural gas, which still will be cheaper than oil.

“Our rates are a little higher, but we know we can get to the residential customers,” said Moorman, Summit’s regulatory affairs manager.

Maine’s Office of the Public Advocate is involved in Summit’s attempt to gain state approval in an effort to make sure the ultimate rate structure is fair.

“It’s good for customers to have the choice,” said Jortner, the office’s senior counsel. “It’s good for customers to have protections on the rates to make sure the rates remain just and reasonable over time.”

While both companies are promising aggressive expansions into the Kennebec Valley, it’s still not clear what natural gas choices customers will end up having.

“I would take promises with a grain of salt,” Jortner said. “Until the facilities are in place, you can’t guarantee what anybody’s going to do.”

CORRECTION:

A previous version of this story said that Summit had secured commitments from industrial customers in the Kennebec Valley.

http://bangordailynews.com/2012/12/21/business/natural-gas-companies-in-race-to-connect-kennebec-valley/ printed on August 22, 2014