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.
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.
The company helped fund hundreds of fliers mailed to Madison residents before the Nov. 8 vote on whether to approve a bond for $72 million for the town-owned pipeline. The fliers said it would be risky for Madison residents to approve the bond, leaving local homes vulnerable if the pipeline failed.
“Now there’s a proposal under this legislature that would put the taxpayers of the state of Maine on the hook,” Berry said.
Madison selectmen recently accepted petitions to bring the pipeline issue to a second town-wide vote and said they would only support a plan that put pipeline revenue toward tax relief. In Kennebec Valley Gas’ project, there would be no direct tax relief, Hikel said.
“The state is setting up for loaning the Kennebec Valley Gas Company 75 percent of their project with no reward for the taxpayers,” she said.
She also questioned why the company is seeking tax increment financing districts in each town along the line if it can get help from FAME. The TIFs would require municipalities to give back a percentage of new property taxes to the developer to help finance the pipeline.
“Why do they need TIFs if they’re getting that preferred rate?” she said. “Why didn’t they ever mention this potential for financing when they were talking with communities?”
Buxton said FAME’s potential backing would reduce the risk to the entity that loans Kennebec Valley Gas the money for the pipeline, but it wouldn’t make the project drastically less expensive.
“It’s not a matter of cost reduction. The TIFs are a matter of cost reduction, in particular the effect of the property taxes in the early years of the project when you don’t have your volume built up the way it will be after 10 years,” he said.
He also said that borrowing scenarios would be different for Kennebec Valley Gas than for Madison. The company would only bond for 75 percent of its project and would rely on a different type of bond than Madison would.
Energy office supports bill
Kenneth Fletcher, director of the Office of Energy Independence and Security for the governor, said some technical aspects of the bill need reworking, but “in concept we’re in support of the bill, and really our support is driven from getting this alternative energy source, in this case natural gas, to the large users in the state, to improve their competitive position.”
He said he did not view the bill as an example of unnecessary public investment.
“We don’t really see it as a problem because it’s rather frequent in one form or another. FAME gives loans to businesses all over,” he said.
The more important point, is that businesses need access to a cheaper form of energy in order to keep their costs low, he said.
House Majority Leader Phil Curtis, R-Madison, said he is not supporting one natural gas pipeline project over another. All he wants is for natural gas to come to central Maine.
“The benefits of having liquid natural gas in central Maine far outweigh the risk, whoever takes the risk,” he said.
Erin Rhoda — 612-2368