AUGUSTA — The prospective buyer of a company planning to build a natural gas pipeline through the Kennebec Valley region plans to spend $150 million on a massively expanded project.
Summit Natural Gas of Maine’s spending estimate is about $70 million more than what than the project’s original owner, Kennebec Valley Gas Co., had planned.
The price tag’s near-doubling isn’t the only shocker revealed in documents filed recently with the state. The pipe network is expected to deviate drastically from the Kennebec Valley Gas plan by starting in Windsor, not Richmond, and consisting of two high-pressure pipelines instead of just one.
“As the economic development guys like to say, this is a game-changer,” said Michael Starn, Hallowell’s city manager.
The proposal was filed with the Maine Public Utilities Commission on June 1. The commission has set a June 26 deadline for petitions from members of the public who want to wiegh in upon Summit’s plans.
The PUC must also approve the purchase and sale agreement between Kennebec Valley Gas and Summit.
Of the total estimated project spending, the documents say Summit plans to invest $80 million in steel and large diameter pipe while $70 million is slated for a network of distribution lines. That’s greatly expanded from the original plan, which called for a 56-mile line from Richmond to Madison with less capacity for residential distribution.
In sharp contrast to original plans, there’s now a substantial focus on residential customers. Multiple area municipal officials, who have been briefed on plans by company officials, say Summit aims to serve 25,000 customers in its first five years after targeting an estimated 35,000 possible customers in the pipeline’s planned area. The proposal filed with the state hedges that number, estimating about 15,000 will be served after three years of operation.
Summit’s chief operating officer, Eric Earnest, says his parent company, which also operates subsidiaries in Colorado and Missouri and is fully owned by a JP Morgan investment fund, is looking to double its nearly 35,000-person customer base with two projects in Maine alone. The proposal says the JP Morgan fund now has more than $3 billion of equity investments in it.
The other project, Earnest said, is a proposed natural pipeline from Old Town to Millinocket that Summit hopes to build, own and operate. While the company has contract engineering firms working in Millinocket on that project, Summit’s main focus is on central Maine, he said.
Gov. Paul LePage’s office has been advocating for a natural gas pipeline in that area to be built from there with private capital to fuel paper mills in the Millinocket area. In January, the owner of a shuttered Millinocket mill told MaineBiz that “we absolutely have to have a natural gas line” to get the mill started.
Adrienne Bennett, LePage’s spokeswoman, declined to comment on Summit’s involvement, referring questions to Kenneth Fletcher, state director of energy independence, who couldn’t be reached for comment.
“It’s really just about the size of the opportunity up there,” Earnest said of the company’s interest in Maine. “Fortunately we have a strong equity partner and debt partners who are just as excited as we are.”
Kennebec Valley Gas was interested in anchoring the project here by serving large consumers, like paper mills in Skowhegan and Madison and the under-construction MaineGeneral Medical Center and The Marketplace in north Augusta.
Summit does too. The proposal says Sappi Fine Paper’s mill in Skowhegan, Huhtamaki’s mill in Waterville and Madison Paper Industries in Madison are all planned customers.
Ken Young, director of the Kennebec Valley Council of Governments, which has been a go-between for towns and pipeline developers, summed up the difference between the old and new plans this way: “KVGas’s proposal (was) to get to the paper companies. Summit’s proposal is get to the paper companies in a way that increases opportunity to get to the residential market.”
More communities eyed
The company is seeking approval from the commission to build two pipelines from a tap on the Maritimes and Northeast Pipeline, which runs from Nova Scotia to Massachusetts. It passes through Windsor, just west of Augusta, a convenient tap-in spot to reach central Maine.
From there, the company says it would build two high-pressure pipelines. One would go nearly 13 miles into Augusta. The other would go more than 52 miles north, extending as far as Madison, hooking into paper mills in Somerset County.
Those two main pipelines would use distribution and service lines to link to as many as 17 area communities in Kennebec and Somerset counties. Communities identified are Augusta, Belgrade, Fairfield, Farmingdale, Gardiner, Hallowell, Madison, Norridgewock, Oakland, Richmond, Sidney, Skowhegan and Waterville. Summit said serving Albion, China, Windsor, and Winslow is “under consideration.”
Earnest said the design of the project will hinge on the number of people who express interest and areas that the company determines have a worthy concentration of customers to justify the expanse of distribution lines.
“What we’re going to be doing is going out and we essentially survey every town and the areas in between those populated concentration areas,” he said. “A majority of the residents are going to want to convert, especially the business and commercial consumers.”
In the proposal, Summit says customers converting to natural gas should see a 65 percent savings compared to their bills for No. 2 heating oil.
Earnest said the tax-break deals between the majority of affected municipalities and Kennebec Valley Gas, which Summit inherited, are key to keeping rates low. Belgrade approved the tax increment financing agreement in Tuesday’s election, the most recent community to do it. Sidney and Richmond have not approved it and Farmingdale is set to vote on it later this month.
“By offsetting those costs, you can provide lower rates to the customers; they’re there to support the project, not the company,” he said.
Summit, however, appears to be taking a more moderate tack than Kennebec Valley Gas was taking with tax-increment financing deals, which have been approved by all municipalities affected in the original plan, except Richmond, Farmingdale and Sidney.
After Sidney rejected the tax break at a February town meeting, a partner in Kennebec Valley Gas said the pipeline could be re-routed to avoid places where TIFs weren’t approved. Company officials turned to Belgrade as a plan B.
“We’ll be working with those municipalities that don’t have TIFs to see if we need TIFs,” Earnest said.
But a crucial piece of the project may be a state request for proposal that Summit and two other companies responded to earlier this month.
The state request asks the winning company to construct a natural gas pipeline and distribution system and present cost-savings estimates.
It said state complexes in Augusta and Gardiner will anchor the winning proposal, but the winning company must have a distribution network sized “sufficiently to enable future expansion to other regions in the Kennebec Valley” to serve the largest numbers of residential, commercial and industrial users north as far as Madison.
Bids have not been opened yet, so specific proposal information isn’t known, said Jennifer Smith, a spokeswoman for the Maine Department of Administrative and Financial Services.
At first glance, the wording appears to favor Summit. Kennebec Valley Gas Co. announced plans for their pipeline in March 2011 and plan to serve both sides of the Kennebec River in Augusta, though.
Even so, there’s experienced competition for the RFP.
Smith said other bidders are Maine Natural Gas, a subsidiary of Iberdrola USA, the owner of Central Maine Power, and Self-Gen, a Scarborough-based company specializing in tri-generation, simultaneous generation of electricity, heating and cooling.
Mike Aubrey, president of Self-Gen, said if they won the RFP, bigger customers along the pipeline, including state facilities, would be served by natural gas-powered tri-generation plants which may take from six to eight months to build at each facility. During that time, he said fuel would be trucked in.
Their plan also calls for a natural gas pipeline to serve other parts of the Kennebec Valley, but they would leave small-scale distribution and pipeline construction to Summit through a partnership, Aubrey said.
“If Self-Gen’s awarded the agreement with the state, Summit will be building the pipeline,” he said.
Self-Gen reached an agreement with the state to provide natural gas to the Maine State Prison in Warren and plans to serve the Rockland area, the Bangor Daily News reported in April. Aubrey said Summit is involved in that project, involved in transmission and distribution on the line.
Maine Natural Gas’s proposal, announced earlier this year, would come from an existing pipeline in Windsor, about 10 miles to the east of Augusta and would cross the Kennebec River in a future phase to get to the west side. An estimated cost has not been disclosed. Maine Natural Gas already provides natural gas to nearly 2,900 users in Sagadahoc and Cumberland counties.
Spokesman Dan Hucko said Maine Natural Gas wouldn’t need tax breaks to do the project, which would start at the same pipeline in Windsor.
He said its first phase would run the pipeline from there on the east side of the Kennebec River and the second would run it “across the Kennebec and up through the Kennebec Valley.”
He didn’t provide specific information on where the pipeline would run.
“We are ready to build the pipeline,” Hucko said. “We’d like to get started.”
Hucko said Maine Natural Gas has no immediate plans to distribute gas outside of Augusta, but the project would be expandable. He said if they won the project, they would aim to have pipe in the ground by the end of this year.
Phase two of the project would cross Kennebec and run north, extending along Leighton Road to commercial areas in north Augusta.
Michael Shepherd — 621-5632