MADISON — The town and a natural gas pipeline developer agreed Monday night that the developer will pay a portion of its pipeline revenue to the town to offset residents’ taxes.

If Portland-based Kennebec Valley Gas Co. brings natural gas distribution lines to homes and businesses within Madison, pending approval by the Maine Public Utilities Commission, five percent of the sale of gas would be paid to the town each year, under the plan signed by Town Manager Dana Berry and Kennebec Valley Gas Principal Mark Isaacson.

Madison officials announced at a public hearing Feb. 29 that they had a tentative agreement with Kennebec Valley Gas that the town would not compete to build the main pipeline through 12 communities. The town still voted on a bond question Tuesday night that could possibly pay for a town-owned distribution line, however. With the Kennebec Valley agreement, the town could still distribute natural gas within town limits if selectmen chose to do so.

The contract finalized Monday after a closed-door session with selectmen expands on that original announcement. Berry said the amount Kennebec Valley Gas would pay the town each year would be included in the users’ rate, and it’s possible other towns could devise a similar agreement.

“If Kennebec Valley Gas does it, this may be one way for us to get some funds for general tax relief,” he said.

The finalized contract states:

* If Kennebec Valley Gas develops a distribution system in Madison, it will compensate the town annually for the assistance of town departments, and the compensation will amount to five percent of the annual sale of gas;

* Madison will not build the line from Richmond to Madison and will only support Kennebec Valley Gas in doing so;

* If Madison decides not to develop a gas distribution system within town, Kennebec Valley Gas will develop it as the first on the pipeline and in time to serve natural gas by Dec. 1, 2013;

* If Madison decides to develop a gas distribution system within town, which would hook up to Kennebec Valley Gas’ line through central Maine, the company will charge Madison the same, cheaper transportation rate it charges its wholesale customers;

* Beginning May 1, Kennebec Valley Gas will report to Madison quarterly on its progress in developing the pipeline. Madison may notify the company of insufficient progress to meet its operating deadline, and if the situation is not remedied within six months, Madison may terminate the agreement. Madison may also terminate the agreement if the company does not start pipeline construction by Aug. 1, 2013, or does not serve natural gas by Dec. 2013.

Berry said no one knows yet whether the PUC will allow the town to collect a fee from Kennebec Valley Gas. Though a similar model exists in other states, it hasn’t been tried in Maine.

Whether the town pursues building a local distribution system will require answers to many questions, Berry said, and could be done regardless of what the vote was Tuesday on the $72 million bond that would pay for a town-run system.

“Do we want to be in the gas business? Can we do it as economically and rapidly as somebody that’s already in the business? Can we satisfy more of our residents, or can somebody who’s already in the business — can they do a better job converting the town than we could?” he said.

Erin Rhoda — 612-2368

[email protected]

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