Pipeline Deal Requires OK from 12 Cities, Towns
November 28, 2011 -
Augusta- A company that wants to build a natural gas pipeline in central Maine needs three industrial plants to agree to buy the gas in order to make building the line economically feasible.
But Kennebec Valley Gas Co.'s $85 million project with about 120 miles of underground main and distribution lines also hinges on the decisions of residents and officials in a dozen towns and cities.
Ultimately, the likelihood that the project will be completed is not only up to major users of natural gas but individual voters across Sagadahoc, Kennebec and Somerset counties who will decide whether to support the possible development through tax increment financing districts.
It's a scenario with many moving parts, as each community has its own concerns, timeline, procedures and desired locations for the pipeline.
The construction would start in Richmond, where the line would connect to the Maritimes and Northeast natural gas pipeline already built between Nova Scotia and Massachusetts. Then the new line would travel north through Gardiner, Farmingdale, Hallowell, Augusta, Sidney, Oakland, Waterville, Fairfield, Skowhegan and Norridgewock, and end in Madison.
For some communities, it could be their first tax increment financing deal. One town, Madison, does not plan to approve a TIF district. Augusta was the first and is still the only municipality to have approved it.
The TIF districts would allow the municipalities to redirect a percentage of the new property taxes generated by the pipeline back to the developer to help the project's financing. The districts also act as a tax shelter, so increased property values in a specified area don't result in increased tax commitments. Communities can use the percentage of new property taxes they keep for economic development.
The TIF agreements are essential for Kennebec Valley Gas' project financing and must be completed before the company can solidify its cost structure. While there is no drop-dead date for the towns to finalize TIF agreements, the company can't negotiate and sign contracts with users until the TIF agreements are lined up.
"We can't lock things down finally until we know what we have from the towns in terms of the TIFs. That's why we would like to move this along as rapidly as possible," said Richard Silkman, a principal of Kennebec Valley Gas.
The TIF agreements, which would last 15 years, are essential because they would provide the company with a way to meet its debt obligations during the first years when businesses are switching their heating systems to natural gas, Silkman said.
While the large industrial users, such as Huhtamaki Packaging in Waterville and Fairfield, Sappi Fine Paper in Skowhegan and Madison Paper Industries, would likely switch as soon as the line was operational, it would probably take years for smaller users to convert their systems. In that time, the company would still have to pay its loans.
"It's just that it will take some time for them to switch. During that time when they are switching, we still have debt service costs to pay for," Silkman said.
Under the proposed TIF agreement, 80 percent of new property taxes the first 10 years would return to the developer and 20 percent to the towns. In years 11 through 15, 60 percent would return to the developer and 40 percent to the towns.
After that, the communities would keep 100 percent of the tax revenue, throughout the useful life of the pipeline.
Silkman declined to provide specific financial numbers but said the company originally asked for a 100 percent return the first 10 years. It settled on 80 percent. But, for example, a 50 percent return would not have worked financially, he said.
The company has met three or four times with each community, he said, and is working to satisfy their needs while maintaining the balance of supply, demand and economic feasibility.
"In many of the towns they have identified areas they would like us to get to if we can, and we're working on getting there," Silkman said.
Madison has said no to a TIF, but it's possible the town could build its own distribution system, collect revenues from it and pay tariffs to Kennebec Valley Gas, Silkman said.
"If Madison decided that it didn't want a TIF, but it did want to build out its own system, that from our perspective is an ideal situation, and we would welcome that," he said.
Located at the southern end of the proposed line, the portion of pipe in Richmond would be relatively short. The line would run for 3.5 miles directly off the Maritimes and Northeast compressor station, and there would be no smaller distribution lines branching off it, Town Manager Marian Anderson said.
Selectmen have not taken a stance on whether to support or reject the proposal for a TIF district, she said. They want to gauge the interest of residents, so they have sent out a survey. Richmond hopes to have the results in by mid-December.
"It will provide guidance to the selectboard as to what the citizens of Richmond would like to do. Obviously it would take a town meeting vote to then make it happen, but that's not until April," Anderson said.
The city council will take the first of two votes at the end of December about whether to support a TIF district, but the decision will hinge on whether distribution lines will enter specific parts of the city.
The TIF is "something that I'm recommending so long as we have some benefits for the city of Gardiner and the residents insulated into the agreement. Those things include some distribution lines to different places in our community, including our business park and our high school," City Manager Scott Morelli said.
"There has to be some benefit for the community for our council to consider such a significant tax break," Morelli said. According to current plans, there would be six miles of main line and 6.5 miles of distribution lines.
The council meeting will be held at 7 p.m., Dec. 21, at Gardiner City Hall.
The town is entering new territory in determining whether to approve a TIF deal.
"This would be the first one ever," said David Sirois, chairman of the board of selectmen.
While selectmen favor a TIF, residents have expressed concerns about pipeline construction digging up their driveways, he said. Currently, the main pipeline would run for 4.3 miles, and there would be 2.2 miles of distribution lines.
In response to that concern, the town has drafted an underground utility ordinance that, if approved at a special town meeting in December, will specify that property be repaired if it is ruined during pipeline construction.
Kennebec Valley Gas representatives have also assured Farmingdale residents that they will return driveways and roads to their condition before construction.
The town is also determining the feasibility of extending the line to the town's schools. Sirois said he would like it to reach other schools within Regional School Unit 2 as well, such as those in Richmond and Hallowell.
Sirois said he was excited to learn about the possibility of natural gas coming to Farmingdale. But, "I don't know if the TIF will be approved or not at town meeting. Right now I'd have to say we're 50-50."
The special town meeting will be at 1 p.m., Saturday, Dec. 10, at Hall-Dale High School.
Residents and business owners in Hallowell would see 6.5 miles of main and distribution lines, one of which would run directly through the downtown on Water Street.
And that's exactly what the city wants.
"We don't want to see a project that the main line gets done, but then the distribution line doesn't get done. So we are going to put into our agreement that it's all or nothing. We want what is basically promised, which includes a main line and a distribution line, in order for us to sign on at the end of the day," City Manager Michael Starn said.
The city also wants assurance that repairs or replacements could still be made to other underground utility lines, such as water, sewer and storm drain lines, Starn said.
Passage of a TIF agreement would require three votes of approval from the city council. The council's first reading will be at 6 p.m., Monday, Dec. 12, at City Hall.
The Augusta City Council approved a TIF agreement in October and is waiting to see what happens in other communities.
"At this point it's very clear that everybody in the business community in Augusta is eager for the advent of gas, and so we wait," City Manager Bill Bridgeo said.
Augusta would have the longest pipe mileage, with likely seven miles of mainline pipe installed west of Interstate 95. Twelve miles of distribution lines would be installed within the city, which would likely include Western Avenue, the nearby Hannaford supermarket state property, The Marketplace at Augusta, the University of Maine at Augusta and the new MaineGeneral Medical Center being built in north Augusta.
Bridgeo urged other communities to think of the big picture when deciding whether to approve TIF agreements.
"If folks in smaller communities, as they contemplate this, wonder why should our community give up tax revenues for this, there really is a direct link to reducing the energy costs of the major employers in the Kennebec Valley and the well-being of folks in all communities along the way," he said.
Residents would see nine miles of pipe run down Middle Road, likely with no distribution lines, said John Whitcomb, chairman of selectmen.
The town is currently working out details on how to use the TIF funds. After that, it will set a date for a special town meeting.
Whitcomb said he doesn't expect any issues with the line or the TIF agreement, and there is the possibility of future expansion into residential areas if the demand for gas is great enough.
"I don't see really that there's going to be any issues. They're willing to make sure that all fire and rescue are properly trained," he said.
The council recently tabled a decision on a TIF district to allow residents more time to ask questions, Town Manager Peter Nielsen said. The council is next scheduled to vote Dec. 14.
The line may run down Middle Road, Main, Church and Oak streets, as well as Kennedy Memorial Drive and County Road.
Nielsen said Kennebec Valley Gas needs roughly 70,000 gallons of natural gas usage per mile per year to justify extending the line to other parts of town. It may connect to First Park, a business park near Interstate 95.
Nielsen said people should consider the far-reaching impact of the pipeline.
"It's a big picture question about how we get this region's economy away from dependence on foreign oil," he said.
"This gas can help stabilize employment at Sappi and Huhtamaki and Madison Paper, which are all three very significant regional employers, and helping to keep people working seems like a goal that's worth striving for," he said.
The city would see 12.5 miles of line, or the equivalent of 6.1 acres, City Manager Michael Roy said.
It would travel past Inland Hospital on Kennedy Memorial Drive, onto Silver Street, down Spring Street and up Main Street. It would connect to College Avenue and head to Fairfield. Other segments are proposed to extend to Waterville Senior High School, the Thayer Unit of MaineGeneral Medical Center, Thomas College and Colby College.
The city's TIF Advisory Committee has voted to support the project and the city council is scheduled to raise the topic at 7 p.m., Tuesday, Dec. 6 at City Hall. Per city rules, the council is required to vote three times on the TIF arrangement.
"Relatively speaking, I think the city is very interested in an alternative energy source. There are people that have some concerns from an environmental point of view, but that's where the gas is extracted, not where it's delivered," Roy said, referring to a process known as hydraulic fracturing, or "fracking," in which a mixture of water, sand and toxic chemicals are injected deep underground to break up rock formations to release natural gas.
Per request of the town council, the pipeline is proposed to extend past Huhtamaki Packaging and into the downtown area, in order to serve businesses and municipal buildings, Town Manager Joshua Reny said.
Reny is researching possible natural gas usage at Kennebec Valley Community College as well as the senior and junior high schools. If they meet the demand threshold, there would be 15 miles of pipe in Fairfield, he said.
In addition to serving specific parts of Fairfield, the council wants to make sure there is a fair bidding process for the pipeline construction and a minimum standard of training and skills for construction workers, Reny said.
To do that, Kennebec Valley Gas supported a community benefit agreement that lays out those requirements. It also ensures that workers follow safety procedures and receive livable wages and health benefits.
Reny said people are easily confused by TIF agreements. "It's important people realize we're not paying a bunch of money that we currently have to invest money in a company," he said.
TIFs act as incentives for businesses to invest, he said, and in the Kennebec Valley Gas case, its financing is contingent on the towns agreeing to TIF districts. The agreements return to the developer a portion of the new property taxes generated by its development.
"We'd be keeping 20 percent for the first 10 years. That's 20 percent that we never would have had otherwise," Reny said. "If the project never happens, you never get any of that money anyway. So it's zero percent or 20 percent."
Residents will vote on the TIF district at a special town meeting at 6 p.m. on Wednesday, Dec. 14 at the Fairfield Community Center.
Residents will ultimately decide whether to approve a TIF district, but that might not be until June.
"When we first talked to (Kennebec Valley Gas representatives), we told them we would not bring this to residents until our June town meeting," Town Manager John Doucette Jr. said. "Do they have Sappi? Do they have Madison? Those are the things. I think we'd like to see, are they going to get these major manufacturers? That's the thing. Everything is speculation right now."
The line is proposed to run down Route 104, in order to serve Redington-Fairview General Hospital and possibly both New Balance locations. A spur would cut down Varney Road to Sappi.
It may cross either the foot bridge or the Margaret Chase Smith Bridges to go up Madison Avenue to Hannaford, Doucette said.
If residents support a TIF district for Kennebec Valley Gas, it will be the town's first.
"I think the biggest thing we want to do is make sure that the information we put together about the TIF and how it will affect the municipality is as clear as we can make it. I think the board has pretty much come to the understanding that it's up to the townspeople to decide whether or not this happens," Town Manager Michelle Flewelling said.
"We had expressed in the very beginning that one of the things we were not going to do was drive this down the throats of the residents," she said.
Selectmen will discuss the TIF district at 5 p.m., on Wednesday, Nov. 30, and residents are welcome to attend, she said.
Because a minimum of 60 people are required for Norridgewock to hold a special town meeting, residents will likely vote on the TIF district at its regular town meeting on the first Monday in March.
The 11.3 miles of line would probably serve businesses downtown, plus New Balance and Mill Stream Elementary School before heading under the Kennebec River and up U.S. Route 201A to Madison.
Located at the northern end of the proposed pipeline, Madison plans to not enter into a TIF agreement with Kennebec Valley Gas.
The town had offered a competing $72 million proposal to build the line and use the revenue to offset the municipal budget before residents rejected it by less than a 2 percent margin of 27 votes on Nov. 8.
"The town's experience with TIFs in the past has been tied to job creation, and I sense that there's a reluctance on behalf of the board of selectmen to grant a TIF for this particular project," Town Manager Dana Berry said.
He said the town is currently not considering setting up a local distribution entity to pipe gas from Kennebec Valley Gas' line to certain areas of town.
With just two miles of pipe in town -- the least of the 12 communities -- he said it's also not worthwhile to set up a TIF agreement. The line would travel up U.S. Route 201A to Kennebec and Pine streets, in order to serve Madison Paper.
Kennebec Valley Gas still needs to obtain unconditional approval from the Maine Public Utilities Commission, establish its gas rates and sign contracts with anchor tenants, he said: "I think they've got a long ways to go."
Erin Rhoda, Kennebec Journal, November 2011
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