Now that a proposal for a $70 million to $80 million natural gas pipeline in central Maine has won conditional approval from state regulators, local officials are looking to see whether the project can attract large customers to justify the financial investment.

A dozen communities will soon be asked to approve an agreement that specifies tax breaks for the 56-mile gas pipeline project, which would run from Richmond to Madison. Another 20 miles of distribution loops to certain areas could bump the project close to 80 miles of piping.

“We’re all anxiously awaiting to see if this thing is going to move forward,” said Joshua Reny, town manager of Fairfield. “They have to secure big contracts, big suppliers, the big mills.”

Portland-based Kennebec Valley Gas Co. won conditional approval from the Public Utilities Commission on Aug. 16.

The commission’s chairman, Tom Welch, said the initial OK means the gas pipeline proposal would eventually win full approval from the commission if it meets state standards and files required project details.

“It is possible that one of the reasons the parties were seeking this conditional certificate is that in utility history, there’s a tradition of monopoly franchises and regulatory requirements to become a provider. I think they may have wanted to be sure there wasn’t any ‘non-starter’ in the sense of, we won’t allow anyone else in this territory kind of thing, before we move forward,” Welch said. “Nothing they can do at this point leads to sticking spades in the ground, but I can appreciate how they may have wanted to avoid the possibility of securing financing, a management approach, and not they didn’t want that risk at the end of the day.”

Key concerns for the commission are whether the gas company can provide a safe service and not be a risk to ratepayers, Welch said. The fact that the proposal has won conditional approval also means commissioners believe the gas pipeline could secure needed financing and become a reality, Welch said.

There is no set time when the gas company will go back before the three-member commission, according to Welch.

Seeking customers

Richard Silkman, a principal of the new gas company and a former state planning official under Gov. John McKernan, said the gas company has received some signed commitments from commercial users and others “have expressed a very strong interest,” but he declined to identify them.

Silkman has previously told local officials that potential users include the Gardiner downtown business district and industrial park, the State House complex, the proposed new MaineGeneral Medical Center in north Augusta, Kennedy Memorial Drive and downtown Waterville, plus potential commercial customers such as Huhtamaki Packaging in Waterville, Sappi Paper in Skowhegan and Madison Paper.

Now, gas company officials are turning their attention to lining up those customers and then winning approvals from each of the dozen affected communities for tax breaks. Such tax-increment financing districts, or TIFs, would shelter the value of the pipeline in each community, funneling a portion of the property tax revenue back to the company to help finance the project. A draft agreement, brokered by the Kennebec Valley Council of Governments, calls for the TIFs to last 15 years.

The TIF agreement will require individual approval in each community, by either municipal councils, selectmen, or by citizens at special town meetings.

“What we got to do now is get the approval of towns for the TIFs we have negotiated among all the towns and then commitments from major customers along the route, and then secure financing, at which point we go back to the Public Utilities Commission for final approval,” Silkman said.

Silkman hopes to have all of those necessary pieces — TIF agreements, contracts with large customers and financing — by the end of the year.

Questions remain

Getting the conditional approval from the commission indicates there’s a need for natural gas in central Maine, that the gas company has the technical ability to provide it, and has access to the financial resources to make it happen, Silkman said.

“It shows that we’re a credible enough entity to carry this project forward,” Silkman said.

Some communities that will need to hold a special town meeting on the tax break agreement are looking to hold the meetings along with the upcoming state election in November.

Michelle Flewelling, town of manager of Norridgewock, said she was among the group of local officials who worked on negotiating the draft TIF agreement.

“We did our best to make sure the equations would be fair for everybody,” she said.

Flewelling said the town is still trying to determine how exactly it would vote on the agreement, whether at a traditional town meeting or by ballot vote.

The Kennebec Valley Council of Governments is expecting to enter another agreement with the gas company– as soon as this coming week — outlining how to assist the dozen communities with the TIF agreements, according to organization’s executive director, Ken Young.

“Most of these towns don’t have prior experience with tax increment financing, so they will need help preparing applications,” Young said. “So, it’s essentially a business agreement between the gas company and KVCOG. WE are very clear about the range of services. The (TIF) formula and terms would all be the same; the principal difference will be the location of the district, population, property valuation.”

Reny said one condition for the town of Fairfield is that gas company officials must meet with the Town Council and explain the project. Ultimately, a special town meeting would be held on the TIF agreement.

“We’re withholding judgment — we’re not for or against at this point,” Reny said. “I don’t think any town is going to be a roadblock, but when you’re dealing with multiple entities, each town has its own questions and concerns. The Town Council, they’re in a wait-and-see mode and when time comes, they’re going to address the issue.”

Silkman said for many potential commercial customers, switching to natural gas “is pretty much a slam dunk” because of pricing.

“We do think for obvious reasons this is a major economic development opportunity for the Kennebec Valley region,” Silkman said. “And we’ve had that expressed to us by local officials and companies.”

Scott Monroe — 861-9239

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