AUGUSTA — The state has thrown out its selection of a natural gas pipeline project for central Maine because its bid review process was found to be flawed, unfair and illegal.

That decision by a state appeals panel to invalidate the award to Maine Natural Gas, announced Wednesday following a daylong hearing last month, halts any possibility that natural gas will come to the region soon and would appear to deepen an already contentious battle between two companies vying for the rights to build the pipeline.

Brunswick-based Maine Natural Gas, which is owned by Central Maine Power Co. parent company Iberdrola USA, has proposed a $19.3 million project that would employ about 46 people. It would serve state properties primarily in the Augusta area and would have been expanded if the company deemed it economically feasible.

Summit Natural Gas of Maine, a subsidiary of Summit Utilities Inc. of Littleton, Colo., had proposed a $150 million project it estimates would employ 435 people. Its much larger project called for a pipeline from Richmond to Madison, and the gas company already has lined up a number of tax breaks from affected communities to finance the project.

Summit appealed the Bureau of General Services’ award to Maine Natural Gas, even as many regional leaders expressed concern that the smaller of the two proposals had won state approval and asked Gov. Paul LePage to intervene.

“Obviously we’re pleased with the appeals panel’s decision,” said Tim Johnston, chief strategy officer and executive vice president of Summit Utilities. “We’re proceeding with our engineering and due diligence and still working toward putting natural gas everywhere in the Kennebec Valley from Richmond on up to Madison.”

H. Sawin Millett Jr., commissioner of the state Department of Administrative and Financial Services, announced the appeal panel’s decision late Wednesday afternoon. The panel determined that the state process used to review bids was flawed in several ways and the award to Maine Natural Gas was “in violation of law, contained irregularities that created a fundamental unfairness, and was arbitrary or capricious,” according to the appeals panel’s written decision.

Millett said Wednesday that the Bureau of General Services “acknowledges that several flaws were identified by the appeal panel, in both the drafting and review process of this natural gas RFP.”

As a result, the Department of Administrative and Financial Services “will be conducting a top to bottom review” of the bidding process, Millet said.

Ken Fletcher, director of the Governor’s Energy Office, could not be reached for comment Wednesday.

Dan Hucko, spokesman for Maine Natural Gas, said Wednesday that Iberdrola USA and Maine Natural Gas “are disappointed with the appeal panel’s decision to invalidate our contract award as low bidder” for the state’s request for proposals.

“At this point, we will continue to evaluate all of our options and decide on a course of action in the near future,” Hucko said.

A flawed process

Outside of a potential court challenge by Maine Natural Gas of the appeals panel decision, the project is expected to be put back out to bid by the state government. The panel decision does not give the project award to Summit; it simply invalidates the award to Maine Natural Gas, meaning the state would need to rebid the project from scratch.

Summit officials estimated their project would provide gas to about 15,000 customers in the region by its third year of construction.

Ken Young, executive director of the Kennebec Valley Council of Governments, which worked to secure tax breaks for the Summit project, said the state now has a chance to fine-tune its request for proposals, clarifying what it is looking for from bidders.

He hopes that request will ask bidders to submit plans to bring natural gas throughout the Kennebec Valley, not just to state facilities in Augusta.

“Having sat through the appeal hearing, it seemed reasonably clear to me the apparent interest of the state in facilitating the availability of natural gas all the way up to Madison had been frustrated by the review process,” Young said.

Young has said repeatedly that the region needs natural gas, as well as its lower cost compared to oil in order to reduce energy costs and compete economically.

“I think the odds of that have increased substantially with this decision,” Young said. “The only disappointment is this process is likely to have delayed the availability of gas by six months or more.”

Maine Natural Gas officials, before the appeal was filed, had expected to start construction this summer, and in 2013 the company planned to bring the pipeline across the Kennebec River, extending along Western Avenue and Leighton Road to the state’s west side properties, and continue into the north Augusta area.

The state appeals panel ruled the state’s request for proposals was not clear about what areas and facilities the proposed pipeline should be built to serve.

It also found the review was inconsistent in how it measured the cost of the competing bids and unfairly scored the job creation and economic impact potential of the projects. The state review process that rated the submitted bids gave one more point for job creation to the Maine Natural Gas project, and its 46 estimated jobs, than the Summit project, and its estimated 435 jobs.

Alan Henry, director of special projects for the state Bureau of General Services, said when the bid was awarded, the major difference between the projects was the cost, as measured in per-unit cost. The per million British thermal unit price in the proposal from Maine Natural Gas was $11.98, compared to Summit’s $12.67.

‘Back in the game’

Summit is in the process of acquiring Kennebec Valley Gas Co., the Maine-based company that initially proposed a gas line from Richmond, through Augusta, to Madison. The deal is contingent on multiple factors, including that Summit wins authorization from the state Public Utilities Commission to serve the region, according to Johnston.

Anthony Buxton, a partner in Kennebec Valley Gas, said he and his partners decided to sell to Summit in large part because they felt Summit could build out a pipeline distribution system faster, and to more users.

“I’ve been dancing in the streets,” Buxton said Wednesday of his reaction to the appeal decision. “It’s great news for the entire Kennebec Valley. Natural gas is the best thing that could happen to Maine, for our economy, for the health of our people. It’s going to put $1,000 to $2,000 in the pockets of every family we can reach.”

Augusta City Councilor Michael Byron said that Summit being “back in the game” is great news and provides a chance, if the firm prevails in the next anticipated round of bids, for natural gas to be distributed throughout the Kennebec Valley.

At a current 30 percent discount from petroleum-based energy, natural gas would “release millions of dollars from both commercial and residential budgets to fuel the growth of existing and new businesses throughout the Kennebec Valley,” he said.

Dana Berry, town manager of Madison, said he looks forward to working with any natural gas supplier that makes a commitment to bring the fuel to Madison.

“I think there is a greater chance of that happening now,” Berry said. “The appeal hopefully will set the stage for an (request for proposals) that will include the whole Kennebec Valley. … I think the only way we’re going to have any kind of economic growth in central Maine will be to have some lower-cost energy. This is good for the state and good for central Maine.”

Keith Edwards — 621-5647

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