Maine and New Hampshire regulators have asked FERC to deferconsideration of a petition for declaratory order that would allowGranite State Gas Transmission to recover millions of dollars inpreliminary development costs for a controversial liquefied naturalgas (LNG) facility in Wells, ME, that’s not even likely to bebuilt.

Both the New Hampshire Public Utilities Commission (PUC) and theMaine Public Utilities Commission contend the petition, which wouldallow Granite State to collect an $11.6-million fee from affiliateNorthern Utilities Inc. in return for allowing it to exit itsprecedent agreement, “raise[s] too many questions,” and should belooked at more closely by state regulators before FERC acts on it.Granite State seeks to amortize the costs over a 10-year periodwith carrying costs, which could bring the total burden forNorthern Utilities’ (NU) ratepayers to about $16-$18, according tothe Maine PUC. This would result in nearly a 5% rate hike for NUcustomers over the 10-year term, according to the New HampshirePUC.

FERC approved Granite State’s 2 Bcf LNG storage and vaporizationfacility in May 1998 based on its precedent agreement to providepeaking-gas deliveries for Northern Utilities, a distributorserving the two states. But NU has since negotiated contracts withDistrigas of Massachusetts Corp. (DOMAC), which it claims willprovide its customers with lower-priced LNG service than the Wellsfacility – even allowing for the exit fee.

Granite State contends FERC approval of the exit fee for NUwould pave the way to terminate the ill-fated LNG project in itsentirety, and would resolve pending litigation with long-timeopponents of the project, No Tanks Inc.

The New England state regulators, however, contend the exit feewould be at odds with their prior decisions approving the precedentagreement between Granite State and Northern Utilities. The NewHampshire PUC noted that an “exit fee for stranded costs” was notpart of the state’s 1996 settlement involving the Granite State-NUprecedent agreement. In addition, the Maine PUC said when it okayedthe precedent agreement in 1996 that it agreed to only allow”prudently incurred, fully mitigated costs in rates.”

The state regulators also questioned the validity of the exitfee for several reasons. “First, because Northern has not yetexecuted the storage contract, the characterization of Northern’spayment to Granite as an ‘exit fee’ is legally questionable. Also,Northern may be within its rights under the precedent agreement toterminate that arrangement at this time without owing Granite any’exit fee.’ This is because the provision establishing an exit feeis contained in the unexecuted storage contract, not in theprecedent agreement which appears to be the operative document atthis time,” the Maine PUC noted.

Due to the affiliate relationship between the two companies, theNew Hampshire PUC said it was “very concerned” that NorthernUtilities “may not have acted prudently” by waiting until afterFERC approved the LNG project to terminate its agreement withGranite. The time of NU’s action, it believes, provided Granitewith the opportunity to seek recovery of costs through the exitfee.

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