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States Oppose Granite Recovery of LNG Costs

States Oppose Granite Recovery of LNG Costs

Maine and New Hampshire regulators have asked FERC to defer consideration of a petition for declaratory order that would allow Granite State Gas Transmission to recover millions of dollars in preliminary development costs for a controversial liquefied natural gas (LNG) facility in Wells, ME, that's not even likely to be built.

Both the New Hampshire Public Utilities Commission (PUC) and the Maine Public Utilities Commission contend the petition, which would allow Granite State to collect an $11.6-million fee from affiliate Northern Utilities Inc. in return for allowing it to exit its precedent agreement, "raise[s] too many questions," and should be looked at more closely by state regulators before FERC acts on it. Granite State seeks to amortize the costs over a 10-year period with carrying costs, which could bring the total burden for Northern Utilities' (NU) ratepayers to about $16-$18, according to the Maine PUC. This would result in nearly a 5% rate hike for NU customers over the 10-year term, according to the New Hampshire PUC.

FERC approved Granite State's 2 Bcf LNG storage and vaporization facility in May 1998 based on its precedent agreement to provide peaking-gas deliveries for Northern Utilities, a distributor serving the two states. But NU has since negotiated contracts with Distrigas of Massachusetts Corp. (DOMAC), which it claims will provide its customers with lower-priced LNG service than the Wells facility - even allowing for the exit fee.

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

The New England state regulators, however, contend the exit fee would be at odds with their prior decisions approving the precedent agreement between Granite State and Northern Utilities. The New Hampshire PUC noted that an "exit fee for stranded costs" was not part of the state's 1996 settlement involving the Granite State-NU precedent agreement. In addition, the Maine PUC said when it okayed the 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 exit fee for several reasons. "First, because Northern has not yet executed the storage contract, the characterization of Northern's payment to Granite as an 'exit fee' is legally questionable. Also, Northern may be within its rights under the precedent agreement to terminate that arrangement at this time without owing Granite any 'exit fee.' This is because the provision establishing an exit fee is contained in the unexecuted storage contract, not in the precedent agreement which appears to be the operative document at this time," the Maine PUC noted.

Due to the affiliate relationship between the two companies, the New Hampshire PUC said it was "very concerned" that Northern Utilities "may not have acted prudently" by waiting until after FERC approved the LNG project to terminate its agreement with Granite. The time of NU's action, it believes, provided Granite with the opportunity to seek recovery of costs through the exit fee.

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