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Corning Signs Mutual Aid Deal for Winter Gas Supply with KeySpan

December 12, 2005
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The New York State Public Service Commission (PSC) announced a final voluntary mutual aid agreement between struggling state gas utility Corning Natural Gas and KeySpan Corp., which stepped in several weeks ago to assist Corning in lining up reliable winter gas supply service.

Following a winter preparedness audit at Corning this fall, state regulators determined that the small upstate New York utility was ill prepared to keep its 14,500 retail customers warm this winter. In October, the commission took the "extraordinary actions" of calling on other gas companies in the state to provide supply to Corning on a mutual aid assistance basis, and ordered Corning to show cause why a temporary operator should not be appointed for the utility.

The utility company failed to put an adequate amount of gas in storage last spring and summer when prices were much lower, failed to line-up fixed-price baseload winter supplies and then ran into a cash flow problem as gas prices rose into the late summer and shot sharply higher following the hurricanes.

The PSC said it was concerned that Corning customers would see winter bills 55% higher than last year, compared to statewide average bill impacts of approximately 30-45%. The average cost of gas in storage for all the state's utilities for the upcoming winter season is $7.02/Dth, an increase of 24% compared to year's average storage cost of $5.66/Dth.

On Nov. 22, the commission announced that KeySpan had submitted a letter of commitment that ensured Corning had sufficient flowing gas and storage gas supplies to serve it customers during the month of December. The two also were negotiating a long-term commitment (see NGI, Nov. 28, Nov. 14, Oct. 31).

The long-term voluntary agreement announced Wednesday between KeySpan and Corning resolves the most important and immediate concerns regarding Corning's gas supplies, the PSC said in a statement.

The voluntary mutual-aid agreement between the two New York utilities is effective immediately and provides the necessary security to support Corning's gas purchases. As a result of the deal, Corning's lender has agreed to restore the company's access to its line of credit.

Under the deal, KeySpan will purchase gas on Corning's behalf and make it available at delivery points on interstate pipelines on which Corning has capacity rights. Corning will be responsible for transporting the gas from the delivery points. KeySpan will deliver at least 4,000 Dth/day of gas; the volume can be adjusted upward depending on the requirements of Corning's customers. The price of the gas supplied by KeySpan will generally be KeySpan's cost of acquiring it, a KeySpan spokeswoman said.

The combination of the comprehensive mutual aid contract with KeySpan and the restoration of the credit line should be sufficient to provide Corning with the gas supplies and other working capital needed for the remainder of the winter heating season, the PSC said.

"I want to commend staff and all the parties involved for working relentlessly over the past month to assist Corning in meeting customers' gas supply needs this winter," said PSC Chairman William M. Flynn. "Today's voluntary mutual aid agreement is an important accomplishment, and KeySpan Corp. should be commended for its willingness to provide both immediate and long-term assistance to Corning and its customers."

Corning serves gas customers in a 400-square-mile gas distribution territory in the Finger Lakes area of New York.

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