DR 97-130
EnergyNorth Natural Gas, Inc.
Petition for Recovery of Expenses Related to
Environmental Investigation and Remediation Associated
with a Manufactured Gas Plant Formerly Located at
Gas Street in Concord, New Hampshire
Order Approving Settlement Agreement
O R D E R N O. 22,943
May 19, 1998
APPEARANCES: McLane, Graf, Raulerson and Middleton
by Steven V. Camerino, Esq., for EnergyNorth Natural Gas,
Inc.; Office of Consumer Advocate by Kenneth E. Traum for
residential ratepayers; and Michelle A. Caraway and Stephen
P. Frink for the Staff of the New Hampshire Public Utilities
Commission.
I. PROCEDURAL HISTORY
On June 23, 1997, EnergyNorth Natural Gas, Inc.
(ENGI) filed with the New Hampshire Public Utilities
Commission (Commission) a Petition for Recovery of Expenses
Related to Environmental Investigation and Remediation
Associated with a Manufactured Gas Plant Formerly Located at
Gas Street in Concord, New Hampshire. The Commission
previously allowed recovery of costs associated with cleanup
of the Manufactured Gas Plant (the MGP) at the Gas Street
property in Dockets DE 93-168 and DR 94-306.
The June 23, 1997 petition requested recovery of
certain expenses totaling $1,230,282 incurred in
investigating and remediating the environmental
contamination of a pond near Route 93, Exit 13 in Concord,
New Hampshire that resulted from the operations of the MGP
and costs of $683,731 incurred in seeking to recover a
portion of those expenses from potentially responsible
parties and insurance carriers. ENGI sought to recover
those expenses totaling $1,914,013 over a five year period,
through a surcharge, with the unamortized portion of such
costs accruing carrying charges.
On July 22, 1997, the Commission issued an Order
of Notice which set a Prehearing Conference for August 29,
1997. No Motions to Intervene were filed. The Office of
the Consumer Advocate (OCA) is a statutorily recognized
intervenor.
According to ENGI, the manufactured gas operations
at the Gas Street MGP created by-products that ultimately
ended up in the pond area next to the Merrimack River at
Route 93, Exit 13. These by-products are now classified as
hazardous materials by state and federal law. The New
Hampshire Department of Environmental Services required ENGI
to clean up the pond area, in conjunction with the New
Hampshire Department of Transportation's plans for improving
the Route 93, Exit 13 interchange.
On September 19, 1997, ENGI filed the Supplemental
Direct Testimony of Albert J. Hanlon. Mr. Hanlon's
testimony addressed issues directly related to the operation
of the Gas Street MGP and the disposal of the residuals
produced there. In particular, he discussed the history of
the manufactured gas industry including the development of
the industry, methods of manufacturing gas, residuals
produced during the manufacturing process and the disposal
practices used by plant operators.
On September 23, 1997, the Commission issued Order
No. 22,733 which clarified the scope of the proceeding and
set the procedural schedule. In accordance with the
procedural schedule, ENGI, OCA and Staff engaged in formal
discovery and technical sessions.
On December 12, 1997, Staff indicated that
hearings scheduled for the week of December 15, 1997 could
not take place due to discovery delays. The Commission
concluded that a postponement was reasonable and directed
the parties to propose a revised schedule.
On February 13, 1998, ENGI submitted the Prefiled
Supplemental Testimony of Michelle L. Chicoine. The purpose
of the testimony was to update the status of ENGI's efforts
to recover a portion of its remediation costs from the
former plant operator, United Gas Improvement Company, now
UGI Utilities, Inc. (UGI), and to update the costs that ENGI
sought to recover through rates.
On March 4, 1998, ENGI requested that the
Commission establish a new procedural schedule for the
remainder of the proceeding. On March 11, 1998, the
Commission approved the revised procedural schedule.
ENGI, OCA and Staff conducted discovery on the
supplemental testimony. On March 27, 1998, a settlement
conference was held at which ENGI, OCA and Staff reached an
agreement in principle. On April 2, 1998, Staff requested a
postponement of Staff's and OCA's testimonies in order to
pursue finalizing the agreement. On April 7, 1998, the
Commission granted Staff's request for postponement.
On April 17, 1998, Staff filed the original
Settlement Agreement (Settlement) signed by ENGI, OCA and
Staff. A hearing on the merits was held on April 20, 1998
at which testimony supporting the Settlement was presented
by ENGI's witness Michelle L. Chicoine.
II. SETTLEMENT AGREEMENT
ENGI, OCA and Staff agree that ENGI's petition, as
revised through supplemental testimonies, should be approved
subject to the Settlement Agreement which contains the
following provisions:
1. Prudence of MGP Operations. ENGI and Staff recommend that,
based on the information submitted by ENGI, the Commission
should find that the waste products from the Concord MGP
were disposed of by ENGI's predecessors in a prudent manner
and in accordance with the practices of the time, and that
the contamination of the Concord MGP property, the pond
located near Route 93, Exit 13 and the surrounding area
(Site) is consistent with such operations. The OCA takes no
position with regard to the foregoing.
2. Prudence of Costs. ENGI, OCA and Staff recommend that,
based on the information submitted by ENGI, the Commission
should find that: (1) the costs incurred by ENGI in
investigating and remediating contamination associated with
the Concord MGP operations that have been submitted for
review in this case were prudent; (2) the costs associated
with the litigation against the alleged former operator of
the Concord MGP were prudently incurred by ENGI; and (3) the
settlement resolving the litigation with the alleged former
operator was prudent.
3. Rate Recovery Mechanism. ENGI, OCA and Staff agree that the
costs related to environmental cleanup and the litigation
with the alleged former operator of the Concord MGP, as
updated by ENGI for the period through March 31, 1998,
should be recovered through rates as follows:
a. The amounts authorized to be recovered in this docket
shall be booked as a deferred asset, which shall not
be included in rate base, and shall be recovered
through a surcharge in rates to be collected over a
seven year period. Amortization of the deferred asset
shall begin when the asset is included in rates. The
unamortized balance of the asset shall not be included
in rate base and shall not accrue carrying costs. The
rate increase shall be applied to all sales and
transportation customer classes taking firm service on
an equal per therm basis.
b. Any amounts already received from the alleged former
operator of the Concord MGP, net of the costs of
obtaining such payments (including the costs submitted
for review in this case) shall be applied to reduce
any unamortized balance authorized to be recovered
through rates in this case. Such amount shall be
applied by reducing the amortization period rather
than reducing the per therm amount of the
environmental charge.
c. The cost recovery mechanism set forth in this
Settlement Agreement shall apply to all costs incurred
with regard to environmental remediation and
investigation related to the Site (including costs
related to claims against third parties) that are
incurred in the future, subject to a determination of
prudence of the actual costs incurred as set forth in
Section 4 below.
d. ENGI shall withdraw certain ongoing monitoring costs
totaling $3,108 from this case. The parties agree
that such costs are prudent and necessary to comply
with directives of the New Hampshire Department of
Environmental Services but should be included in base
rates as an ongoing operating expense as part of
ENGI's next rate case rather than recovered through
the deferred asset being recommended in this case.
Such costs shall be included in base rates to the
extent they are actually incurred (whether higher or
lower than $3,108) in the test year for the relevant
rate case subject to customary practices regarding pro
forma adjustments and other adjustments typically made
in rate cases.
4. Cost Review Mechanism and Step Adjustment. ENGI, OCA and
Staff agree that costs recoverable in accordance with
Section 3 above shall be recovered as follows:
a. With regard to the costs that were submitted for
review in this proceeding, ENGI shall implement a per
therm surcharge ("Environmental Charge") of $0.0025
effective with bills- rendered for the first May 1998
billing cycle. The Environmental Charge shall be
updated annually simultaneously with implementation of
the winter cost of gas adjustment and shall remain in
effect until ENGI has collected $520,030 (which amount
is net of the ongoing costs that have been removed
from the case in accordance with Section 3(d) above).
b. Future costs related to environmental investigation
and remediation arising from the Site and costs
related to claims against third parties for such
investigation and remediation shall be submitted to
the Commission annually for review with the Company's
winter cost of gas adjustment filing. Upon a
determination that such costs were prudently incurred,
the costs shall be recovered through rates over a
seven year period in the same manner as the costs that
are the subject of this proceeding. In any such
review or proceeding, the issue of the prudence of the
operation of the Concord MGP and the disposal of
hazardous waste during the period that the Concord MGP
was operated and removed from operation shall be not
subject to review. (It is the parties intention that
the issue of prudence of the disposal of hazardous
waste from the Site that may occur in the future shall
be open to a prudence review in association with any
request by ENGI for rate recovery of the costs arising
from such disposal.) Future recoveries by ENGI from
third parties for costs incurred at the Site shall be
netted against the costs actually incurred by ENGI.
Such amounts shall be applied by reducing the
amortization period rather than reducing the per therm
amount of the environmental charge that is authorized
to recover such costs.
5. Rule 1203.05(a) Waiver. ENGI, OCA and Staff agree to
request that the Commission waive Puc 1203.05(a) so that the
Environmental Charge may be implemented on a bills-rendered
basis in accordance with Section 4(a) above.
III. COMMISSION ANALYSIS
After careful review of the Settlement Agreement
and the testimony and exhibits offered at the April 22, 1998
hearing, we find that the Settlement Agreement is reasonable
and in the public good. We agree with ENGI and Staff that
the waste products from the Concord MGP were disposed of by
ENGI's predecessors in what was considered at that time to
be a prudent manner and in accordance with the practices of
the time.
Additionally, we find that the contamination that
was found in the pond area located near Route 93, Exit 13 is
the result of waste products disposal from the Concord MGP.
ENGI responded to state mandates that required remediation
of the pond area and we find that the costs spent by ENGI to
remediate the contamination were prudently incurred.
Furthermore, we are pleased with the terms of the
settlement that ENGI was able to obtain with UGI. The UGI
settlement significantly reduced the remediation costs ENGI
originally sought to recover from its ratepayers; thereby
providing a real benefit to ENGI's customers. Therefore, we
find that the settlement between ENGI and UGI is prudent and
in the public good.
Consistent with our decision in prior dockets
regarding the Concord MGP, we find that some sharing of the
burden of the remediation costs between ratepayers and
shareholders is appropriate. The recovery mechanism in the
Settlement which prohibits carrying costs or rate base
treatment of the deferred asset ensures that remediation
costs shall be borne by both ratepayers and shareholders.
It is also consistent with our decision in Order No. 21,710
(June 26, 1995) which states:
Consistent with the recovery mechanism approved in
DR 93-168, any recovery, such as settlement with UGI, net of
costs, will reduce the total amount to be recovered through
rates. But rather than simply lowering the amount to be
collected over the remaining amortization period, we will
require ENGI to credit the recovery to the end of the
amortization period, thereby shortening the time of
ratepayer recovery. This should serve as an additional
incentive to ENGI to obtain any potential recovery quickly,
as the amount recovered will reduce the carrying costs being
absorbed by shareholders.
ENGI's witness Ms. Chicoine testified that over a
seven year period, shareholders will absorb approximately
20% of the remediation costs by not allowing carrying costs
on the unamortized balance of the deferred asset.
Additionally, Ms. Chicoine stated that shareholders have
borne the carrying costs associated with the environmental
and recovery effort expenses incurred since the completion
of Docket DR 94-306 in June 1995. Prior to the UGI
settlement, ENGI's shareholders were absorbing
approximately $14,000 a month in carrying costs.
We continue to expect ENGI to aggressively pursue
avenues for third party recoveries. Additionally, we
believe that our decision in Order No. 21,710 to apply third
party recoveries to reduce the amortization period serves as
a strong incentive for ENGI to reduce the costs borne by its
ratepayers.
Consistent with our conclusions in Order No.
21,710, we will require ENGI to report each year, as part of
its winter cost of gas adjustment proceeding, the status of
the cleanup recovery efforts with third parties. If there
are adjustments necessary to the Environmental Charge, ENGI
and any other party or Staff should make recommendations as
part of that proceeding. Specifically, we would expect ENGI
to revise its Environmental Charge to reflect updated
weather normalized therm sales and the net balance of the
deferred asset that remains outstanding.
Finally, the Settlement Agreement proposed that
rates go into effect May 1, 1998. Given that May 1, 1998
has passed, the Environmental Charge shall go into effect on
June 1, 1998. We waive the application of N.H. Admin.
Rules, Puc 1203.05(a), which requires generally that rate
changes be implemented on a service-rendered basis, and will
allow ENGI to implement its Environmental Charge on a
bills-rendered basis. This waiver, pursuant to Puc 201.05,
produces a result consistent with the principles embodied in
Puc 1203.05(b), which sets forth exceptions for allowing
rate changes on a bills-rendered basis, and is in the public
interest because it eliminates customer confusion and
reduces administrative costs.
Based upon the foregoing, it is hereby
ORDERED, that the Settlement Agreement is
APPROVED; and it is
FURTHER ORDERED, that ENGI's Environmental Charge
of $0.0025 per therm shall be effective with bills-rendered
for the first June 1998 billing cycle; and it is
FURTHER ORDERED, that ENGI shall file compliance
tariff pages within ten days of the date of this order.
By order of the Public Utilities Commission of New
Hampshire this nineteenth day of May, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Claire D. DiCicco
Assistant Secretary