DR 98-029
                       EnergyNorth Natural Gas, Inc.
                     Natural Gas Price Stability Plan
           Approval to Adopt a Natural Gas Price Stability Plan
                         O R D E R   N O.  22,953
                               June 8, 1998
         APPEARANCES:  McLane, Graf, Raulerson, and
     Middleton by Steven V. Camerino, Esq. and James T. Lombardi,
     Esq. for EnergyNorth Natural Gas, Inc. and Michelle A.
     Caraway and Stephen P. Frink for the Staff of the New
     Hampshire Public Utilities Commission.
               On March 6, 1998, EnergyNorth Natural Gas, Inc.
     (ENGI) filed with the New Hampshire Public Utilities
     Commission (Commission) its Petition for Approval to Modify
     its Natural Gas Price Risk Management Policy (Hedging
     Policy) and to Adopt a Natural Gas Price Stability Plan
     (PSP).  On April 2, 1998, the Commission issued an Order of
     Notice which bifurcated the Hedging Policy from the PSP,
     scheduled a Prehearing Conference and proposed a procedural
     schedule for the PSP.
               In accordance with the Order of Notice, a
     Prehearing Conference and technical session were held on
     April 21, 1998 regarding the PSP.  There were no Motions to
     Intervene filed.  The Office of the Consumer Advocate (OCA)
     is a statutorily recognized intervenor.  
               On April 30, 1998, the Commission issued Order
     Nos. 22,914 and 22,915.  Order No. 22,914 approved the
     procedural schedule for the PSP.  Order No. 22,915 approved
     ENGI's modified Hedging Policy with the following provision
     pending a final order on the PSP: ENGI may hedge up to 80%
     of its Gulf Coast and Canadian index-priced gas supplies. 
     The use of Exchanging Futures for Physicals to hedge the
     remaining 20% of supplies would be evaluated during the PSP
               Commission Staff (Staff) and the Office of the
     Consumer Advocate (OCA) issued data requests and a second
     technical session was held on May 14, 1998.  On May 18,
     1998, Staff reported that it supported ENGI's proposed PSP
     and filed a request with the Commission to reschedule the
     hearing to an earlier date than approved in the procedural
     schedule to allow ENGI additional time to take advantage of
     potential lower prices in the natural gas commodities
     market.  On May 20, 1998, the Commission approved a change
     in the hearing date to May 28, 1998.
               The hearing was held on May 28, 1998 before a
     Hearings Examiner.  Testimony in support of the filing was
     offered jointly by ENGI's witnesses Mark G. Savoie, Rate
     Analyst, and Donald E. Carroll, Vice President of Gas
     Supply.  On June 4, 1998, the Hearings Examiner issued his
     report recommending that the Commission approve the PSP as
          A.   ENGI
               ENGI's petition for approval of the PSP requests
     authority for ENGI to offer a set price to customers who
     elect to participate in the plan based on commodity prices
     that have been locked in ahead of time with ENGI's
     suppliers.  The PSP will not guarantee lower prices than
     those available under the traditional Cost of Gas Adjustment
     (CGA).  It will simply ensure a set price during the winter
     period for customers who desire price certainty.
               Mr. Savoie testified that the PSP only affects the
     gas commodity component of the customer's bill and is
     consistent with the current CGA mechanism in that the cost
     of gas is passed through to the customers on a
     dollar-for-dollar basis.  ENGI does not make a profit or
     incur a loss on its gas costs.
               ENGI will set the PSP price prior to the start of
     the winter period; that price will remain in effect
     throughout the period for participating customers. 
     Enrollment in the PSP will be completed prior to November 1,
     1998 and participating customers will be required to remain
     in the plan until March 31, 1999, unless the customer
     terminates service with ENGI during the period. 
               When ENGI sets the PSP price, it will know
     essentially  all of the pricing information necessary to
     serve those customers.  ENGI will hedge the Gulf Coast and
     Canadian index-based supply portion of the volumes approved
     under the PSP by locking into a price, or series of prices,
     with one or more of its suppliers.  This is known as
     Exchanging Futures for Physicals (EFPs).  Although the EFP
     is similar to purchasing a futures contract, there are no
     margin requirements or brokerage fees associated with an
     EFP.  Additionally, unlike purchasing options, there are no
     premium costs incurred with EFPs.
               The PSP price will not include prior period
     adjustments or margins for non-firm, emergency, capacity
     release and the non-retained portion of
     transportation-related margins for the months of September
     1998 through March 1999, as these margins cannot be
     accurately forecasted at the time the PSP price is
     determined.  The 1998/1999 winter PSP price will include a
     credit for the 1997/1998 winter period over-collection so
     that the CGA rate and the PSP price will be on an equal
     footing at the inception of the plan.  If offered in
     subsequent years, the PSP price will not include a charge or
     credit for the prior period's over or under-collection of
     gas costs.  
               Mr. Savoie testified that there could be a
     difference between the PSP revenues and the costs to serve
     those customers, primarily due to weather variances and the
     impact those variances may have on the supply mix.  Firm
     sales CGA customers (non PSP participants) are subject to
     potential monthly rate adjustments and over or
     under-recoveries which are included in the calculation of
     the subsequent winter's CGA rate, with applicable carrying
     costs.  Any over or under-collection associated with the PSP
     will be credited or charged to the firm sales CGA customers
     through the CGA mechanism.
               Mr. Savoie summarized his response to Staff Data
     Request No. 1-13 that describes the worst case scenario in
     which additional costs are charged to the firm sales CGA
     customers.  He explained that by using the coldest winter
     over the past thirty (30) years and applying it to the
     1997/1998 winter period, a $10,000 under-collection would
     have resulted.  Mr. Savoie also summarized his response to
     Staff Data Request Nos. 1-12 which detailed the margins
     earned during the months of September through March over the
     past three (3) years and for which PSP customers will not be
     credited; the results ranged from $420,000 to $1,000,000. 
     Mr. Savoie explained that these margins will not be included
     in the calculation of the PSP price not only because of
     their speculative nature but also to serve as a "cushion" to
     protect firm sales CGA customers should the PSP generate an
     under-collection.  The failure to credit these margins to
     the PSP also gives a form of a "premium" to those customers
     as a collateral consequence of having a guaranteed price for
     gas.  Customers who feel that the PSP is over-priced may
     continue as firm sales CGA customers and will receive the
     benefit of non-firm and miscellaneous transportation-related
     margins incurred from September through March.
               Under the PSP, ENGI will make available up to
     twenty percent (20%) of the 1997/1998 weather normalized
     winter period therm sales.  The PSP offering will be
     available to two pools of customers based on their pro-rata
     1997/1998 therm sales: (1) residential and (2) commercial,
     industrial and large volume.  Separate pools will insure
     that the commercial, industrial and large volume sales
     customers will not dominate the volumes available under the
     PSP.  The volumes of gas offered will be contingent upon
     several factors such as customers' anticipated interest in
     the PSP and the natural gas prices ENGI is able to lock into
     during the spring and summer.   Customers will be enrolled
     on a first-come, first-served basis and prior PSP customers
     will not receive preferential treatment should the plan be
     offered in subsequent years.
               Unlike the "pre-buy" option available to oil
     customers, the PSP does not require participants to purchase
     a specified volume of therms at the fixed price.  Mr. Savoie
     testified that ENGI was concerned that such a requirement
     might prevent some customers, who otherwise may have
     enrolled in the plan, from participating and would be unduly
     burdensome to administer.  Mr. Savoie stated that ENGI would
     consider instituting such a requirement in future PSPs.
               Mr. Savoie also testified that once the winter
     period actual results were available, as detailed in ENGI's
     response to Staff's Data Request Nos. 1-5, ENGI would
     determine any over or under-collection caused by the PSP. 
     While it is anticipated that any associated over or
     under-collection would be minimal, the actual results of the
     1998/1999 PSP will be reviewed and evaluated prior to filing
     for a continuation of the current plan or a revised PSP. 
     ENGI elected to limit the therms available under the initial
     PSP offering given the uncertainty of customer interest and
     lack of empirical evidence regarding the effectiveness of
     such plans. 
               Mr. Savoie noted that the PSP provides another
     mechanism to manage fluctuations in gas costs in conjunction
     with the approved Hedging Policy.  Hedged gas not needed by
     PSP participants will be considered to be part of ENGI's
     overall gas supply portfolio and will be used to satisfy the
     needs of firm sales CGA customers.
          B.   Staff
               Staff did not file testimony in this proceeding. 
     At the hearing, Staff recommended that the Commission
     approve the PSP as filed and its effects on the approved
     Hedging Policy.
          C.   OCA
               While unable to attend the hearing, the OCA asked
     Staff to convey its recommendation that the PSP be approved
     as a pilot or test for this coming winter.  The OCA also
     asked that should the PSP be approved and offered in
     subsequent years, that current PSP customers not be given
     preferential treatment for participating in the plan.
               We have reviewed the filing and the Report of the
     Hearings Examiner.  We agree that the proposed Price
     Stability Plan is reasonable and in the public good.        
               The PSP is consistent with prior Commission orders
     that directed gas companies in New Hampshire to mitigate
     natural gas price volatility at a minimal cost.  Although
     that is the objective of ENGI's Hedging Policy, the Hedging
     Policy does not eliminate price fluctuations.  The PSP will
     eliminate price fluctuations due to gas costs without the
     costs associated with futures or options.  The PSP is
     similar to fixed price plans offered in the competitive
     market by oil and propane dealers, as well as natural gas
     marketers, that ensure a set price for the winter period to
     customers who desire price certainty.
               Variances in the revenues and costs associated
     with the PSP are likely, as usage and supply mix are based
     on normalized weather, but any resulting over or
     under-collection should not be significant and should be
     more than offset by margins that will be credited to the
     firm sales CGA customers.  In a market where prices
     typically rise during the winter, both PSP and non-PSP
     customers should likely benefit as PSP participants pay a
     price based on natural gas supplies locked in during the
     summer and the non-participants retain margins which would
     normally be spread over all firm sales CGA customers.       
               With the recent change in the CGA mechanism, which
     permits monthly changes to the CGA rate to more accurately
     reflect market prices, the PSP offers an alternative to
     customers who do not want to be subject to the volatility of
     market prices.  Enrollment in the PSP will commence when
     ENGI files for its winter CGA rate, enabling customers to
     better evaluate the risks.  The availability of two pricing
     options will allow firm sales CGA customers to decide the
     level of price risk they wish to tolerate while providing
     better price signals to the marketplace.
               We agree that as an initial offering the plan
     should be limited and we believe that twenty percent (20%)
     of the 1997/1998 weather normalized winter period therm
     sales is a reasonable amount to be offered for the coming
     winter.  Combined with ENGI's current Hedging Policy,
     permitting twenty percent (20%) of the Gulf Coast and
     Canadian gas supply to be purchased under the PSP with EFPs
     allows ENGI to effectively hedge one hundred percent (100%)
     of its index-based supplies.  If the PSP is undersubscribed,
     the supplies purchased with EFPs will be deemed to be
     additional volumes hedged for the firm sales CGA customers.
               We agree with the OCA that the PSP should be
     treated as a pilot or test for the 1998/1999 winter period. 
     The plan should be closely monitored and the results
     reviewed and evaluated to serve as a basis for continuing
     and improving the plan going forward.
               Based upon the foregoing, it is hereby 
               ORDERED, that the proposed Price Stability Plan is
     hereby APPROVED; and it is
               FURTHER ORDERED, that ENGI may hedge up to twenty
     percent (20%) of its Gulf Coast and Canadian index-priced
     gas supplies using EFPs.
               By order of the Public Utilities Commission of New
     Hampshire this eighth day of June, 1998.
       Douglas L. Patch    Bruce B. Ellsworth   Susan S. Geiger
           Chairman           Commissioner       Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary