DE 98-123
           Keene Gas Corporation/New york state Electric and Gas
                 Corporation/New Hampshire Gas Corporation
Joint Petition for Approval of the Transfer 
by Keene Gas Corporation of its Gas Utility Franchise 
       and Distribution Properties to New Hampshire Gas Corporation
                         Order Approving Transfer
                         O R D E R   N O.  23,017
                            September 14, 1998

         APPEARANCES:  Devine, Millimet & Branch, Professional
     Association by Frederick J. Coolbroth, Esq. for Keene Gas
     Corporation; Ransmeier & Spellman, Professional Corporation by
     Dom S. D'Ambruoso, Esq. for New York State Electric and Gas
     Corporation and New Hampshire Gas Corporation; McLane, Graf,
     Raulerson & Middleton, Professional Association by Steven V.
     Camerino, Esq., for EnergyNorth Natural Gas, Inc.; the Office of
     the Consumer Advocate by Kenneth Traum for residential
     ratepayers; and Eugene F. Sullivan, III, Esq. for the Staff of
     the New Hampshire Public Utilities Commission.
               On July 7, 1998, Keene Gas Corporation (KGC) and New
     York State Electric & Gas Corporation (NYSEG) filed with the New
     Hampshire Public Utilities Commission (Commission) a joint
     petition seeking approval pursuant to RSA 374:30 to transfer
     KGC's utility franchise and distribution properties to New
     Hampshire Gas Corporation (NHGC) and, effective upon such
     transfer, authorization for KGC to discontinue operations as a
     public utility. 
               NYSEG and KGC have entered into an asset purchase
     agreement dated as of April 30, 1998, pursuant to which KGC has
     agreed, subject to the approval of this Commission, to transfer
     its regulated propane-air distribution business, assets and
     franchise to NYSEG.  NYSEG has designated its newly-formed
     affiliate New Hampshire Gas Corporation (NHGC), a New Hampshire
     corporation, to be the purchaser of the utility franchise and
     distribution properties.  
               NHGC is an affiliate of NYSEG, both of which are wholly
     owned subsidiaries of Energy East Enterprises, Inc.  NHGC seeks
     authority to commence business as a gas utility serving the
     franchise and customers now served by KGC.  NHGC proposes to
     retain the tariffs, rates and charges currently in effect for KGC
     until such time as they may be amended by NHGC with the approval
     of the Commission.  NHGC also seeks this Commission's approval
     pursuant to RSA 369 to issue securities with respect to its
     initial capitalization.  
               Pursuant to the asset purchase agreement, KGC proposes
     to retain its propane-air manufacturing operations and property
     located at Emerald Street in Keene and enter into an Operating
     and Propane-air Sales Supply Agreement with NHGC.  Under this
     arrangement, KGC will continue to manufacture the propane-air
     product which NHGC will purchase for distribution and resale at
     retail to utility customers.  KGC's propane-air manufacturing
     operations will cease at such time as NHGC builds its own
     propane-air plant or liquefied natural gas plant, or the
     distribution system is interconnected to a natural gas pipeline
     within the vicinity of Keene.  
               On July 10, 1998, the Commission issued an Order of
     Notice scheduling the matter for a pre-hearing conference on
     August 4, 1998.  On July 30, 1998, EnergyNorth Natural Gas, Inc.
     (ENGI) filed a Petition to Intervene.  In the Petition to
     Intervene, ENGI stated that it supported the transfer of KGC's
     assets to NHGC but that it wished to participate in this
     proceeding in order to assert certain issues regarding
     responsibility for potential environmental investigation and
     remediation expenses associated with the KGC gas manufacturing
     plant site on Emerald Street in Keene.  The Commission granted
     ENGI's Petition to Intervene over the objection of KGC, NYSEG and
               Following the pre-hearing conference, the parties and
     Staff engaged in discussions which resulted in a stipulation
     executed by NYSEG, NHGC, KGC, the Office of Consumer Advocate and
     Staff dated August 17, 1998 (Stipulation).  ENGI did not join in
     the Stipulation.  
               A hearing on the merits was held on August 19, 1998. 
     At the hearing, NYSEG and NHGC presented the testimony of George
     E. Bonner, Vice President of Gas Operations and Marketing, who
     described the Stipulation in detail.  Mr. Bonner and Harry B.
     Sheldon, Jr., President of KGC, answered questions posed by the
     Commissioners regarding the Stipulation and the proposed
     transaction.  The Commission also heard oral argument on the
     environmental remediation concerns raised by ENGI.  
               The Stipulation provides the recommendations of the
     signatories for the resolution of all issues of this docket other
     than the issue raised by ENGI concerning any potential financial
     responsibility of NHGC or its customers for environmental costs
     at the Emerald street site.  Moreover, since the consummation of
     the transfer to NHGC on the terms set forth in the Stipulation
     will resolve the outstanding issues in the investigation in DE
     97-149 and render moot the special contract approval requested by
     KGC in DR 97-236, the Stipulation contemplates the closing of
     those two dockets.  
               The specific matters covered by the Stipulation are as
          1.   KGC has agreed to install new propane tanks and to
     reconfigure the piping at the gas manufacturing plant site to
     completely separate the propane supplies of KGC and Cornerstone
     Propane, L.P. (Cornerstone).  Following these installations, no
     product (liquefied propane, propane vapor or propane-air) will be
     supplied to Cornerstone from tanks which provide service to
     utility customers.
          2.   KGC agrees to withdraw its request for approval of the
     special contract with Cornerstone sought in DR 97-236.
          3.   The parties and Staff stipulate to the entry by the
     Commission of an order (a) determining that all issues pending in 
     DE 97-149 are deemed resolved, (b) terminating the investigation
     in that docket, and (c) closing DE 97-149.   
          4.   Effective as of the sale of the utility distribution
     assets by KGC to NHGC, KGC's status as a public utility shall
     terminate.  Notwithstanding such termination, KGC shall remain
     subject to safety regulation by the Commission under applicable
     law, including the Natural Gas Pipeline Safety Act (See 49 U.S.C.
      60101 et. seq. and RSA 362:4-b). 
          5.   The service territory covered by the utility franchise
     granted to NHGC shall be within the municipal boundaries of the
     City of Keene.  
          6.   The proposed NHGC tariff is recommended to be approved
     subject to specified changes in the cost-of-gas adjustment
     mechanism and elimination of discounts for present and retired
          7.   With respect to propane purchased by NHGC from KGC, KGC
     is required to make available to NHGC copies of all invoices from
     suppliers.  NHGC is required to make such copies available to the
     Commission and the Commission Staff upon request.  NHGC shall
     only pay reasonable costs for propane purchased from KGC.
          8.   The Stipulation proposes that NHGC receive a waiver of
     Rule Puc 507.07, (which requires NHGC to maintain its accounts
     and records in conformity with the Commission's uniform system of
     accounts for gas utilities).  Instead, the Stipulation provides
     for NHGC to keep records and furnish reports using the Federal
     Energy Regulatory System Uniform System of Accounts.  
          9.   The initial capitalization of NHGC ($700,000, fifty
     percent (50%) debt and fifty percent (50%) equity) is recommended
     to be approved.
               The Stipulation contains no provisions relating to the
     environmental remediation issue raised by ENGI. 
               For several decades until some time prior to its
     acquisition by KGC, the Emerald Street gas manufacturing site was
     occupied by a coal gasification plant.  A by-product of the coal
     gasification process was coal tar, which is classified as a
     hazardous material.  Therefore, the possibility exists that some
     of this material has been deposited on the Emerald Street site. 
     The extent of contamination, if any, at this site is not known.            Coal tar contamination has, however, been found in
     other locations where coal gasification plants previously
     existed.  These sites include at least three within the current
     franchise area served by ENGI.  The costs of remediation at these
     sites have been significant. 
               While KGC did not operate the coal gasification plant
     at Emerald Street, it may be held liable for any necessary
     remediation as the owner of a contaminated site under state and
     federal hazardous waste laws.  Prior owners of this site which
     could be exposed to similar liability include ENGI (formerly
     known as Gas Service, Inc.) and Public Service Company of New
          A.  NYSEG/NHGC
               NYSEG/NHGC urged the Commission to approve the
     transaction as structured and the stipulation among the parties. 
     NYSEG/NHGC argued that it would operate a competently managed and
     financially viable gas utility.
               Through the testimony of Mr. Bonner, NYSEG/NHGC took
     the position that this entire transaction had been specifically
     structured in a manner to avoid the type of financial
     responsibility that ENGI sought to place on current and future
     KGC/NHGC customers.  NYSEG/NHGC took the position that it would
     withdraw from the transaction if the commission sought to place
     any financial responsibility upon KGC/NHGC customers.  NYSEG/NHGC
     did, however, offer to contribute up to $42,000 toward any future
     remediation costs that may be incurred.  NYSEG/NHGC made this
     offer in an attempt to resolve the issue.  The $42,000 figure was
     derived using a $3 million remediation cost and dividing the
     financial responsibility over the current customer bases of ENGI
     and KGC.  
          B.  KGC
               KGC urged the Commission to approve the Stipulation and
     grant the approvals requested in the joint petition.  KGC stated
     that it was having financial difficulties as a stand-alone
     company and that its utility ratepayers will be vastly better
     served through service provided by a company with the strength of
     NHGC and its affiliates.  KGC has agreed to invest the funds
     necessary to segregate the utility and Cornerstone gas supplies
     at the gas plant as specified in the Stipulation. 
               KGC asserted that the conditions requested by ENGI were
     unreasonable and unlawful.  KGC argues that the Commission lacks
     jurisdiction to adjudicate environmental liability and that
     apportionment of environmental liability for the remediation of
     contaminated sites is governed by RSA 147-B:10 through Superior
     Court contribution proceedings.  KGC further pointed out that
     granting ENGI's request would result in NHGC's refusal to go
     forward with the transaction.  In that event, the Keene utility
     customers would continue to be served by a financially troubled
          C.  OCA
               The OCA recommended approval of the Stipulation and of
     the authorizations requested in the joint petition.  The OCA
     stated that it believed that doing so would best serve the
     interests of residential ratepayers.
               The OCA stated that it was prudent for ENGI to have
     raised the environmental remediation issue but recommended, on
     balance, that the Commission consider issuing an order which is
     silent on the issue of environmental liability.  
          D.  ENGI
          Assuming environmental remediation is required at the
     Emerald Street site in the future and that ENGI was held liable
     for some portion of the cost of that remediation, ENGI took the
     position that such costs were a cost of doing business and that
     such costs should, therefore, be recovered from ratepayers.  ENGI
     argued that it would be inequitable to recover these costs from
     its current customers while the current and future customers of
     KGC/NHGC were insulated from any such financial responsibility
     because of the structure of this transaction.  Thus, ENGI sought
     a finding from the Commission that the customers of KGC/NHGC
     would bear some financial responsibility for any remediation that
     might occur.
          E.  Staff  
               Staff recommended approval of the transaction and the
     Stipulation.  With regard to the issue of environmental
     remediation Staff argued that to the extent ENGI customers were
     held liable for remediation costs it was only equitable that
     current and future KGC/NHGC customers also be held liable. 
               The first issue for our consideration is whether the
     proposed transfer would be for the public good pursuant to RSA
     374:30.  Under the public interest or public good standard to be
     applied where an individual or entity seeks to acquire a
     jurisdictional utility, the Commission must determine that the
     proposed transaction will not harm ratepayers.  Grafton County
     Electric Light and Power Co. v. State, 77 N.H. 539 (1915); Cf.,
     Parker-Young Co. v. State, 83 N.H. 551 (1929)(application of "net
     benefits" test where there are competing offers to acquire).  See
     also eg., Re Pennichuck Water Works, Inc., Order No. 22,843
     (January 30, 1998).
               Under the petition, NYSEG/NHGC would acquire all the
     distribution properties, the trucks, and the equipment to operate
     and maintain the distribution system of KGC.  NYSEG/NHGC will
     retain competent employees to operate the system and devote the
     necessary attention to the system to ensure the provision of safe
     and adequate service.  The Stipulation also resolves all open
     proceedings involving KGC that concern its continuing ability to
     provide service to customers.
               We note that KGC has indicated that it is operating
     without sufficient funds to assure that it continues to provide
     safe and adequate service.  Moreover, Staff has had continuing
     concerns that KGC may lose key personnel and may become unable to
     provide continuous service.  
               NYSEG has assured the Commission that it will maintain
     a properly trained staff.  We note that NYSEG is a nationally
     recognized, well-financed and well-operated company which should
     bring expanded economic opportunities to the City of Keene and
     its customers, opportunities that are beyond the capabilities of
     KGC.  Furthermore, NYSEG/NHGC will provide customer service
     assistance and maintenance capabilities beyond those currently
     available through KGC.
               With regard to the issue of environmental remediation
     raised by ENGI, we do not believe it is necessary or appropriate
     to address the issue at this time.  The issue of environmental
     remediation, and financial responsibility for that remediation,
     is entirely speculative.  The Emerald Street site has never been
     identified as a site contaminated with hazardous waste that
     requires remediation.  
               Moreover, the issue of financial responsibility for any
     remediation costs, if in fact remediation is required, must
     initially be addressed by the appropriate adjudicative body.
     Thus, this issue can not be addressed at this time by this
               Based upon the foregoing, it is hereby 
               ORDERED, that the transfer by Keene Gas Corporation of
     its gas utility franchise and distribution properties to New
     Hampshire Gas Corporation upon terms specified in the Petition
     and as supplemented and modified in the Stipulation is consistent
     with the public good and is approved and authorized; and it is
               FURTHER ORDERED, that Keene Gas Corporation is
     authorized to cease business as a public utility effective upon
     the transfer of its distribution system to New Hampshire Gas
     Corporation provided, however, that Keene Gas Corporation shall
     remain subject to safety regulation pursuant to applicable law,
     including the Natural Gas Pipeline Safety Act (49 U.S.C.  60101,
     et seq.) and RSA 362:4-b; and it is
               FURTHER ORDERED, that the proposed capitalization of
     NHGC is consistent with the public good and is hereby approved;
     and it is
               FURTHER ORDERED, that New Hampshire Gas Corporation is
     authorized to commence business as a public utility providing gas
     service within the City of Keene under the same terms,
     conditions, tariffs and rates, as modified under the Stipulation, 
     as currently in effect and authorized for Keene Gas Corporation;
     and it is
               FURTHER ORDERED, that the request by ENGI for the
     imposition of a condition requiring NHGC to assume environmental
     liabilities of KGC associated with the Emerald Street site is
     denied; and it is
               FURTHER ORDERED, that New Hampshire Gas Corporation
     shall file the necessary modifications to said tariffs.
               By order of the Public Utilities Commission of New
     Hampshire this fourteenth day of September, 1998.
       Douglas L. Patch    Bruce B. Ellsworth    Susan S. Geiger
           Chairman           Commissioner        Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary