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.
I. PROCEDURAL HISTORY
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
NHGC.
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.
II. TERMS OF THE STIPULATION
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
follows:
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
employees.
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.
III. ENVIRONMENTAL REMEDIATION
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
Hampshire.
IV. POSITIONS OF THE PARTIES ON THE STIPULATION AND REMEDIATION
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
utility.
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.
V. COMMISSION ANALYSIS
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
Commission.
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