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Kinder Morgan deal with Liberty for pipeline space comes under fire at PUC

New Hampshire Union Leader

May 19. 2015 9:40PM

CONCORD — The Kinder Morgan pipeline company has touted its shipping agreement with Liberty Utilities as proof that a new natural gas pipeline is needed in Southern New Hampshire. But questions about the contract are being raised by the consumer advocate on the Public Utilities Commission, and by the PUC’s own expert consultant.

“The company has the obligation to show that what they are proposing is a cost-effective option, and the Office of Consumer Advocate’s position is that the company hasn’t made that showing,” said Consumer Advocate Susan Chamberlin.

“They made certain assumptions about the amount of capacity and effect on rates that we don’t believe are adequately supported by the facts,” she said. “So we’ve asked the PUC to order them to undertake more analysis to show the cost effectiveness of either this proposal or alternatives.”

Kinder Morgan’s proposed Northeast Energy Direct pipeline would create a pathway for low-cost natural gas from the Marcellus shale formation in Pennsylvania into New England, with a route that crosses much of Southern New Hampshire.

In order to obtain approval for such a massive interstate project from the Federal Energy Regulatory Commission, the energy company has to demonstrate sufficient demand in the form of contracts from natural gas utilities or power plants. The company announced in March that it had finalized at least seven agreements, with Liberty signing up for 115,000 dekatherms per day, the second largest deal after National Grid at 186,000 dekatherms.

Pipeline opponents immediately raised questions about the deal, pointing out that Liberty Utilities is the wholly owned subsidiary of a Canadian company that is a partner with Kinder Morgan in the pipeline construction. One opponent group, the Pipeline Awareness Group of the Northeast (PLAN), won the right to intervene in PUC deliberations on the agreement, which requires the regulators’ approval.

‘Risk for ratepayers’

While the PLAN testimony in opposition to the purchase agreement was expected, similar testimony by the consumer advocate and the PUC staff consultant was not as predictable.

Melissa Whitten, a consultant from La Capra Associates, testified on May 8 that Liberty failed to evaluate other “feasible options” that might provide the same or similar benefits at a lower cost, such as retaining existing Kinder Morgan pipeline capacity that Liberty otherwise plans to relinquish.

“The company also fails to support the premise that demand growth will offset the excess capacity under this purchase agreement in the time frame and magnitude presented in this proceeding,” Whitten testified. “Thus, approval of this agreement would create substantial risk for firm ratepayers, who would be obligated to pay for this capacity through rates, regardless of whether the company’s growth projection actually materializes as presented.”

The Office of Consumer Advocate was represented by Pradip K. Chattopadhyay, assistant consumer advocate and director of rates and markets in the OCA.

“I find that the company has not adequately demonstrated that the contract in question is reasonably cost-effective,” he testified, arguing that an appropriate purchase agreement for the Liberty market would be well below 115,000 dekatherms per day.

Getting ready to respond

High electric costs in the state have been attributed largely to the lack of natural gas pipeline capacity to feed the power plants that need natural gas, particularly in the winter when most of the supply is consumed for home heating. Opponents of the Kinder Morgan proposal, led by organizations like PLAN, have argued that a 12-month solution is being offered for a problem that exists only during a few days in the winter

Liberty spokesperson John Shore said the utility plans to respond to the issues raised in the testimony.

“We are currently reviewing the testimony that was submitted by the other parties in the proceeding last Friday,” he said. “We believe that Liberty’s agreement with Tennessee Gas Pipeline is in the best interest of our customers and is necessary for us to continue to grow our distribution system in the future. We look forward to continuing to work with the other parties in this docket to address any issues identified in their testimony.”

Liberty is the state’s largest natural gas utility, serving nearly 87,000 gas customers throughout the Merrimack River corridor from Nashua to the Lakes Region, with a few more in Berlin. The company also provides electricity in a franchise area that includes western and southeastern parts of the state.

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