AUGUSTA — Maine Natural Gas seeks a substantial rate increase to be phased in over the next three years in part to help fund its ongoing expansion into Augusta and to help return the company to profitability after taking a loss last year.
The company’s proposal, currently under review by the state Public Utilities Commission, would increase delivery rates, which make up about a third of a typical customer’s total bill, by 62 percent over the next three years. With other billing factors remaining equal, the plan would increase the total bill of the average residential Maine Natural Gas user from the current $2,101 to $2,644 per year in December 2017, according to the company’s filings with the PUC.
Company officials noted their rates haven’t increased since 2011 and said the rate increase is needed to help it recoup its $50 million investment in new infrastructure, much of it in Augusta in recent years. It also wants to continue to expand its system, maintain it properly and serve more customers.
PUC staff, however, believe some of the company’s decisions in rapidly expanding into Augusta in an effort to win customers over competitor Summit Natural Gas of Maine were “imprudent.” They recommend only Augusta-area customers bear the brunt of the cost of expansion into their area, not the rest of the company’s customers statewide.
“Staff believes that separate revenue requirements and rates should be set for new customers served by the Augusta expansion and for (Maine Natural Gas’) non-Augusta customers,” a staff analysis of the proposed rate plan states.
It is unclear what the impact on rates would be in Augusta if all the Augusta expansion costs are borne only by Augusta-area customers, not the 4,200 customers Maine Natural Gas has in Bath, West Bath, Brunswick, Topsham, Windham, Gorham, Bowdoin, Freeport, Pownal, Hallowell and Augusta.
The rate case is expected to be decided by the three-person commission by the end of November, according to Harry Lanphear, administrative director of the PUC. A technical conference, which is open to the public, is scheduled in the case at 9 a.m. Tuesday at the PUC’s offices in Hallowell.
Company filings indicate the firm has not had a more than 3 percent return on equity in any year since 2009 and ran a deficit last year.
“We want to expand our system, maintain it properly, and serve more customers, but to do that, we also have to keep our business financially sound,” said Dan Hucko, manager of corporate communications for Iberdrola USA, the parent company of Maine Natural Gas as well as Central Maine Power. “We have not increased rates since 2011, and we have invested close to $50 million in recent years. The current rates don’t cover today’s operating costs, and they don’t reflect the value of those investments.”
Hucko said the firm has plans to add 700 customers annually. He said the company’s prices, compared to other heating options, will remain competitive even with the proposed rate increases.
Much of that growth is expected to be in Augusta. Hucko said the firm is seeing major interest this construction season from the city’s main commercial areas including Western Avenue, Front Street in the downtown and the Marketplace at Augusta, areas where the firm expects to serve 30 to 40 new commercial customers.
The recent and ongoing Augusta expansion — and how it should be paid for — is the basis for the disagreement between the company and PUC staff.
‘CAPTIVE CUSTOMERS’
The company, in its request to the PUC for the rate increase, notes that over the last few years it has undertaken significant expansions, including major buildouts in Augusta, Freeport and Bath, which have allowed the company to make more than 2,050 new connections for a growth rate of more than 100 percent since 2010. Yet it notes it has not achieved a return on equity above 3 percent since 2009. Its new rate plan would provide a return on equity of 10 percent, if approved.
In their findings, PUC staff write that they believe Maine Natural Gas’ decision to make investments beyond those specified in its initial business plan and speed installation to get to customers before competitor Summit Natural Gas of Maine “amounted to imprudence.”
Further, staff note Maine Natural Gas’ “decision to pursue the Augusta expansion project under such conditions may have been within its management discretion, e.g., to beat Summit to the punch, the additional costs incurred to pursue this strategic business decision should not be recovered from (Maine Natural Gas’) captive customers.”
Thomas Catlin, a consultant hired to analyze parts of the rate case by the Maine Office of the Public Advocate, also expressed concern in written testimony that Maine Natural Gas’ actions in speeding up the installation of pipe in Augusta, increasing costs, could put ratepayers at risk.
“My concern is that (Maine Natural Gas’) decisions to incur substantial additional buildout costs appear to be driven by its competition with Summit Natural Gas of Maine for customers in the Augusta area,” Catlin wrote. “To the extent (the company) is successful in adding a sufficient number of customers, the revenues produced by the expansion may produce returns that result in a benefit to all of the company’s ratepayers. However, it is the ratepayers that are at risk if that does not occur because ratepayers are asked to pay for the full costs of the expansion.”
Over the next three years, the increased rates would bring the company an additional $1.9 million in revenue in 2015, $2.6 million in 2016, and $6.1 million in 2017.
In a notice sent to customers in March, Maine Natural Gas said if the new rates are approved by the commission, the company would receive a 9 percent increase in its overall revenue in the first year of the phased-in increase.
Hucko said that figure was used instead of the higher, delivery rate percentage increases because 9 percent is the increase for an average customer’s total bill when all aspects of the bill are included.
The proposed rate increase would not impact the rates of some large users in Augusta that have long-term contracts with the gas company with agreed-upon delivery rates that won’t change even if the PUC approves the new overall rate plan.
They include state government, which uses Maine Natural Gas to heat some state buildings in Augusta, and MaineGeneral Medical Center, where, in 2012, officials agreed to buy 10 years’ worth of natural gas for the new regional hospital in north Augusta. Paul Stein, chief operating officer for MaineGeneral, confirmed Friday MaineGeneral has a fixed delivery rate for all its locations served by Maine Natural Gas so the proposed rate increase would have no impact on MaineGeneral.
No members of the public attended a June 18 public witness hearing in Brunswick held by the PUC to take comment in the rate case. Public comment can still be made, however, on the commission’s website by entering Docket Number 2015-00005. Documents in the case can also be viewed at the website.
“We do read those,” Lanphear said of public comments made regarding the case, noting there is no firm deadline to comment. “Staff and the commission have access to that information and, as they’re making a final decision, factor in all data in the case, including public comments.”
Keith Edwards — 621-5647
kedwards@centralmaine.com
Twitter: @kedwardskj
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