AUGUSTA — The state Public Utilities Commission recently rejected a proposed settlement of a natural gas rate increase because commissioners thought the proposed settlement was not in the public’s interest.

Regulators said the proposed settlement, which was negotiated by Maine Natural Gas, the city of Augusta and the Maine Office of the Public Advocate, placed the cost of the company’s expansion into Augusta too heavily on ratepayers statewide, and not enough on Maine Natural Gas shareholders.

In March, Maine Natural Gas filed a request with the PUC to increase its rates statewide, with its delivery rate, which typically makes up about a third of a customer’s total bill, increasing by a total of 62 percent over the next three years.

Maine Natural Gas officials and records filed with the PUC said one reason the increase is needed is to cover the costs of the company’s expansion into the Augusta area over the last few years. The company installed infrastructure to serve customers here, in competition with rival firm Summit Natural Gas of Maine.

The city intervened in the case this summer after city officials expressed concern about a PUC staff report that included a recommendation that the costs of the Augusta expansion should not be shared by ratepayers statewide, as the company had proposed, but potentially only by Augusta-area ratepayers, company shareholders or both.

City Manager William Bridgeo said if the entire cost of the expansion in Augusta were borne only by Augusta area ratepayers, the cost to local ratepayers would be well over the estimated $500 per year increase that was projected if the rate increase were imposed on ratepayers statewide.

The city, Maine Natural Gas and the Office of the Public Advocate proposed a settlement that would have resulted in a revenue increase for Maine Natural Gas of over 17 percent, each year for three years.

John Carroll, spokesman for AVANGRID, parent company of Maine Natural Gas, said the settlement would have increased rates on the average customers’ total bill, which includes the delivery cost and cost of the gas itself, by 7.8 percent, 9.2 percent and 3.3 percent over the next three years.

The settlement would also have “written off” more of the costs of the Augusta expansion, leaving them to be covered by shareholders of the company, not by ratepayers, Carroll noted.

The three-member Public Utilities Commission recently rejected that proposed settlement, leaving the rate case subject to further commission deliberations. They expressed concerns with how the settlement would have recovered the costs of the approximately $40 million Augusta expansion.

Commissioners indicated the proposed settlement, referred to by commissioners as a stipulation, still would have placed too much of the burden of the Augusta expansion costs on ratepayers statewide, and they suggested more of those costs should be borne by company shareholders.

Commission Chairman Mark Vannoy said the stipulation did not meet one of the commission’s standards for approval, that it be in the public’s interest.

A PUC staff report about the rate increase request repeatedly referred to Maine Natural Gas’ spending to expand into Augusta as “imprudent.”

A group of Brunswick ratepayers, including the town of Brunswick and Bowdoin College, filed paperwork criticizing the settlement as forcing Maine Natural Gas ratepayers there to subsidize the cost of expanding gas service to Augusta.

Commissioner Bruce Williamson noted that company shareholders share both the potential benefits and risks of a gas company choosing to expand.

“Most assuredly shareholders will enjoy the benefits of a successful entrepreneurial build-out, so why would anyone suggest it is in the public interest to support an unsupportable alternative?” Williamson said. “Assigning most of the risk to Brunswick ratepayers, for example, for a risky and perfectly competitive build-out against Summit in Augusta, is nothing short of astonishing.”

Bridgeo said the city supported the settlement, but now that it has been rejected, he is hopeful the PUC will not saddle Augusta ratepayers with the entire cost of Maine Natural Gas’ expansion into the city.

He said doing so would go against the current precedent of such utility expansion costs being shared by ratepayers beyond the specific area being expanded into, and would discourage utilities from expanding their services to new areas.

“It would be an awful precedent to set, if that investment into one community is just borne by that community,” he said.

He said the city plans to remain as an intervenor in the case as it moves through the PUC process.

Through November, the city had spent $12,850 in legal fees on the case, according to Ralph St. Pierre, finance director and assistant city manager. The city’s legal costs in the case from December were not available Thursday.

Carroll said Maine Natural Gas worked hard to collaborate with the city of Augusta and the Office of the Public Advocate, so the firm was disappointed that the commissioners rejected the settlement.

He disputed the commission staff’s description of Maine Natural Gas’ expansion into Augusta, which included hooking many major state buildings in Augusta up to natural gas for heat, as imprudent.

“We were really working to comply with the requirements our customers had, and meet their needs, including the state’s own request for proposals,” Carroll said. “The state asked companies to provide a proposal to deliver the gas. Was it imprudent to pursue it? If it was, it would have been equally imprudent for anybody else to meet (the state’s requirements).”

Carroll said Maine Natural Gas recently completed connecting gas service to the Marketplace at Augusta shopping center and, while acknowledging growth has been slow, said the company has been satisfied with the number of customers it has added so far in the city.

Keith Edwards — 621-5647

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Twitter: @kedwardskj