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NH court overturns regulatory rejection of Eversource's gas capacity contract

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NH court overturns regulatory rejection of Eversource's gas capacity contract

New Hampshire's Supreme Court ruled that utility regulators erred in blocking Eversource Energy from buying natural gas pipeline capacity for electric generators as a means of funding the now-shelved Access Northeast pipeline expansion project.

In a May 22 ruling, the court overturned an October 2016 decision by the state regulators rejecting a request by Eversource to approve a 20-year pipeline capacity contract with Algonquin Gas Transmission LLC, a subsidiary of Spectra Energy Corp. now merged into Enbridge Inc. The court remanded Eversource's petition to the Public Utilities Commission for further consideration consistent with the court's decision.

The New Hampshire PUC's 2016 decision effectively halted a proposed expansion of Algonquin Gas's pipeline and storage system to supply natural gas to Eversource and National Grid USA. Eversource appealed the PUC order in January 2017, but in late June 2017, Algonquin Gas withdrew its request for federal regulatory approval of the proposed 925,000-Dth/d expansion of its New England gas transportation system.

The court's May 22 decision was grounded in a 1996 New Hampshire electric utility restructuring law requiring the state's utilities to separate their generation function from their transmission and distribution functions and unbundled each service's rates from the other. In its 2016 ruling, the PUC concluded that Eversource's proposed capacity contract was "fundamentally inconsistent with the purpose of restructuring" because it would recover the generation-related costs in its distribution rates.

The court disagreed. In an opinion penned by Judge Robert Lynn, the court said the PUC's conclusion that “the basic premise of Eversource's proposal — having an [electric distribution company] purchase long-term gas capacity to be used by electric generators — runs afoul of the restructuring statute’s functional separation requirement."

The judge recalled that the 1996 restructuring statute said "the most compelling reason" to restructure the New Hampshire electric utility industry is to reduce costs for all consumers of electricity by harnessing the power of competitive markets while maintaining safe and reliable electric service with minimum adverse impacts on the environment.

Regardless of whether Eversource's proposal involves generation, the judge said the statute's "interdependent policy principles" means services and rates should be unbundled and generation services should be both subject to market competition and separate from transmission and distribution services, which should themselves also remain regulated. The court found regulators mistakenly interpreted those discretionary guidelines as a mandatory directive to wrongly elevate the principle of "functional separation" over other statute principles.

"We disagree with the PUC’s ruling that the legislature’s 'overriding purpose' was 'to introduce competition to the generation of electricity,'" Lynn wrote. Rather, the statute is intended to harness the power of competitive markets as a means of reducing costs for consumers, not as an end in itself.

The court also acknowledged, but disagreed with, a conflicting August 2016 ruling by the Massachusetts Supreme Judicial Court that vacated an order by the Massachusetts regulators that allowed electric distribution companies to buy gas transportation capacity and pass on the costs to electric ratepayers.

Judges Linda Dalianis and Anna Hantz Marconi concurred with the opinion. But in a dissent, Judge Gary Hicks said the New Hampshire court decision "misses the forest for the trees" by consulting a dictionary to define "interdependent" and for misconstruing mandatory language as discretionary.

Reacting to the court ruling, Enbridge said it is willing to provide additional natural supplies to New England. However, "until there is consistent energy policy across the states that would allow New England’s electric distribution companies to sign contracts for natural gas pipeline capacity," the company has put its Access Northeast project on hold.

In a statement of its own, Eversource said the court ruling has broad implications for New England, which is in "critical need" of more natural gas to power generation but faces pipeline constraints during winter.

Eversource also said the opinion may have implications for the PUC's March 2017 denial of a 20-year power purchase agreement with Canadian utility Hydro Québec for 100-MW of the 1,090-MW of hydropower that was slated to be transmitted into New England over Eversource's proposed Northern Pass transmission line. Eversource explained that the PUC's denial of the power supply contract was based on "the same flawed legal analysis" that the court just overturned.

Northern Pass was selected in a clean energy solicitation by Massachusetts electric distribution companies, but a Feb. 1 decision by a New Hampshire agency denying a siting permit for the project forced Massachusetts to contract with another hydropower-supplied transmission project. Eversource has appealed the decision.