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New York has no grounds to revoke gas license, says National Grid CEO

Highlights

CEO responds to Governor Cuomo threat

Supply constraints common across region

National Grid does not believe its ongoing dispute with New York over its refusal to hook up new natural gas customers will result in its downstate utilities being replaced, the company's chief executive said.

National Grid CEO and Executive Director John Pettigrew addressed the standoff two days after Governor Andrew Cuomo said he intends in two weeks to revoke the company's license to deliver gas in parts of New York City and Long Island. The governor accused the company of failing to provide reliable service during a six-month moratorium on new gas connections, as well as neglecting to plan for growing fuel demand in the state.

But Pettigrew said National Grid has not acted in a way that would allow the New York Public Service Commission to repeal its license. He argued that the PSC would have to show the company repeatedly violated state rules or regulations or failed to consistently provide reliable, safe service.

"With regards to the moratorium, we don't think the actions that we take would lead down that particular route," Pettigrew told analysts during a Thursday earnings call. "Nonetheless, this is a difficult and serious issue, and we're working as hard as we can to find non-pipeline solutions," he said.

New York and National Grid have been at loggerheads since May, when the state refused to permit the Northeast Supply Enhancement project, an expansion to the Transcontinental Gas Pipe Line system that would increase gas supply into the company's downstate territories. Soon after, the company announced it would not hook up any new customers, saying it could not assure reliable service without new pipeline capacity.

National Grid has since begun fulfilling an October order from the PSC to connect thousands of New York residences and businesses that were denied service during the moratorium. But Cuomo has steadily ratcheted up threats to replace National Grid, culminating in a November 12 letter that gave National Grid 14 days to present remedial actions.

CEO EXPRESSES CONFIDENCE

Pettigrew said he is confident National Grid will be able to address the issues Cuomo raised in the letter and "deliver firm proposals" on time.

"It's important to say, I think, that our interests are very much aligned with the governor and with the PSC, in that we want to connect customers," Pettigrew said.

National Grid's goal of achieving net zero carbon emissions by 2050, which it announced along with half-year earnings on November 14, also aligns with New York's efforts to combat climate change, Pettigrew added. The state pledged in June to become carbon neutral by 2050.

National Grid USA provides gas to 1.8 million customers in New York City and Long Island through Brooklyn Union Gas and KeySpan Gas East. The utilities' rate base totals $6.3 billion, or about 28% of National Grid's US rate base and roughly 12% of total group assets, according to CreditSights.

The company recognized the need for more gas supply to meet demand 10 years ago, and it has spent the last decade improving its system to meet this demand, Pettigrew told analysts. The Northeast Supply Enhancement project was the last piece of the puzzle, he said.

In light of New York's refusal to permit the project and its demands that National Grid nevertheless accommodate new customers, the company is implementing energy efficiency and demand response solutions, as well as trucking compressed natural gas into its service territories.

Pettigrew said it was too early to project the ultimate cost of those solutions, but the company is essentially treating them as an alternate expense to securing supplies through the stalled Northeast Supply Enhancement line. The cost is "probably a couple of hundred million dollars a year" and can be recovered through a future rate case, he said.

SUPPLY CONSTRAINTS

The supply constraints National Grid has experienced are felt by utilities across the region, and they will only become more pronounced in New York as demand continues to grow, Pettigrew said.

"There's a huge amount of economic development going on in downstate New York, which means that over the next decade, we're going to see a 10%-plus increase in demand," he said. "That's also been added to by the fact that people are moving from oil heating to gas heating as well. So that is supplementing that growth."

New York Attorney General Letitia James is now scrutinizing National Grid. Pettigrew acknowledged that James' office escalated an ongoing inquiry into the gas moratorium into a full investigation on November 13.

-- Liz Thomas, Tom DiChristopher, S&P Global Market Intelligence, newsdesk@spglobal.com

-- Edited by Gail Roberts, newsdesk@spglobal.com