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Public Utilities Commission

Supreme Court of New Hampshire

May 22, 2018

Public Utilities Commission

          Argued: September 27, 2017

          APPEAL OF ALGONQUIN GAS TRANSMISSION, LLC APPEAL OF PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE d/b/a EVERSOURCE ENERGY (New Hampshire Public Utilities Commission)

          Robinson & Cole LLP, of Hartford, Connecticut and Providence, Rhode Island (Joey Lee Miranda and Dana M. Horton on the brief), and Jennifer R. Rinker, of Houston, Texas, by brief, for appellant Algonquin Gas Transmission, LLC.

          McLane Middleton, Professional Association, of Manchester (Wilbur A. Glahn, III on the brief and orally), and Robert A. Bersak and Matthew J. Fossum, of Manchester, by brief, for appellant Public Service Company of New Hampshire d/b/a Eversource Energy.

          Orr & Reno, P.A., of Concord (Douglas L. Patch on the brief and orally), for appellee NextEra Energy Resources, LLC.

          Thomas F. Irwin, of Concord, by brief, for appellee Conservation Law Foundation.

          D. Maurice Kreis, consumer advocate, by brief and orally, for appellee Office of the Consumer Advocate.

          Robert Backus, Burt Cohen, Richard Russman, and Clifton Below, self-represented parties, by brief, as amicus curiae.

          LYNN, C.J.

         The appellants, Algonquin Gas Transmission, LLC (Algonquin) and Public Service Company of New Hampshire d/b/a Eversource Energy (Eversource), appeal an order of the New Hampshire Public Utilities Commission (PUC) dismissing Eversource's petition for approval of a proposed contract for natural gas capacity, as well as a program to set parameters for the release of capacity and the sale of liquefied natural gas made available to electric generators, and/or an associated tariff. The appellees, NextEra Energy Resources, LLC (NextEra), Conservation Law Foundation (CLF), and the Office of the Consumer Advocate (OCA), appear in opposition to this appeal. We reverse and remand.

         I

         The following facts are supported by the record. Eversource is a public utility company operating under New Hampshire law as an electric distribution company (EDC). Algonquin is an owner-operator of a gas pipeline located in New England.

         In April 2015, the PUC issued an Order of Notice announcing an investigation "into potential approaches involving New Hampshire's [EDCs] to address cost and price volatility issues currently affecting wholesale electricity markets in New Hampshire." As background, the PUC explained that in 1996 the legislature enacted RSA chapter 374-F, the electric utility restructuring chapter, with the "overall public policy goal" of developing "a more efficient industry structure and regulatory framework that results in a more productive economy by reducing costs to consumers while maintaining safe and reliable electric service with minimum adverse impacts on the environment." (Quoting RSA 374-F:1 (2009).) The PUC noted that over the two decades following the chapter's enactment, "competitive electricity markets have developed in New Hampshire, at both the wholesale and retail levels, " and that, "[u]ntil recently, market competition at the wholesale and retail levels has tended to keep electricity prices at reasonable levels for New Hampshire consumers."

         The PUC observed, however, that the previous two years had "seen significant transitions in New Hampshire's wholesale and retail electricity markets, and those of the New England region generally, " including "an increasing dependence on natural gas-fueled generation plants within the region . . . as aging coal, oil, and nuclear plants have been retired." According to the PUC, "[d]uring recent winters, significant constraints on natural gas resources have emerged in New England, despite abundant natural gas commodity production in the Mid-Atlantic States and elsewhere, " leading to "extreme price volatility in gas markets in the winter months in our region, which, in turn, have resulted in sharply higher wholesale electricity prices." The PUC stated that, "[o]verall, the average retail price of electricity in New England is the highest in the continental United States, posing a threat to our region's economic competitiveness."

         Recognizing that it has "a fundamental duty to ensure that the rates and charges assessed by EDCs are just and reasonable, " the PUC acknowledged that "the potential development of additional natural gas resources for the benefit of the electricity supply in our region should be carefully considered, " and that "[a] targeted Staff investigation to examine the gas-resource constraint problem that is affecting New Hampshire's EDCs and electricity consumers generally may yield potential solutions to these market issues." Accordingly, the PUC directed PUC Staff (Staff) to, among other things, "inquire with the EDCs . . . regarding potential means of addressing these market problems" and provide the PUC with a report no later than September 15, 2015.

         In the context of that investigation, certain stakeholders asked whether RSA chapter 374-F prohibits EDCs from acquiring gas capacity. In response, Staff issued a memorandum on July 10, 2015, opining that the PUC

may find that a proposal by an EDC to acquire incremental gas capacity, for the use of gas-fired generators, could enhance power system reliability (especially in winter when existing gas capacity is constrained), and thus help the EDC meet its duty to provide reliable service under RSA 374:1; provide public benefits related to the provision of electricity (e.g., less price volatility, enhanced winter reliability, etc.); and serve as an element of New England-wide cooperation to reduce gas capacity constraints in order to provide for the displacement of oil and coal-fired electric generation by cleaner gas-fired electric generation. If the [PUC] were to decide that these goals were congruent with various Restructuring Policy Principles [in RSA 374-F:3], and that these principles were not overridden by the single principle of generation-distribution separation in RSA 374-F:3, III, it could conclude that RSA Chapter 374-F does not preclude such an EDC capacity purchase. Furthermore, an EDC making such a proposal could argue that provision of gas capacity to unaffiliated merchant generators does not violate the functional separation principle of RSA 374-F:3, III in the first instance, in that New Hampshire EDCs would not actually acquire the gas capacity for their own use, but rather, would make such capacity available for the use of merchant generators in a bilateral transaction.

         On September 15, 2015, Staff issued a 49-page report on its investigation into potential approaches to mitigate wholesale electricity prices.[1]Staff reiterated that the policy principle in RSA 374:F-3, III (2009), that generation services should be "at least functionally separated from transmission and distribution services, " RSA 374-F:3, III, should be read in concert with other restructuring policy principles set forth in the statute that are "of similar importance to the functional separation principle." In doing so, Staff concluded that the PUC "could rule, in response to a proposal being made by a New Hampshire EDC, that the potential benefits of a gas-capacity acquisition project would foster the overall goals of the Restructuring Policy Principles of RSA [chapter] 374-F, " which include "cost savings for distribution customers of EDCs; enhanced reliability for New England's increasingly gas-dependent electric generation fleet and electric transmission system; and environmental benefits from the displacement of inefficient coal and oil generation units by highly efficient gas generation units." Staff noted "that quality evidence of such benefits will be of critical importance in gauging the appropriateness of a given proposal under RSA [chapter] 374-F."

         In January 2016, the PUC accepted the Staff report "as compliant with the directives" it had set out. The PUC noted that, although the Staff report set forth Staff's view that "there exists a path under New Hampshire law for the approval of acquisitions of natural gas capacity resources by New Hampshire EDCs for the economic benefit of their customers and the customers of other regional EDCs, " it was clear to the PUC "that no consensus exists regarding the potential legality of such an acquisition of gas capacity by a New Hampshire EDC" and the PUC expected "that such a capacity acquisition would be highly controversial."

         Accordingly, the PUC stated its intention "to rule on the question of whether a New Hampshire EDC has the legal authority to acquire natural gas capacity resources to positively impact electricity market conditions, only within the context of a full adjudicative proceeding . . ., and only in response to an actual (as opposed to hypothetical) petition." The PUC explained that, in such a circumstance, it would consider a petition "in separate phases." In the first phase, the PUC "would review briefs submitted by the petitioner EDC, Staff, and other parties regarding whether such capacity procurement is allowed under New Hampshire law." If the PUC were to rule against the legality of such a petition, the petition would be dismissed, but, if not, a second phase of the proceeding would take place "to examine the appropriate economic, engineering, environmental, cost recovery, and other factors presented by the actual proposal." In doing so, the PUC would allow "discovery, testimony, rebuttal testimony, and cross-examination."

         In February 2016, Eversource petitioned the PUC "for approval of a Precedent Agreement for firm gas transportation and storage services between Eversource and Algonquin . . . relative to the proposed Access Northeast ('Access Northeast' or 'ANE') pipeline project (the 'ANE Contract')." Eversource requested the PUC's approval of: (1) "the ANE Contract, which is a 20-year interstate pipeline transportation and storage contract providing natural gas capacity for use by electric generation facilities"; (2) "an Electric Reliability Service Program . . . to set parameters for the release of capacity and the sale of liquefied natural gas . . . supply available by virtue of the ANE Contract"; and (3) "a Long-Term Gas Transportation and Storage Contract . . . tariff, which allows for recovery of costs associated with the ANE Contract."[2]

         In March 2016, the PUC issued an Order of Notice of its receipt of Eversource's petition. The PUC noted that "[t]he filing raises, inter alia, issues related to whether" the contract "would violate the Restructuring Principles of RSA Chapter 374-F." Accordingly, the PUC opened the first phase of its proceeding to "review briefs submitted by Eversource, Staff and other parties regarding whether the Access ...


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