For Immediate Release - September 24, 2009

Attorney General Martha Coakley's Office Opposes Bay State Gas Company's Proposed $34 Million Rate Hike

BOSTON - Attorney General Martha Coakley's Office filed briefs with the Department of Public Utilities (DPU) requesting that they reject a petition for a $34.6 million rate increase filed by Bay State Gas Company (Bay State) this past April. The office has also asked state regulators to reject an automatic rate increase mechanism that would result in the unnecessary recovery of millions of dollars in costs associated with its gas main infrastructure replacement program.

"Under the guise of decoupling and increased energy efficiency, Bay State Gas Company is seeking a staggering rate increase and other benefits for shareholders when most customers in Massachusetts are trying to get by on less," said Attorney General Coakley. "I fully support increased energy efficiency efforts and a balanced decoupled rate structure, but it has to protect Bay State customers and avoid the company's ill-timed and unwarranted rate hike."

In addition to arguing against Bay State's rate hike, the office supported implementation of a new rate structure that would "decouple" rates in an effort to incent utilities to increase energy efficiency in the state, but urged the DPU to amend Bay State's decoupling proposal by incorporating measures to protect customers from unnecessary rate impacts unrelated to conservation efforts. Attorney General Coakley's Office also requested in its briefs that the DPU reject an automatic cost recovery mechanism because the DPU already rejected a similar proposal twice, most recently in 2008 and Bay State presented no new justification for approval of this mechanism. Moreover, Bay State is already compensated for pipe replacements through its base rates and is legally obligated to maintain a safe and reliable system without an accelerated rate recovery mechanism.

If Bay State's petition is approved by the DPU, it will result in an approximate 21 percent increase in distribution rates just as the winter heating season begins. By statute, the DPU must rule on the company's petition by October 31, 2009.

The company's petition to increases rates follows on the heels of an $11 million rate increase request in 2005, as well as a subsequent increases under its rate plan, when combined, exceeds $20 million in rate increases in just over the last 3 years. Bay State is currently operating under a 10-year Performance Based Rate Plan that does not expire until 2016, allowing the company to receive annual rate increases to cover the costs of delivering gas. Bay State claims that the latest proposed $34.6 million increase is necessary to address an operating revenue deficiency caused by declining customer usage, inflationary pressures and uncollected capital expenditures all of which are accounted for under its current rate plan. The Attorney General opposed a similar petition in 2008 that was ultimately rejected by the DPU.

Over the last several months, Attorney General Coakley's Office of Ratepayer Advocacy presented evidence and filed briefs with the DPU requesting that it reject the entire $34.6 million requested rate increase, given Bay State's rate plan does not allow for such an increase, nor is such warranted. The evidence demonstrates that Bay State's earnings are squarely within the parameters set by the terms of its rate plan and the company has failed to demonstrate that its financial results warrant any change in current base rates (other than the annual increases tied to its rate plan) to justify the amendment or termination of its current ten-year rate plan.

As part of its filing, Bay State also proposed the Commonwealth's first "decoupling" mechanism designed to break the link between volumetric sales and revenues, ensuring that utilities will fully engage in energy efficiency initiatives. While supporting the DPU's decoupling initiative, the office recommended several consumer protection adjustments to the company's decoupling proposal including limits on decoupling adjustments, ongoing monitoring, ensuring a direct link to conservation efforts and a lower allowed rate of return to account for the reduction in business risk associated with decoupling's guaranteed, level, year-to-year collection of revenues. With the adjustments proposed by the Attorney General, decoupling can promote aggressive pursuit of all available cost-effective energy efficiency measures as required under the Commonwealth's Green Communities Act, while affording meaningful protections to consumers from potentially large rate increases due to factors other than conservation efforts.

Bay State Gas Company is a subsidiary of NiSource, Inc., a public utility holding company headquartered in Merrillville, Indiana. Bay State provides retail natural gas service to approximately 285,000 customers throughout three areas of Massachusetts - Springfield, Brockton and Lawrence.

The Attorney General is the Commonwealth's Ratepayer Advocate and plays an important role in mitigating energy rate increases by representing consumers in matters involving the price and delivery of natural gas and electricity before state and federal regulators.

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