September 7, 2005
While most consumers are focused on the skyrocketing price of gasoline, Massachusetts Attorney General Tom Reilly is warning of a proposal to significantly hike natural gas rates in his state.
Reilly is urging the Department of Telecommunications and Energy (DTE) to reject a request made by Bay State Gas Company to raise rates by 35 percent over the next five years. If approved, Reilly says a typical residential heating customer in the Brockton, Lawrence and Springfield areas would pay an additional $60 next year and an estimated additional $150 annually by the end of 2010.
In a brief filed with the DTE, Reilly warned that the proposed rate hikes submitted by Bay State Gas will be a burden to the 300,000 Massachusetts families who are still struggling to pay off last winters heating bills. In April, Bay State Gas filed for a $22.2 million increase in its base rate charges for gas distribution services.
"Families are being crushed by the most basic expenses in their lives," Reilly said.
"Now is not the time for a wealthy utility company to try to make its customers pay for all these unjustified expenses. It just looks like Bay State is attempting to recover the cost of its extravagant spending by overcharging customers."
In 1998, Bay State was acquired by NIPSCo based in Merrillville, Indiana and now called NiSource.
Reilly offered the following analysis to the DTE:
• The base rate delivery charge for a typical residential heating customer will increase by approximately $5 per month or $60 in 2006. Under the Companys proposed annual increases, a typical residential heating customer could be paying an additional $150 per year by the end of 2010.
• Customer rates will increase each year based on the rate of inflation and an annual pipe replacement cost adjustment factor. After the first year, the proposed combined adjustments are expected to increase rates by an additional $7 million or 4 percent each year.
• The cumulative base rate increase requested over the next five years is approximately 35 percent. The rate hike does not include increases to gas supply costs that the company will pass on to customers.
Reilly also described the service provided by Bay State Gas and NiSource as "substandard" and pointed out deficiencies in the companies business practices.
"We should not reward a company that fails to maintain its pipes and customer service with a rate increase," Reilly said. "Customers should be able to depend on the safe delivery of natural gas to their homes and a company that responds to their calls."
Shortcomings in the business practices of Bay State Gas and NiSource included:
• After receiving a rate increase in the 1990's to cover the costs of replacing and repairing the pipes that deliver gas to homes, Bay State began deferring those repairs after the NiSource merger. As a result, the company pocketed the money and allowed the system to deteriorate to the point where it became a public safety hazard.
• NiSource took capital it should have invested in Bay State Gas and used it to support the holding company, which was overextended from merger activity.
• At the same time, Bay State Gas was ignoring needed repair and replacement it was paying its management and officers exceptionally generous salaries and benefits.
• While the executives were treated lavishly, Bay State cut back its clerical staff and call centers putting customers at risk when they could not reach the company during emergencies.
• Bay State is trying to cut costs by outsourcing some of its key functions. In 1998, Bay State Gas outsourced its line location function, which led to a house explosion that killed two people, injured seven others and damaged 68 houses.
In addition to the increase in the base rate, Bay State Gas seeks approval of a plan for annual rate increases based on inflation (known as a performance-based regulation plan); a steel infrastructure replacement program; and a cost-recovery plan for pension and retirement benefits that would pass on the losses incurred by risky investments to customers.
