PORTLAND, Maine — Utilities regulators Tuesday voted to continue investigating a request from Maine Natural Gas Corp. to raise rates in Augusta and Brunswick to support costs of its gas pipeline expansion into the Kennebec Valley.

The three-member Maine Public Utilities Commission voted unanimously Tuesday to reject a settlement that called for gas supply surcharges on new customers in Augusta and delivery rate increases for customers in Augusta and Brunswick.

The decision to reject that settlement leaves open a dispute about how much of the $40.2 million expansion project the company would be allowed to recover through its rates.

The commission’s staff had recommended excluding $19.9 million from the amount the company could recover, saying in an early report that Maine Natural Gas could not prove those costs were unavoidable.

The settlement called for the company to exclude $6 million in project costs, with the possibility of excluding another $7.8 million in rates if it met certain targets. It also agreed to phase in $10 million of the expansion costs into rates over three years.

The recovery method included a gas supply surcharge on new customers in Augusta, whose service is more likely dependent on the expansion, and a 17 percent increase in delivery rates across all of its service area for three years. Those rates would have declined starting in 2019.

The city of Augusta and Maine public advocate’s office signed on to the settlement, but a group of Brunswick intervenors — including Bowdoin College, the town and the Midcoast Regional Redevelopment Authority — argued the delivery rate increases were unfair, placing cost burdens on customers who did not stand to benefit from the expansion.

The public advocate’s office argued the settlement struck a balance between protecting ratepayers and allowing the company to recover appropriate costs “by allowing the recovery of investments that are found to be used and useful, while holding MNG responsible for its poor planning and management.”

The office also raised concern that treating Augusta and non-Augusta customers differently would result in even steeper rate increases for Augusta customers.

Commissioners voted Tuesday to state that the parties did not prove the settlement was in the public interest, which is one of four required conditions for resolving such disputes through a settlement.

Mark Vannoy, the commission’s chairman, said during deliberations Tuesday that approval of the settlement would appear to contradict 16 years of case history ruling against having a utility’s customers in one area bear costs for improvements that help it compete in another area.

“This allows the company to entrepreneurially expand and enter special contracts at shareholder risk and management’s discretion. When that doesn’t work, who bears that burden?” Vannoy said.

In response to a PUC staff report recommending denial of the settlement, the public advocate’s office argued that such “cross subsidies” from one area to another have only been denied when they affect competition.

“There is no evidence that allocating costs across MNG’s customers by maintaining a single revenue requirement would ‘unbalance’ the competitive market for natural gas in the Kennebec River Valley by giving MNG a competitive advantage,” members of the OPA’s office wrote. “Indeed, the effect of the Stipulation will be to increase the delivery rates for MNG gas in Augusta, making MNG’s rates less competitive.”

The utility has competed against Summit Natural Gas of Maine for customers in the Kennebec Valley, where both have completed major pipeline expansions.

Hearings in the MNG rate case had been postponed to hash out the settlement rejected Tuesday. The PUC will continue hearings in the case to establish what of Maine Natural Gas’ expansion costs it may recover through rates and how it would recover those costs.

Darren Fishell

Darren is a Portland-based reporter for the Bangor Daily News writing about the Maine economy and business. He's interested in putting economic data in context and finding the stories behind the numbers.