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National Fuel CEO blasts state regulators for 'lousy' treatment

National Fuel Gas CEO Ronald J. Tanski, stung by the rejection of a major pipeline expansion project and a steep reduction in the size of a utility rate increase request over the past month, told analysts Friday that the Amherst-based energy company is "getting lousy regulatory treatment in New York State."

Tanski's unusually pointed comments came during a conference call with investment analysts after the company showed a better-than-expected 8 percent increase in its operating profits during the first three months of this year.

Tanski viewed the two recent regulatory decisions as a sign of a harsh regulatory climate within New York.

"Given this type of regulatory treatment in the state, we have to take a serious look at our ability to achieve any reasonable growth in New York," Tanski said, noting that the company also has extensive utility, natural gas exploration and pipeline operations in Pennsylvania.

The state Department of Environmental Conservation last month rejected the company’s proposed $455 million Northern Access pipeline – which was to cross 192 creeks or streams along a 97-mile path from Pennsylvania to Elma – on grounds it was too big of a threat to water quality and wildlife.

While National Fuel is appealing in federal court the DEC's decision to deny the water quality certificate that the company needed to build the pipeline, the rejection blocks a pipeline expansion that it was counting on to transport natural gas from its drilling sites in Pennsylvania to customers in Canada and Western New York.

Later last month, the state Public Service Commission granted National Fuel a 2 percent increase in its delivery rates. The $5.9 million rate hike was 86 percent less than National Fuel had requested last year and more than $3 million less than a state administrative law judge had recommended when he proposed in January that the delivery charge increase be dramatically reduced.

Tanski said the return that PSC is allowing National Fuel to earn from its utility operations, set by the commission at 8.7 percent of its equity, is less than the 9 percent return that every other comparable utility in the state can earn and is lower than the allowed return that regulators have granted to any other utility in the country since the 1980s. Utilities across the country typically are allowed to earn returns that are even higher than 9 percent, the company said.

"The PSC fulfilled its statutory obligation to ensure National Fuel's rates were just and reasonable," said James Denn, a PSC spokesman.

Unless the company and state regulators are able to negotiate a compromise that would allow the pipeline project to proceed, Tanski said he expects the court proceedings would take at least a year. So even if National Fuel were to win its appeal, the earliest that the pipeline now could be put into service would be the spring or fall of 2020.

"For the immediate future, we'll focus in areas where we can grow, while our lawyers are busy with the DEC" in the Second Circuit of the U.S. Court of Appeals, Tanski said.

A DEC spokeswoman declined to comment, citing the ongoing court case.

Over the past nine years, National Fuel has spent $6.2 billion on its energy and utility businesses. That includes all the money National Fuel has spent to drill hundreds of natural gas wells in Pennsylvania and to expand its pipeline network. About 15 percent of that money was invested in the company's operations in New York, while more than 70 percent was spent in Pennsylvania, where the company has extensive natural gas drilling operations. National Fuel does not drill for natural gas in New York, which cited environmental concerns in banning the use of the hydraulic fracturing drilling methods that have led to widespread drilling in central and western Pennsylvania.

The pipeline project, which had been approved by federal energy regulators, "would help us grow the company and assure a continued strong presence in the state," Tanski said.

"Contrast that situation with conditions in Pennsylvania, where we are continuing to expand our infrastructure for new businesses that are moving in and growing by taking advantage of plentiful domestic energy supplies," he said.

National Fuel calls DEC's denial of pipeline project 'troubling'

National Fuel granted a 2 percent rate increase

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