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Reilly blasts KeySpan hike plan

Says boost would bring 40 percent jump in bills

About 570,000 home and business customers of KeySpan's Boston Gas unit could face a 40 percent jump in monthly bills in November compared with a year earlier, Massachusetts Attorney General Thomas F. Reilly warned yesterday.

Soaring global prices for natural gas would drive most of that increase, which would raise monthly winter gas bills for an average homeowner to $218.51 starting Nov. 1 from $155.73 last November. Utilities can automatically pass on to consumers increases in wholesale gas prices as long as the companies reap no extra profit.

But Reilly said that the utility, based in Brooklyn, N.Y., is also proposing a host of "manipulative" moves to raise base rates by $61 million and that state regulators should reject half to two-thirds of that requested increase for being improper and excessive. If regulators agree, the size of the monthly bill increase for typical consumers would amount to about $57 instead of $64, Reilly aides estimated.

Escalating his longstanding criticism that the Department of Telecommunications and Energy board is pro-utility, Reilly said because of the "absolutely terrible impact" on homeowners and businesses, the department needs to carefully scrutinize KeySpan's proposal.

"Either they change their attitude, or the DTE needs to change," Reilly said. "We can't go on like this. This commission is notoriously friendly, and this has been nationally recognized, to the utility companies."

KeySpan has said the main factor driving its request for the increase is the cost of repairs to its local gas distribution network, parts of which are 180 years old.

Reilly's office filed a 118-page opposition to the increase with the state energy agency.

KeySpan spokeswoman Carmen Fields said, "We are reviewing the attorney general's submission, and we will be responding in our own brief that's due Sept. 10 to the DTE. I'm not in a position to be able to comment intelligently on his assertions. I know that we will be responding to the DTE point by point, very formally." Boston Gas serves about 75 communities in Eastern Massachusetts, including most cities and towns along Route 128, as well as outlying communities such as Gloucester, Leominster, and parts of Worcester County.

Timothy Shevlin, the executive director of the Department of Telecommunications and Energy, said the agency had no reaction to Reilly's opposition, under a longstanding policy of not commenting on pending rate cases until after commissioners have voted.

Paul G. Afonso, a Republican who is a former general counsel for the agency and who was named by Governor Mitt Romney as agency chairman earlier this month, was on vacation and unavailable for comment yesterday.

KeySpan first asked for an increase in base rates in April, saying it would lead to a $14.42 monthly increase for the average homeowner, separate from changes in the cost of gas.

"We made this decision carefully, after conducting a top-to-bottom review of all the cost-saving measures possible," said Nick Stavropoulos, president of KeySpan Energy Delivery New England, the formal name of the parent company of Boston Gas. KeySpan bought Boston Gas's parent company, Eastern Enterprises, for $2.5 billion in 2000.

Reilly, however, said after four months of reviewing the KeySpan filing, including 1,400 requests for follow-up information, it appears KeySpan "jammed" huge amounts of capital spending into the 2002 construction season.

"The company appears to have delayed plant improvements during" the late 1990s "and then accelerated capital improvements before the end of the test year to maximize [its] rate base," Assistant Attorney General Joseph Rogers wrote to the energy agency.

Reilly said his office is attempting to calculate how much spending was inflated, adding that KeySpan financial data give no indication that the merger of Boston Gas with KeySpan has lowered operating expenses, which the company had called a key rationale for the merger.

Factors in the rate increase request that Reilly called unacceptable include:

* $23.6 million in charges related to a no-bid contract converting Boston Gas customers to a KeySpan billing system. "It's a total fiasco, but it's their fiasco," not something ratepayers should have to pay for, Reilly said.

* $11.5 million for free furnaces and hot-water heaters that KeySpan gave new customers, which Reilly said yielded no clear benefit for other Boston Gas ratepayers.

* $8.7 million in costs at two other KeySpan Massachusetts operating units, Colonial Gas and Essex Gas, that Reilly contends the company tried to dump on Boston Gas customers.

* $7.2 million in increased pension costs linked to stock-market declines in the company's pension fund. Reilly accused KeySpan of trying to keep the benefits of a rising stock market in good years while forcing consumers to cover its losses in down years.

Peter J. Howe can be reached at howe@globe.com.

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