Massachusetts Municipal Wholesale Electric CEO Ronald DeCurzio

BOSTON — Massachusetts Municipal Wholesale Electric Co., a nonprofit political subdivision of the commonwealth that last month retired bonds related to some of its nuclear power units, has entered the New England natural gas fray — and the debate over fracking — with a proposal for public financing and ownership of new natural gas pipeline capacity.

"Tax-exempt financing and public ownership of new gas pipeline facilities will produce significant savings for consumers, as opposed to corporate financing and ownership by for-profit entities," chief executive Ronald DeCurzio wrote to Heather Hunt, executive director of the New England States Committee on Electricity, or NESCOE.

Last December, the six New England governors signed off on an agreement calling for a 20% boost in natural gas capacity over three years.

Kinder Morgan Energy Partners, through subsidiary Tennessee Gas Pipeline Co., has proposed a $3.8 billion, 180-mile pipeline that would carry fracked gas from Marcellus Shale-rich Pennsylvania through parts of northern Massachusetts into southern New Hampshire.

The proposal has already drawn fire from critics of fracking, a drilling means through which high-pressure water and chemical injections extract natural gas from shale rock formations.

The harsh winter of 2013-14 triggered a spike in natural gas prices in New England and elevated discussion over natural capacity. NESCOE, which represents the six states on regional electricity matters, estimated the cost of insufficient pipeline capacity, measured only by higher electric rates, at about $2 billion for last winter alone.

"There doesn't have to be a brutally cold winter to realize that we local reliable pipeline capacity. There's an increased reliance on natural gas," DeCurzio said in an interview. Natural gas has become the energy source of choice for many New England power generators, who must tap the more expensive spot market for supply.

Massachusetts has become the latest flashpoint for fracking. Opponents, including many environmentalists, rallied on the Boston Common two weeks ago.

The issue continues to simmer elsewhere as well.

On July 21, South Portland, Maine, passed an ordinance to ban the export of crude oil from that city's waterfront.

In Pennsylvania, where Democrats in the state legislature have pushed for a Marcellus Shale tax in lieu of Gov. Tom Corbett's "impact fee," state Auditor General Eugene DePasquale last month said rapid shale gas development has outpaced the state Department of Environmental Protection's ability to oversee the industry.

"It is almost like firefighters trying to put out a five-alarm fire with a 20-foot garden hose," said DePasquale. "There is no question that DEP needs help and soon to protect clean water."

New York State's moratorium on fracking has no sunset provision. Environmental conservation Commissioner Joseph Martens told reporters earlier this year that the state would issue no high-volume permits until next March 31. That pushes the timetable past Gov. Andrew Cuomo's re-election bid.

The New England governors, in their December statement, struck a balancing act. "[We] believe that investments in local renewable generation, combined heat and power, and renewable and competitively-priced heating for buildings will support local markets and result in additional cost savings, new jobs and economic opportunities, and environmental gains," they said.

Massachusetts Municipal, which was created by local utilities in 1969 and was made a public corporation by the state legislature in 1975, has issued nearly $5 billion in bonds overall to finance and refinance its 735-megawatt ownership in interests in several New England generating facilities, including Seabrook Station in Seabrook, N.H.; Millstone 3 in Waterford, Conn.; the Stony Brook Power Plant in Ludlow, Mass.; and Wyman Unit 4 in Yarmouth, Maine.

It retired debt associated with the latter two in 2008.

Payments for principal and interest on the company's bonds come from contracts through which municipal utilities agree to pay a share of Massachusetts Municipal's unit ownership costs, including the cost of debt service, unit operation and administrative expenses. In return, municipalities can expect a proportionate share of the unit's output.

On July 1, the Ludlow-based company retired the bonds associated with a portion of its ownership interests in the Seabrook Station and Millstone Unit 3 nuclear power plants — its so-called Nuclear Mix No. 1 project. The company still owes $167.1 million toward other nuclear projects, but expects to retire them by 2019, at which point all of its power supply projects will be debt free.

"That means another 20 to 30 years of life with these facilities with no debt. It's a boon to municipal ratepayers," said DeCurzio.

In his letter to NESCOE's Hunt, DeCurzio noted that tax-exempt debt over the 30-year life of a $1.25 billion bond issue would mean a savings of $500 million in total debt service costs, factoring the normal 3% lower interest cost of a tax-exempt bond.

According to DeCurzio, an affiliate's single source of revenue would be the tariff imposed by the regional transmission organization ISO New England. That tariff, said DeCurzio, could become unnecessary when the related debt is retired because the diminishing gap between pipeline revenues and costs over time would reduce reliance on the tariff.

Massachusetts Municipal survived a crisis in the late 1980s and early 1990s when it was ensnared in lawsuits over distribution in Vermont and Massachusetts that led to bond rating agencies suspending its credit rating.

"Today, there's a different mentality, a different mindset," said DeCurzio.

In 1991, the Massachusetts Supreme Judicial Court upheld MMWEC contracts and when the U.S. Supreme Court failed to hear the case, the credit rating agencies put the company back on their radar.

Standard & Poor's rates MMWEC A. Moody's Investors Service and Fitch Ratings assign A3 and A-plus ratings, respectively.

"MMWEC's participants exhibit strong, stable financial metrics and economic indicators in support of the project ratings,' Fitch wrote last September while affirming its rating, "Moreover, the extensive overlap of MMWEC's project participants is a consideration in Fitch's A-plus ratings for all of the project bonds."

Collectively, said Fitch, the participants have very little electric system debt, which causes high ratios of equity to capitalization averaging above 80%. Debt service coverage ratios average more than 6 times and adjusted coverage of 1.57 times exceeds Fitch's A-plus retail median of 1.34.

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