(Reuters) - National Grid Plc <NG.L> on Monday agreed to pay $36 million (£28.06 million) in response to an ultimatum from New York Governor Andrew Cuomo and compensate natural gas customers in New York City and Long Island that were adversely impacted by a moratorium.
National Grid, which will invest most of that money in new energy conservation and clean energy projects, said in a statement it will immediately lift the moratorium on signing up new gas customers for about two years.
National Grid, which owns and operates electricity transmission networks in the United Kingdom, also supplies power and gas to customers in New York and New England in the United States, including about 1.8 million gas customers in New York City and Long Island.
At the heart of the conflict was National Grid's decision in May to impose a moratorium on signing up new gas customers in downstate New York and refusal to reconnect service to more than 1,100 pre-existing clients.
The utility blamed New York regulators' rejection of Williams Cos Inc's <WMB.N> $1 billion Northeast Supply Enhancement gas pipeline project from Pennsylvania to New York and New Jersey, which the blue-chip company was counting on to meet growing demand for gas.
"National Grid will pay a significant penalty for its failure to address the supply issue, its abuse of its customers, and the adverse economic impact they have caused," Cuomo said in a statement.
National Grid agreed to settle after Cuomo sent a letter on Nov. 12, threatening to revoke the utility's certificate to operate its gas franchise in downstate New York for allegedly failing to provide "adequate and reliable service" as required by state law.
The governor, who has been pushing utilities to invest in renewable power and energy efficiency programs rather than new fossil-fired infrastructure, gave National Grid 14 days to say how it would fix supply problems.
The governor has threatened to revoke other companies' franchises before, but no utility has ever lost its New York franchise, according to state energy officials.
Ratings agency Moody's placed two of National Grid’s utilities in the United States on review for downgrade on Nov. 18, citing heightened regulatory uncertainty and saying the impact extended to other utilities operating in New York.
"The threat to revoke a utility's license represents a weakening of the consistency and predictability of New York’s utility regulatory environment," credit rating agency Moody’s said. The ratings agency added that the letter seemed to bypass the regulatory process.
National Grid, whose stock was up about 1.3% on Monday, was not the only New York City gas company to impose a moratorium on signing up new gas customers.
In January, Consolidated Edison Inc <ED.N> blamed tight gas supplies when it announced it would impose a moratorium on new gas customers in March in parts of Westchester County, located north of New York City. Con Edison also received threats from the governor in 2018 and 2019 that he would revoke the utility's electric franchise following power outages. It reached agreements with gas pipeline operators to increase the pressure on existing pipes so they can deliver more of the fuel.
Con Edison said that should allow it to lift the Westchester moratorium once the new capacity is available around November 2023.
(Reporting by Shashwat Awasthi and Muvija M in Bengaluru and Scott DiSavino in New York; editing by Grant McCool and Chizu Nomiyama)