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May 7, 2015

Federal Focus on Pipeline Safety and Cost Recovery

The Obama Administration’s Quadrennial Energy Review (“QER”) Task Force recently released its first QER Report, which reviewed  and evaluated U.S. energy infrastructure issues.  The QER determined that over the next 15 years, between $2.5 and $3.5 billion will be invested in natural gas interstate pipelines, which represents only a small portion of the estimated $270 billion needed to fix all leak-prone pipe (“LPP”) in the country.  With the majority of the nation’s pipelines built in the 1940s and 1950s, aging infrastructure is a source of great concern for the safety and reliability of natural gas transportation.

QER’s recommendations to improve the safety and reliability of the country’s natural gas infrastructure include federal investment of $3.5 billion over the next ten years to develop data and analytical frameworks as well as to establish state-based cost recovery programs to incentivize acceleration of pipeline replacement and repair.  The Federal Energy Regulatory Commission (“FERC”) is also implementing federal policy to allow cost recovery, outside of the typical rate proceeding, for upgrading or replacing aging natural gas infrastructure.

Under its new Policy Statement, FERC will evaluate individual proposals for a “modernization cost surcharge” for replacing LPP and upgrading old and inefficient equipment.   Applicants will be required to meet five criteria to ensure rates are just and reasonable, such as limiting eligible costs to one-time capital costs for improvements that are only necessary to further the safety, reliability, and or efficient operation of a pipeline.

FERC’s Policy Statement is a result of the federal Pipeline and Hazardous Materials Safety Administration’s (“PHMSA”) regulatory agenda to enhance the safety and reliability of the country’s natural gas pipelines.  The new Policy will take effect on October 1, 2015.

The U.S. Department of Energy QER Report can be accessed here:  http://energy.gov/epsa/downloads/quadrennial-energy-review-full-report

FERC’s Policy Statement is available at:  http://www.ferc.gov/whats-new/comm-meet/2015/041615/G-1.pdf

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