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May 07, 2015

New York PSC Evaluates Expedited Cost Recovery to Accelerate Replacement of Aging Natural Gas Infrastructure

On April 16, 2015, the New York State Public Service Commission (“PSC”) announced a new proceeding to evaluate the potential to fast-track replacement of aging natural gas infrastructure in New York  (Case 15-G-0151).  Up for consideration and comment are new cost recovery mechanisms for local distribution companies (“LDCs”) in New York to expedite replacement of leak prone pipe (or “LPP”).

According to the PSC, surveys from 2013 conducted by the federal Pipeline and Hazardous Materials Safety Administration (“PHMSA”) showed that 25 percent of natural gas mains in New York were LPP, which accounted for 12,196 miles of unprotected pipeline out of 47,966 miles.  Twenty-one (21) percent of services were leak prone, with 663,827 out of 3,179,775 services unprotected.  With the extent of LPP and current rate of replacement at approximately 400 miles per year, the PSC estimated it would take between 11 and 45 years to replace all the current LPP.

Currently, LPP repair or replacement is addressed during major rate proceedings at the PSC with costs recovered through base delivery rates.  Because PSC approval of a major rate case can take up to 11 months, the PSC noted the need to incentivize LDCs, especially those with expired rate plans, in order to accelerate LPP replacements.  The PSC’s new proceeding will evaluate other options for cost recovery to take advantage of low-rate borrowing costs and low natural gas prices.  Under consideration are the use of a surcharge or a deferral mechanism, with cost recovery implemented through a streamlined non-major rate proceeding.

The PSC accepted comments from all parties through May 1, 2015 on how the cost recovery mechanism should be designed as well as conditions, metrics, low-cost financing, and any other funding sources that could be accessed, among other subject areas.  LDC-specific comments solicited by PSC included a risk ranking process, identification of LPP expenditures in capital budgets, true up mechanisms, and reconciliation.

The Federal Energy Regulatory Commission (“FERC”) also announced on April 16, 2015, approval of its new Policy Statement to allow interstate natural gas pipelines to recover costs for LPP replacement.

Case 15-G-0151 filings and the PSC’s April 17, 2015 order are available at http://documents.dps.ny.gov/public/MatterManagement/CaseMaster.aspx?MatterCaseNo=15-G-0151&submit=Search+by+Case+Number.

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