PENNSYLVANIA

PUBLIC UTILITY COMMISSION

Harrisburg, PA 17105-3265

Public Meeting held December 18, 2014

Commissioners Present:

Robert F. Powelson, Chairman

John F. Coleman, Jr., Vice Chairman

James H. Cawley

Pamela A. Witmer

Gladys M. Brown

Petition of Peoples Natural Gas Company,
LLC for Approval of its Revised Long-Term Infrastructure Improvement Plan for its Peoples Division and Equitable Division / Docket Numbers:
P-2013-2344596
P-2013-2342745

OPINION AND ORDER

BY THE COMMISSION:

Before the Commission for consideration is the Petition for approval of the Peoples Natural Gas Company LLC (Peoples) Revised Long-Term Infrastructure Improvement Plan for its Peoples Division and Equitable Division for the period January 1, 2015, through December 31, 2019 (Revised LTIIP). This petition was filed June 18, 2014, and replaces the currently-approved, separate LTIIPs of the Peoples Division and the Equitable Division (previously Equitable Gas Company) of the Peoples Natural Gas Company.

Peoples is a corporation organized and existing under the laws of the Commonwealth of Pennsylvania. Peoples is in the business of selling and distributing natural gas to retail customers within the Commonwealth, and is therefore a “public utility” within the meaning of Section 102 of the Public Utility Code, 66 Pa. C.S. §§ 102, subject to the regulatory jurisdiction of the Commission. Peoples, as an Natural Gas Distribution Company (NGDC), provides natural gas service to approximately 640,000residential, commercial, and industrial customers in all or portions of 17Southwestern Pennsylvania Counties.

Copies of the Revised LTIIP were served upon the statutory advocates and all parties to the Merger Settlement at Docket Nos. A-2013-2353647, A-2013-2353649 and A-2013-2353651. This Revised LTIIP was filed in compliance with a Commission Order entered on November 14, 2013[1].

No objections or comments were received from federal, state or local governmental agencies.

HISTORY OF THE PROCEEDING

On February 14, 2012, Governor Corbett signed into law Act 11 of 2012,(Act 11),[2] which amends Chapters 3, 13 and 33 of Title 66. Act 11, inter alia, provides utilities with the ability to implement a Distribution System Improvement Charge (DSIC) to recover reasonable and prudent costs incurred to repair, improve or replace certain eligible distribution property that is part of the utility’s distribution system. The eligible property for the utilities is defined in 66 Pa. C.S. §1351. Act 11 states that as a precondition to the implementation of a DSIC, a utility must file a LTIIP with the Commission that is consistent with 66 Pa. C.S. §1352.

On April 5, 2012, the Commission held a working group meeting for discussion and feedback from stakeholders regarding its implementation of Act 11. On May 10, 2012, the Commission issued a Tentative Implementation Order addressing and incorporating input from the stakeholder meeting. On August 2, 2012, the Commission issued the Final Implementation Order, at Docket Number M-2012-2293611, establishing procedures and guidelines necessary to implement Act 11.

The Final Implementation Order adopts the requirements established in 66Pa. C.S. § 1352, provides additional standards that each LTIIP must meet, and gives guidance to utilities for meeting the Commission’s standards. The Final Implementation Order of Act 11 requires the inclusion of seven elements in the LTIIP.

On March 14, 2013, the Commission issued a proposed rulemaking on LTIIP at L-2012-2317274. The proposed rulemaking acknowledged the Commission’s decision against establishing a separate Pipeline Replacement and Performance Plan filing process at Docket Number M-2011-2271982, because it would be duplicative of the Act 11 DSIC regulatory process, specifically, the filing of LTIIPs. The Commission, nevertheless, determined that it would rather order additional actions from NGDCs if necessary, in order to safeguard the public. The Commission also acknowledged that the implementation of a DSIC mechanism may lead to numerous construction projects by the utilities. The Commission is also aware that these construction projects could lead to significant disruptions as utilities perform work in the right of ways of the roadways and streets across the Commonwealth in order to repair or replace their infrastructure. Therefore, the Commission has directed, by way of the proposed rulemaking, that a utility, as part of its LTIIP, should provide a description of its outreach and coordination activities with other utilities, Pennsylvania Department of Transportation (PennDOT) and local governments regarding their planned maintenance/construction projects and roadways that may be impacted by the plan.

Therefore, the proposed rulemaking added an additional element, thereby increasing the seven elements in the LTIIP to eight as shown below:

(1)  Types and age of eligible property;

(2)  Schedule for its planned repair and replacement;

(3)  Location of the eligible property;

(4)  Reasonable estimates of the quantity of property to be improved;

(5)  Projected annual expenditures and measures to ensure that the plan is cost effective;

(6)  Manner in which replacement of aging infrastructure will be accelerated and how repair, improvement or replacement will maintain safe and reliable service; and

(7)  A workforce management and training program.

(8)  A description of a utility’s outreach and coordination activities with other utilities, PennDOT and local governments on planned maintenance/construction projects.

As stated in the Final Implementation Order, a Commission approved LTIIP is subject to periodic review, and the process for the periodic review of approved LTIIPs is addressed in a rulemaking at L-2012-2317274. The Commission has issued a final rulemaking to provide a comprehensive process for the ongoing review of approved LTIIPs and to ensure that all utilities remain in compliance with their respective LTIIPs.

On March 31, 2013, a Joint Application was filed by Peoples Natural Gas Company LLC (Peoples), Peoples TWP LLC, and Equitable Gas Company (Equitable) at Docket No. A-2013-2353647, A-2013-2353649, and A-2013-2353651 seeking the necessary approvals for, among other things, (1) the transfer of 100% of the membership interests in Equitable to PNG Companies LLC, Peoples’ direct parent and an indirect subsidiary of SteelRiver Infrastructure Fund North America LP; (2) the merger of Equitable with Peoples, and the operation of the former Equitable properties and business as an operating Division of Peoples; and (3) the transfer of certain storage and transmission assets of Peoples to EQT Corporation. On November, 14, 2013, the Commission entered an Order approving a Joint Petition for Settlement (Merger Settlement) of all issues in the acquisition proceeding.

One of the provisions of the Merger Settlement required Peoples to freeze the costs included in the Peoples Division and Equitable Division Distribution System Improvement Charge (DSIC) mechanism until such time as Peoples filed a Revised LTIIP or Asset Optimization Plan for 2015 through 2019 that addresses the effects of the acquisition transaction, including how redundant facilities will be handled. This Revised LTIIP is being filed in compliance with this Merger Settlement provision. Prior to the merger, both companies proposed and received Commission approval of LTIIPs to guide the repair and replacement of aging infrastructure[3].

PEOPLES’ REVISED LTIIP PETITION

Peoples’ Petition

Peoples Revised LTIIP is a five-year plan that builds off of, and expands upon, the previously-approved LTIIPs for the Peoples and Equitable Divisions. Capital spending commitments were made by Peoples and approved by the Commission in the merger application proceeding for both Divisions of Peoples. Peoples stated that this Revised LTIIP is reflective of those obligations. In order to address the replacement of the high risk projects on both Divisions, Peoples is requesting approval, through a separate petition, to deviate from the particular capital spending commitments for each separate Division[4]. However, Peoples affirms its commitment to meet the aggregate capital spending commitment for both the Peoples and Equitable Divisions on a combined basis.

Peoples stated that the Revised LTIIP reflects an average capital investment for infrastructure improvement of $123 Million per year for the five-year term (2015-2019) and this reflects an increase of $72 Million over the average capital investments undertaken by the separate companies prior to adoption of accelerated replacement programs. Further, Peoples states that the Revised LTIIP average investment also exceeds the average investments of $63.5 Million and $25 Million that were approved for the separate Divisions in their individual LTIIPs.

In the Merger Settlement in the Acquisition Proceeding, Peoples agreed to commit an average of $80 million in LTIIP capital expenditures per year for the Peoples Division for the term of the Revised LTIIP. Additionally, the Merger Settlement required that the Equitable Division invest an average of $33 million for the years 2014-2016, and an average of $45 million for the years 2017-2019. Peoples asserts that it’s planned LTIIP expenditures meet or exceed these annual spending commitments as evidenced by the Revised LTIIP.

Peoples states that its combined distribution system (Peoples and Equitable divisions), includes 1,587 miles of gathering pipeline, 155 miles of transmission pipeline and 10,311 miles of distribution pipeline. While Peoples replaced all known cast iron pipelines in its system through its Smart Modernization Plan (SMP), the newly acquired Equitable Division has approximately 37 miles of known cast iron pipelines and in this Revised LTIIP, Peoples presents its plan to address the accelerated replacement of these cast iron pipelines as well as other higher risk pipelines.

Peoples states that the replacement of cast iron pipelines on the Equitable system requires a measured approach. According to Peoples, Equitable had a cast iron replacement plan in place as part of its original LTIIP to address small diameter cast iron pipelines. Smaller diameter cast iron pipelines, totaling 6 miles, can be replaced in a relatively straight forward manner. When cast iron is replaced, the Company will also replace other higher risk surrounding pipe. The Company will accelerate small diameter cast iron replacement with the expectation that all known small diameter cast iron will be removed by the end of the first year of this LTIIP. Equitable also operates approximately 30 miles of large diameter cast iron pipeline. Large diameter pipeline replacements require significant planning. Peoples states that it may be appropriate to replace some of these large diameter pipelines with smaller diameter lines. Peoples states that due to the number and complexity of large diameter cast iron projects, all known cast iron will not be removed during the term of this LTIIP. Peoples performed a separate study regarding the large diameter cast iron pipeline and submitted a final plan to the Commission on November 21, 2014, as part of a response to a Commission staff data request. According to this plan, all cast-iron will be removed from Peoples’ system in 15 years, concluding in approximately the year 2030.

Peoples’ Revised LTIIP addressed the eight elements of an LTIIP: (1) types and age of eligible property; (2) schedule for its planned repair and replacement; (3) location of the eligible property; (4) reasonable estimates of the quantity of property to be improved; (5) projected annual expenditures and measures to ensure that the plan is cost effective; (6) manner in which replacement of aging infrastructure will be accelerated and how repair, improvement or replacement will maintain safe and reliable service; (7) a workforce management and training program; (8) a description of a utility’s outreach and coordination activities with other utilities, PennDOT and local governments on planned maintenance/construction projects as required in the Final Implementation Order of Act11 and the proposed rulemaking of March 14, 2013.

(1)  TYPES AND AGE OF ELIGIBLE PROPERTY

Discussion

The combined Peoples’ distribution system includes 1,587 miles of gathering pipeline, 155 miles of transmission pipeline, 10,311 miles of distribution pipeline, 610,766 service lines and 638,386 meters. The average estimated age of Peoples distribution system pipeline based on vintage information provided is approximately 43 years, with 15.3% of the system being either pre-1940 or of an unknown age. Peoples stated that the main objective of its LTIIP is to improve aging infrastructure in order to reduce system risk and maintain system integrity while providing safe, adequate and reliable service. Eligible property includes piping, couplings, gas service lines and insulated and non-insulated fittings, valves, excess flow valves, risers, meter bars, meters, unreimbursed costs related to highway relocation projects where a natural gas distribution company must relocate its facilities, and other related capital costs. The Commission clarified in the Final Implementation Order that the category “other related capital costs” includes a capitalized cost that is an essential part or necessity related to the DSIC project for which recovery is sought.

Peoples proposes to replace all Target Pipe, predominantly unprotected bare steel and cast iron pipelines, over an approximately twenty year period. The focus throughout this replacement program will be on the highest risk pipe consistent with the main objective of reducing system risk and maintaining system integrity, reliability and safety.

Peoples filed its original LTIIP in January 2013, at Docket No. 2013-2344596. The Commission approved Peoples’ LTIIP by Order entered May 23, 2013. In its approved LTIIP, Peoples received Commission approval to include certain areas of “special consideration” in its LTIIP. These approved “special consideration” items include:

a.  Customer-owned service lines

Peoples indicated that other than in the cities of Altoona, Johnstown, and Dravosburg the customer is responsible for installation, maintenance and replacement of the customer service lines. Peoples explained that as it disconnects customer service lines during main replacement and then reconnects and tests those lines, some will fail the pressure test and have to be replaced before service can be restored. Peoples believes that leaving the individual customers to bear the responsibility and cost of replacement of customer-owned service lines, would hamper its ability to coordinate replacement activities with the customers and may negatively impact cost and time efficiencies. For these reasons Peoples received approval to replace the customer-owned service lines that fail the pressure test as part of its LTIIP. Peoples does not take ownership of, or maintain in the future, the customer-owned service lines that are replaced. The Company proposes, through a separately filed petition, that customer-owned service line expenditures be included in the DSIC for the Equitable Division.

b.  Reliability Improvements

Peoples stated that reliability improvements are targeted to improve system reliability in distribution areas that may experience low pressure issues, or may have experienced considerable growth over the years. Peoples identifies these systems as typically having one main pipeline source of supply into an area, thereby presenting a reliability risk in case of an emergency outage within that single delivery path. To alleviate the constraint and reduce the reliability risk, Peoples would provide an additional delivery path into these systems by looping existing pipelines, extending facilities from higher pressure pipelines or constructing pipelines or interconnections between Divisions. These activities are referred to as Reliability Improvements and Peoples’ previously approved LTIIP included these reliability improvement projects as upgrades to existing infrastructure. Peoples proposes, through a separate petition, that reliability improvements expenditures be included in the DSIC for the Equitable Division.