PUC Approves Actions To Accelerate PGW’s At-Risk Natural Gas Pipeline Replacement

The Public Utility Commission Thursday approved several actions to allow for faster replacement of Philadelphia Gas Works’ (PGW’s) at-risk pipelines.  The Commission voted 5-0 to:

-- Approve a waiver to increase the Distribution System Improvement Charge (DSIC) cap from 5 percent of billed revenues to 7.5 percent for infrastructure replacement purposes;

-- Suspend the requirements of Act 11 of 2012 (Act 11) to allow the levelization and annualization of its DSIC cost recovery, rather than adjusting DSIC rates quarterly, which results in significant rate fluctuations due to the company’s cash-flow ratemaking; and

-- Direct PGW to track and account for all DSIC proceeds and expenditures in a separate accounting mechanism and to specifically designate all revenues collected through the DSIC for future DSIC-related spending, or refunds to customers, if necessary.

“It is clear from the record that PGW requires additional funds to more rapidly replace its aging pipe. With that said, I am also keenly aware of the additional burdens this places on the ratepayers of PGW,” said Vice Chairman Andrew G. Place in a statement. “Therefore, I also strongly suggest that PGW work closely with Commission staff to look for additional, internally generated funds to supplement these DSIC revenues for the purposes of further acceleration of their pipeline replacement investments.”

PGW has the highest percentage of at-risk pipe of any regulated gas company in Pennsylvania – by at least a factor of two. Based on PGW’s 2014 replacement rate, it would take 66 years to replace all at-risk pipe in its distribution system, including both cast iron and bare steel.

The actions approved Thursday were some of the seven opportunities identified in a 2015 PUC staff report that followed a comprehensive review into PGW’s pipeline replacement program.

“Approval of the revised DSIC will not completely resolve the infrastructure problems at PGW. It is only a part of the solution,” said Commissioner Robert F. Powelson in a statement. “Other suggestions for updating PGW’s cost structure, workforce and governance have been previously discussed both in our Bureau of Audits’ Stratified Management and Operations Audit of PGW, which we recently approved for public release, as well as the Staff Report of April 21, 2015.”

Act 11 allows jurisdictional water and wastewater utilities, natural gas distribution companies, city natural gas distribution operations and electric distribution companies to petition the Commission for approval to implement a DSIC.

Under the law, the DSIC must be designed to provide for "the timely recovery of the reasonable and prudent costs incurred to repair, improve or replace eligible property in order to ensure and maintain adequate, efficient, safe, reliable and reasonable service.” Act 11 requires that utilities file LTIIPs as part of any action to establish a DSIC.

Following the PUC’s action, PGW was directed to file a petition to amend its LTIIP within 15 days of the entry of the Final Order.