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Black Hills Utility Seeks to Tap Farms With Upgraded NatGas Service

Seeking to move farm natural gas service in Iowa into the 21st century, a Rapid City, SD-based Black Hills Corp. utility has proposed to state regulators that the tradition of farms drawing supplies off interstate pipelines upgrade the safety of their widely varying connections.

A driver for the changes comes from Black Hills Energy's (BHE) soon-to-expire long-term contract to move gas supplies through interstate pipeline Northern Natural Gas Co. for serving the farms. In advance of renewing the long-term deal, Black Hills has asked Iowa state regulators to authorize a rate-based program to replace and maintain each farm's independently owned service pipelines, which fail to meet current safety standards and vary greatly in length, quality and levels of risk.

At stake are 1,500-1,800 farms (among 153,808 total Iowa customers), about 1.4 million feet of customer-owned piping, a little more than 6.5 million therms annually and less than $1 million in annual margin for Black Hills, but it promises to bring a level of safety and service that the so-called "farm-tap" customers have never enjoyed. All the farms are retail customers; none receives transportation service, and annual usage can vary from 4 to 600,000 therms -- from space heating-only to use of gas for grain drying and other commercial uses.

As Black Hills told the Iowa Utilities Board (IUB), individual farms have owned the assets downstream of the pipeline tap assets, including equipment to inject odorant (mercaptan), a service pipeline and a regulator to reduce pressure to house line levels. Above-ground assets off the interstate line are owned by Northern Natural, including regulators to reduce pressure and a measurement meter.

Under an original 30-year agreement between Northern Natural, now part of Berkshire Hathaway Energy Co., and Peoples Gas Co., which was subsequently acquired by BHE, utility maintenance and billing services were provided, but each farm continued to own and be responsible for its service pipelines and related equipment. This deal pre-dates many of today's industry safety standards.

Since 2008, BHE has been attempting to meet some of the newer safety standards while not owning the infrastructure involved. "Farm taps present unique challenges and are therefore often difficult to serve," BHE told the IUB in its rate filing last November, citing examples such as remoteness, lack of technical support and unknown fuel line locations and pipeline materials.

As part of its IUB application, BHE said it seeks to treat farm tap customers the same as all of its other retail gas utility customers. "BHE management believes it is critically important to assure all customer-owned fuel lines meet applicable safety standards."

Thus, IUB is now considering the proposal to set new tariffs for the farms, making the service lines comply with all up-to-date state and federal standards, mandating safety testing, authorizing a utility line replacement program for fuel lines that fail mandated safety tests, and establishing both utility and customer liability for customer-owned service or fuel lines.

BHE estimates it can pressure test about 275 farm fuel lines annually and an overall replacement program could be completed over multiple years for about $12 million. The costs would be shared between all of the BHE Iowa gas utility customers and individual farm tap customers.

With more recent amendments to the filing, BHE is offering two options -- replacing all farm-owned fuel lines for a total of about $13.6 million, or limiting utility-supported line replacement to pipelines of 1,000 feet or less in length, in which case the estimated cost would be $11.22 million.

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