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Kansas NatGas Operators Bidding to Accelerate Pipeline Upgrade Program

The three major natural gas providers in Kansas told state regulators that a special funding mechanism is needed to accelerate the replacement of thousands of miles of distribution pipelines in the state's aging, 21,000-mile distribution network.

A decision by the Kansas Corporation Commission (KCC) is due by June 10.

The three-member KCC held two days of evidentiary hearings recently as part of a year-old general investigation into the acceleration of gas pipeline replacements. Three utilities accounting for 90% of the gas delivered in the state -- Atmos Energy, Black Hills Energy and Kansas Gas Service -- presented options for additional ways to pay for the stepped-up effort.

KCC staff and the utilities have underscored the inherent safety of the state's gas pipeline system, but since nearly a quarter (5,300 miles) of the 21,800 miles of distribution pipe in the state are constructed of obsolete, mostly steel materials, safety risks will accelerate faster over time at the companies’ present rate of replacement.

Since 2008, the utilities have used a statewide surcharge for recovery of investments needed to meet state pipeline safety regulations, but that surcharge has limits that will not allow its use in the accelerated program envisioned by regulators and the utilities.

In 2013, more than a dozen people were injured, at least two critically, after a gas leak triggered a huge explosion and four-alarm fire at an upscale Kansas City, MO, shopping district (see Daily GPI, Feb. 21, 2013), and going back a decade there have been other gas pipeline incidents, but at least two utilities have had the incidence of gas leaks decrease in recent years.

Atmos and Black Hills representatives told the KCC that at current rates it will take more than 100 years to replace all of the obsolete pipelines. An attorney for Black Hills said there is a "clear need" to accelerate the replacement to reduce "the risk of catastrophic events" occurring in Kansas.

The companies outlined three options for underwriting the proposed acceleration:

  • Change the existing statewide surcharge;
  • Incrementally increase the companies' capital expenditure budgets covered by utility rates; and/or
  • Establish a System Integrity Program (SIP) as an alternative rate mechanism that would effectively double the amounts of money the three companies get from the existing surcharge.

At the KCC hearings, the companies estimated that the SIP would cost about $15 annually for each gas customer in the state.

While Atmos and Black Hills representatives said any of the options could allow them to slash the number of years needed to replace obsolete distribution pipelines, Kansas Gas Service, a unit of Tulsa-based ONE Gas Inc., said it has an existing proactive pipeline replacement program and also has an existing rate moratorium. The company has moved up the date for replacing all of its cast iron distribution pipe from 2024 to 2019.

Since all of the stakeholders agreed that the safety of the state's distribution pipelines was not in immediate jeopardy, a third-party engineering expert from Delaware representing the Citizen Utility Ratepayer Board told the KCC he did not think an accelerated program was needed.

Edwin McGee, a chemical engineer with Acadian Consulting Group, said the fact that the incidence of distribution pipe leaks had been declining or flatlined in recent years indicated the overall system was not in jeopardy.

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