Atmos Energy Corp. agreed Monday to replace 100,000 steel natural gas service lines in North Texas over the next two years to reduce the risk of explosions. The company eventually plans to replace at least an additional 350,000 lines.

The agreement to replace the lines was reached by the company and the Atmos Cities Steering Committee, a group of 148 North Texas cities in Tarrant County that are served by the utility. Atmos is the largest gas distributor in Texas; it serves 550 communities in its Mid-Tex Division.

Atmos is working with the Railroad Commission of Texas (RRC), which regulates natural gas pipelines, to decide which service lines to replace first. Those steel lines considered to be most likely to leak would receive top priority. The steel lines to be replaced by Sept. 30, 2012, run from gas mains to meters that serve both residential and commercial customers.

Steel pipe would be replaced and/or strengthened with polyethylene pipe, which is less prone to corrosion. Atmos plans to thread plastic pipe into the existing steel pipe when it's possible. If it cannot thread the plastic pipe, Atmos would replace the steel pipe, which would temporarily destroy portions of some customers' property, a spokesman said.

Two years ago the RRC faulted Atmos and a contractor for three gas explosions that had occurred earlier that year in McKinney, TX (see Daily GPI, Aug. 7, 2008). The cause was not found to be problems with steel pipe but rather a leak in a three-inch diameter polyethylene gas distribution main that was damaged as it was being expanded to a four-inch diameter main.

However, problems with steel gas lines in Texas drew national attention following fatal explosions in Wylie in 2006 and Cleburne in 2007. A house also exploded last year in Mesquite, TX, which prompted Atmos to replace steel lines in a subdivision.

To pay for the pipe replacement, affected service territories would see increases to their gas bills over the next two years. The additional charges are expected to be 15-44 cents/month for residential customers, while commercial customers would see charges increase by 41 cents to $1.22/month.

Once the two-year agreement is completed, Atmos plans to continue to replace another 350,000 older lines, a process that could take years to complete. The gas distributor has about 1.5 million lines in its service territory. To fund the line replacements beyond 2012, Atmos plans to file a request for a rate increase by June 2013.

The $3.4 million that would be collected to cover the first 100,000 line replacements won't cover the cost to replace all of the lines, which could be as high as $1 billion, said Atmos' David Park, vice president of rates and regulatory affairs for the Mid-Tex Division.

However, said Park, "it recovers the cost over the time period that rates would normally recover the cost...Pipes typically are recovered over many years, so that's why it's only $3.4 million."

Thomas Brocato, an attorney who represents the Atmos Cities Steering Committee, said the "idea is to basically allow [Atmos] some additional cost recovery now, recognizing that they'll come in over the next several years and adjust that upward." He noted that there is a cap in place to keep the costs down.

Atmos may have to collect fees to replace the steel pipes for decades, Park acknowledged. The settlement announced on Monday only covers the municipalities that signed on to the agreement. City councils still must approve the settlement.

Dallas, also served by Atmos, was not part of the Atmos Cities Steering Committee, but the utility now is negotiating with the city, said Park. All of the cities served by Atmos eventually are expected to agree to the settlement, he said.

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