The Department of Transportation (DOT) said it backs a proposal to continue a government-mandated surcharge to fund a $48 million natural gas industry research and development budget for Gas Technology Institute (GTI), citing the need for the development of new technologies to assure the integrity of the interstate gas pipeline system.

Pipeline Research Council International Inc. (PRCI), a voluntary R&D program funded by pipelines, echoed that sentiment, saying it “strongly supports” GTI’s proposal for funding.

Under a 1998 agreement with FERC, the industry surcharge is supposed to be completely phased out by Dec. 31 of this year, but the Des Plaines, IL-based research, development and demonstration (RD&D) organization asked the Commission in July to extend the mandatory surcharge beyond that date. GTI contends the 1998 agreement is not binding because it was entered into by its predecessor organization, the Gas Research Institute (GRI).

Specifically, GTI has asked the Federal Energy Regulatory Commission to approve a surcharge of 0.56 cents/Dth to be added to interstate pipeline tariffs and levied on gas transportation, starting in January 2005 and running through December 2005. GTI estimates that the RD&D program would cost the average U.S. household 50 cents a year.

“The DOT is a strong advocate for technological research focused on protecting the public and the environment from the potentially disastrous effects of pipeline failures,” said the DOT’s Research and Special Programs Administration (RSPA), which oversees the Office of Pipeline Safety (OPS), in comments filed at FERC [RP04-378].

“The pipeline infrastructure is aging, while at the same time R&D funding from the pipeline industry to develop technologies to assure its integrity is decreasing. In this environment, collaboration among stakeholders in the conduct of research and development to benefit pipeline safety and integrity is essential to maintain the aging supply infrastructure and to maximize the effectiveness of R&D investments.

“The funds that GTI requests could be used, in part, to advance the cause of pipeline safety by funding development, demonstration and commercialization of new pipeline technology,” said the RSPA. It called on the Commission to approve GTI’s funding proposal.

Of the $48 million surcharge sought, the GTI proposes to set aside $11 million for RD&D for gas transmission, $19 million for gas distribution, $7 million for gas supply, and $4 million for program management and administration.

In the current year, the PRCI research group said its pipeline members contributed more than $5 million, while GTI provided $7.35 million to fund a Joint Technology Development Program for the industry. This $12 million-plus figure, however, represented only about one-half of the technology development needs of the pipe industry, it said.

Several federal agencies contributed an additional $5 million to “partially address the most immediate needs for pipeline technology development,” PRCI told FERC.

For 2005, PRCI technical committees have estimated the research needs of the pipeline industry will be more than $24 million. PRCI members will chip in almost $6 million of this, and federal agencies are expected to contribute nearly $4 million. “Sustained and adequate levels of federal co-funding are uncertain due to budgetary pressures and political decisions,” the group said.

The funding “gap can only be filled by approval of the technology program proposed by GTI in its application” filed at the Commission, noted PRCI, whose member companies operate nearly 65% of all U.S. gas transmission mileage.

“The pipeline industry faces cross-cutting challenges that require new technologies and processes. Principal among these are: preventing and detecting damage to pipelines; repairing and maintaining pipe; extending the useful life of an aging infrastructure; reducing the cost of both the materials and the installation of new pipe; improving environmental performance; expanding the capacity and enhancing the integrity of underground storage; more accurate and timely measurement and metering; and meeting new regulatory requirements.”

PRCI projects the cost of complying with new regulatory requirements alone will cost nearly $5 billion over the next 20 years. It believes that technology advancements and improvements can offset a significant portion of this cost.

Several gas associations — the Independent Petroleum Association of America, which represents independent producers; the Natural Gas Supply Association, which represents major producers; and the Process Gas Consumers Group, which represents large industrial customers — have voiced strong opposition to GTI’s proposal (see NGI, Aug. 2).

One of the few gas groups to back GTI’s funding request has been the American Gas Association (AGA). The AGA’s distribution company members would receive the lion’s share of the RD&D benefits from GTI.

Also supporting the GTI’s request was the American Public Gas Association (APGA), which represents municipal gas distributors, and the group’s research arm, the American Public Gas Association Research Foundation. “It was very clear to APGA that the 1998 settlement was not the predicate for dismantling an ongoing, successful RD&D program — rather it was hoped that the program in 2005 and thereafter could be successfully funded on a voluntary basis.”

However, the GTI in its latest proposal “makes clear, the voluntary funding approach, despite parties’ best efforts, will not provide sufficient revenues to underwrite an adequate RD&D program on a go-forward basis,” the APGA said.

A “critical element” of GTI’s funding proposal is the call for a new governance structure, according to the municipal group. Specifically, the GTI proposes to establish a 17-member Board of Trustees and Sector Management Committees, which “if properly structured will ensure the most efficient and valuable use of gas consumer dollars to fund collaborative RD&D,” the APGA said.

The board, as proposed by GTI, would have five pipeline members, five investor-own LDC members, one municipal LDC member, one gas processor member, two members from the National Association of Regulatory Utility Commissioners’ Gas Committee, one member from the Process Gas Consumers Group, and one member from the Fertilizer Institute.

The municipal LDCs would be “patently under-represented” on the board, given that they will contribute about $4 million-plus of the approximately $48 million that the GTI is seeking to collect in 2005, the APGA told FERC. The group asked the Commission to approve GTI’s funding proposal on the condition that municipal LDCs be given two seats on the Board of Trustees.

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