Kansas Affirms Policies for Accelerated Replacements

The Kansas Corporation Commission has denied reconsideration of a September order in which it had provided the state’s three largest natural gas local distribution companies (LDCs) with guidance on upgrading and replacing their aging and deteriorating pipelines. All three of the LDCs — Atmos Energy, Black Hills Energy, and Kansas Gas Service — had petitioned for rehearing.

The commission had issued its directive after two years of study, which the commission said it had been inspired to undertake following the devastation and loss of life that occurred in the aftermath of a pipeline rupture in San Bruno, California, in 2010. Observing that the California Public Utilities Commission had identified flawed recordkeeping, lax inspection and repair practices, and deteriorating pipeline materials as primary factors in the explosion, the Kansas commission said that it wanted to avoid a similar event in Kansas. The commission thus reviewed the LDCs’ existing pipeline improvement plans, all of which were deemed to be deficient in one way or another.

Acting on those findings, the commission instructed the companies to accelerate their current schedules for upgrading and replacing their unprotected bare steel mains, unprotected bare steel service/yard lines, and cast iron mains, all of which the commission found to be especially susceptible to leaking and corrosion. In expounding on why it had found the LDC’s individual plans to be lacking, the commission stated that none of their programs assured sufficient oversight over their replacement efforts.

The commission further determined that shareholder interests were being placed above customer interests. That is, the commission said, too much of the expense of the replacement projects was being allocated to ratepayers without enough of a guaranteed increase in public safety to warrant the expense. But, the commission stated, one of the biggest problems it had with the companies’ present infrastructure replacement plans was that their associated timelines reflected more of a reactive posture than a proactive one.

The commission told the companies that it simply could not countenance an approach by which they waited until a pipeline segment was on the brink of failure – i.e., disaster — before the LDC began taking action. The commission added that it was unsympathetic to the claims by Atmos and Black Hills that they had inherited obsolete pipelines and badly corroding system components when they acquired the facilities from their prior LDC owners. The commission admonished the two companies for even raising such an issue as a defense for their failure to implement a truly accelerated infrastructure replacement program.

According to the commission, both LDCs are “sophisticated public utilities” that were fully aware of the condition of their respective pipelines when they purchased them. As such, the commission said, it was particularly incumbent on them to use their expertise to begin bringing those systems up-to-date. In upholding its September ruling, the commission held that its underlying findings remained well-reasoned and supported by the record. Moreover, it said, there was compelling evidence that public safety demanded that all three LDCs be directed to work diligently to prioritize and significantly accelerate replacements of those sections of their pipelines deemed to be most urgently in need of attention due to a likelihood of impending failure.

From the commission’s perspective, the requirements imposed on the three companies in the September order cannot be considered onerous from either an operational or financial viewpoint. The commission said that that conclusion was premised on two particular factors:

• (1) the companies are already obligated to maintain their systems to assure safe and adequate service, and
• (2) in recognition of the cost burden incurred with the accelerated work, the commission had instituted a new accelerated replacement program (ARP) through which to assist the LDCs in funding the required work.

The commission reiterated that the availability of the ARP would help insulate the companies against any revenue erosion that might occur coincident with their replacement programs, and it rejected the notion that the 40-cent cap it placed on the ARP charge was insufficient to fund the required fast-tracked replacements. The commission told the LDCs that public safety was its overarching concern and that it thus was imperative that they hasten the pace with which they replace and upgrade their obsolete facilities. Re Acceleration of Replacement of Natural Gas Pipelines, Docket No. 15-GIMG-343- GIG, Oct. 26, 2017 (Kan.C.C.).