Who Pays for Safety? Who Should?

November 19 , 2015

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American Gas Association

• Founded in 1918, represents more than 200 local energy companies that deliver clean natural gas to more than 177 million Americans nationwide.

• Members deliver 94% of the natural gas in the US.

• Today, natural gas meets more than one-fourth of the United States’ energy needs.

Who Pays for Federal and State Oversight of Pipeline Safety?

PHMSA User Fees• Fund PHMSA and state pipeline safety

programs. Note: Some states also charge user fees to help fund state pipeline safety programs.

• Assessed on hazardous liquid, LNG facilities, and natural gas transmission pipelines.

• Natural gas user fees are intended to be paid for by the natural gas customer. • Part of the transportation cost paid by

distribution companies• Costs are part of the bill paid by

customers 4

How do transmission and distribution operators pay for pipeline safety projects?

Process by which a pipeline operator, its customers, and the operator’s regulatory body determine a fair price for the pipeline’s services. This includes pipeline safety programs, infrastructure repair and replacement, and other expenses.

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Ratemaking

Ratemaking

• Three areas that determine the rate an operator can charge• Rate base: Amount of $$ operators have invested

in the facilities and equipment – Land, buildings, pipe, valves, tools, trucks, etc.

• Expenses: Include labor to perform operating and maintenance activities, taxes, depreciation, and general costs such as leases and overhead.

• Rate of return: Cover the cost of capital investment, including a fair return for investors.

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Setting Rates: Natural Gas Transmission

Interstate transmission operators: • Do not own the natural gas they transport• Paid regulated rate by the customer for

transport service• FERC regulates the rates, terms & conditions of

service • Must be “just and reasonable” and not unduly

discriminatory • Rates include pipeline safety costs & PHMSA

user fees

Intrastate transmission: Rates regulated by state

Setting Rates: Distribution Pipelines• Distribute purchased gas to customers within a set

geographic area. Utilities pass on the cost of gas directly to customers and do not earn on the commodity. There can be incentives for less gas usages.

• Customers pay a fee for gas distribution service – fee may include a fixed monthly amount as well as an amount based on actual usage of the commodity.

This fee includes pipeline safety costs.

• State public utility commissions regulate rates, terms, and conditions of the distribution service fee and ensure utilities operate in the public interest. For example, they may:• Prohibit utilities from turning off residential customer’s gas service

for nonpayment during cold weather• Ask for expanded safety programs• Require utilities to offer energy conservation programs

• Reviews all utility expenses and proposed expenses, including pipe replacement, cost of safety programs, and operations and maintenance expenses.

• Disallows all expenses it determines to be improper, imprudent, or unnecessary. This can include the rate that pipelines are replaced.

• Reviews the amount utility stockholders have invested in utility plant and other facilities and allows a reasonable ROI necessary to provide good service.

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Role of State Commissioners in Intrastate Transmission & Distribution Rates

So Who Pays For Pipeline Safety?We all do

Christina SamesVice President Operations and Engineeringcsames@aga.org.

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