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Press Release

PUC Publishes Staff Report on PGW Pipeline Replacement Program

Published on 4/21/2015

Filed under: Gas

HARRISBURG – The Pennsylvania Public Utility Commission (PUC) today published a staff report that presents seven specific opportunities to accelerate the replacement schedule of Philadelphia Gas Works’ (PGW) aging pipeline infrastructure.

“We are all interested in public safety and minimizing the hazards associated with older, at-risk natural gas distribution pipelines in Philadelphia – many of which are not scheduled to be replaced for decades,” said PUC Chairman Robert F. Powelson. “Commission staff was tasked with reviewing PGW’s pipeline replacement program and identifying opportunities to accelerate its timetable, while mitigating the financial impact on customers. The staff has produced a well thought-out and insightful document.”

The report culminates a comprehensive review and analysis, initiated in January of this year, and that is a result of a PUC-hosted en banc hearing on PGW’s pipeline replacement program held on Nov. 14, 2014. The staff report identifies seven opportunities that PGW should consider in order to accelerate the rate in which its at-risk pipe is being replaced:

  • Increase its Distribution System Improvement Charge (DSIC) above the current 5-percent cap.
    Through a potential PUC waiver of provisions of the Public Utility Code, this would allow PGW to secure additional revenues to fund more infrastructure improvements.
  • Annualize DSIC-eligible costs.
    Rather than adjusting DSIC rates quarterly, which currently results in significant rate fluctuations, PGW could petition the PUC to levelize and annualize its DSIC cost recovery.
  • Issue new debt.
    PGW should explore issuing new debt to invest in additional infrastructure improvements.
  • Improve cash management.
    PGW should consider reducing its cash liquidity from $100 million to $75 million, thus freeing up additional funds for pipeline replacement.
  • Request that the City of Philadelphia waive some or all of its annual $18-million payment.
    The City could waive all or a portion of the annual $18-million payment it receives from PGW, as it has done in the past. These funds could be reinvested to further enhance the existing pipeline replacement program.
  • Streamline its corporate governance structure.
    PGW has an overall governance structure that includes the PUC, the Mayor of Philadelphia, Philadelphia City Council, the Philadelphia City Controller, the Philadelphia Gas Commission and the Philadelphia Facilities Management Corporation. Reducing the number of governing entities could reduce expenses and create additional financial and management efficiencies.
  • Consolidate its facilities.
    PGW should consider consolidating its warehouses, meter shops, field services and fleet operations to create additional efficiencies and cost savings.

Based on PGW’s 2014 replacement rate, and assuming that annual rate continued into the future, it would take 66 years to replace all at-risk pipelines in its distribution system, including both cast iron and steel. Each of the seven opportunities presented in the PUC staff report could potentially trim the pipeline replacement time frame by anywhere from a few months to 30 years.

According to 2013 public records, about two-thirds of PGW’s pipelines (1,994 miles) are considered “at risk” and are in need of replacement. PGW has the highest percentage of at-risk pipe of any Pennsylvania natural gas utility – by at least a factor of two.

“We commend PGW for its cooperation throughout this process and for providing the necessary information to conduct our staff review,” said Chairman Powelson. “However, we strongly urge PGW to closely review and carefully consider pursuing these opportunities, as they continue to work with us to increase safety and protect the citizens living and working in Philadelphia.”

The Commission was given jurisdiction over PGW in 2000 to set rates and oversee safety and customer-service standards. To monitor PGW’s compliance with its obligation to provide safe, adequate and reasonable utility service to consumers, the Commission enforces federal pipeline safety regulations regarding the design, operation, inspection, replacement and maintenance of pipeline facilities in order to protect people and the environment.

PGW serves approximately 479,000 residential and 25,600 commercial and industrial customers within the city of Philadelphia.

The Pennsylvania Public Utility Commission balances the needs of consumers and utilities; ensures safe and reliable utility service at reasonable rates; protects the public interest; educates consumers to make independent and informed utility choices; furthers economic development; and fosters new technologies and competitive markets in an environmentally sound manner.

For recent news releases and video of select Commission proceedings or more information about the PUC, visit our website at Follow the PUC on Twitter – @PA_PUC for all things utility.  “Like” PAPowerSwitch on Facebook for easy access to information on electric shopping.

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