NumberTG-323
DateJuly 31, 2017
Mail Log Nos.215738, 215998
To:W. Kevin Hughes, Chairman
Harold D. Williams, Commissioner
Michael T. Richard, Commissioner
Anthony J. O’Donnell, Commissioner
FROM:Anthony Myers, Executive Director
RE:Pivotal Utility Holdings, Inc. d/b/a Elkton Gas requests approval of its Gas Service Tariff to provide for the installation of Excess Flow Valves.
Description of Application:
Pivotal Utility Holdings, Inc. d/b/a Elkton Gas (“Elkton” or the “Company”) has filed for approval of tariff revisions to provide for the installation of excess flow valves (“EFVs”).
Groups which should receive copy of Staff Recommendation:
Pivotal Utility Holdings, Inc. d/b/a Elkton Gas
Maryland’s Office of People’s Counsel
Recommended Action (Including Conditions):
Staff recommends the Commission accept the tariff for filing and direct the Company to file “clean copies” with an effective date of August 9, 2017.
______
Juan C. Alvarado, DirectorLeslie M. Romine
Telecommunications,Gas and Water DivisionStaff Counsel
______
Jamie Smith, DirectorJohn Borkoski
Accounting DivisionChief Engineer
Commission Action on______:
Approved______Disapproved______Accept for Filing______
Comments of the Telecommunications,Gas and Water Division (TG-323)
Mail Log Nos. 215738, 215998
July 31, 2017
Page 1
Description of Proposed Tariff
Elkton filed (ML # 215738)tariff revisions to provide for the installation of EFVs in compliance with changes adopted by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”).
Applicable Law
Under Section 4-202 of the Public Utilities Article, a public service company is required to file a tariff schedule with the Commission of its rates and charges for regulated services and for standard offer service.
Analysis
Engineering Division
Excess flow valves are safety devices that are designed to restrict the flow of gas through the service line when the service line is severely damaged. Excess flow valves are spring loaded check valves (See Attachment 1). The valve seat is held open by a spring. In the event of a rupture, disconnection, or line break, the pressure will drop, the flow will surge exceeding the spring load limit, and the valve will close. The excess flow valve is installed as close as practical to the service line’s connection to the gas main. This is done to ensure that the excess flow valve is protecting as much of the service line as possible. Excess flow valves are currently required by Federal gas pipeline safety regulations (49 CFR § 192.383) to be installed on any new or renewed single family residence service line that operates continuously throughout the year at a pressure not less than 10 p.s.i. gage. This requirement has been in place since February 12, 2010.
As of April 14, 2017, the Federal gas pipeline safety regulations also require the installation of excess flow valves on new and renewed branch service lines serving single family residences, multifamily residences, and small commercial entities consuming gas volumes not exceeding 1,000 Standard Cubic Feet per Hour (“SCFH”). PHMSA also amended Part 192 to require the use of either manual service line shut-off valves (e.g., curb valves) or EFV’s, if appropriate, for new or replaced service lines exceeding 1,000 SCFH. Lastly, Part 192 requires operators to notify customers of their right to request installation of an excess flow valve on service lines that are not newly installed or replaced. PHMSA has left the question of who bears the cost of installing excess flow valves on service lines not being newly installed or replaced to the operator’s rate setter.
Elkton Gas is planning on also offering to its customers, who are not eligible for an EFV, a curb stop in the same manner as it is doing with EFV's. The Company will charge the customer for the installation of the curb stop but will exclude the cost of the curb stop itself. The installation of the curb stop in this manner is not a requirement of the Federal pipeline safety regulations. The Company has taken it upon themselves to provide this additional service.
Telecommunications, Gas, and Water Division
As described above, the Commission is faced with the question of who bears the cost of EFV installations on service lines that are not new or repaired. As stated in the section-by-section analysis of the associatedNotice of Proposed Rule Making[1], PHMSA noted “it has no jurisdiction concerning natural gas rates or any costs incurred due to installation of an optional EFV at a consumer’s request” and, therefore, left this decision for the Company’s rate setting agency.
The Company informed Staff that it has approximately 3,000 service lines that may be eligible for an EFV installation in its service territory. As of December 31, 2016, 2,124 of the Company’s total 5,194 service lines have EFVs installed.
Due to the additional labor, excavation, and material costs, the cost of installing an EFV on an existing line at a customer’s request is more expensive than the costs for installing an EFV on a new or replaced line. In response to Staff inquiries, the Company provided estimated EFV installation costs for new or replaced service lines and for customer requested installations. The Company stated that the incremental cost of installing an EFV on a repair or new lines is $20. The Company provided an estimated cost between $1,400 and $3,700, depending on site conditions, for a customer requestedEFV installation on an existing line.
In the Supplementary Information included as part of the Final Rule of Docket No. PHMSA-2011-0009, PHMSA “determined it was not cost-effective to require the fitting of an EFV on all existing services”. It is Staff’s position thatincluding the entire cost of each requested EFV installations in base rates is not an appropriate way to recover costs. Using the Company’s estimates, installing EFVs for all qualifying customers separate from repairs could costbetween$4.2 and $11.1 million, which would go into base rates.[2]
PHMSA stated that although it “determined that [although] mandatory installation on all existing lines would not be cost-effective due to excavation and labor costs, some individual households might have a high willingness-to-pay for EFVs due to differences in risk aversion, rate of time preference, and other factors.”
Since a qualifying customer with a new or repaired service line will receive an EFV at no cost, Staff recommends that a customer requesting an EFV on an existing line should be responsible for the incremental costs above the material costs of the valve. This would maintain the price signal since the incremental costs would still be significant. However, it will maintain equity between customers since the costs of materials associated with anEFV installation for a new or repaired service line are recovered through rates. Therefore, the material costs of the EFV associated with requested EFV installations should also be recovered through rates.The Commission has previously accepted this methodology in filings made by Columbia Gas of Maryland, Inc.;Baltimore Gas and ElectricCompany; and UGI Central Penn Gas, Inc.[3]
Through its original filing, the Company had proposed that a requesting customer would be responsible for the entirety of the EFV installation and material cost. The Company has filed revisions (ML #215998) reflecting Staff’s recommendation that a requesting customer would be responsible for the incremental cost above the material EFV cost. Additionally, the Company has proposed including provisions for the installation of a curb stop in a similar manner as described above. The Company informed Staff that curb stops are used for commercial and industrial customers. The material costs of these valves range from $70 to $760 and would be associated with the costs of that service line when considered in a cost of service study. Customers requesting a curb stop will be responsible for the costs above the material cost. Since these costs are associated with specific lines and will be allocated to those customer classes it is appropriate to apply the same cost recovery method as a customer requesting an EFV.
The Company provided Staff with its customer communications documents related to EFVs.The Company’s customer communications include notices and an interest form on its website, call center/field talking points, and a bill insert. The Company’s bill insert is included as Attachment 2.
The Company has informed Staff that it began providing notice in compliance with the April 14, 2017 effective date of the PHMSA Rule. The Company has not received an EFV request since that effective date.
Accounting Investigations Division
Accounting Staff has reviewed the Company’s filing. A customer who requests an EFV to be installed is required to make a payment in the form of a contribution in aid of construction (“CIAC”). The CIAC payment will reduce rate base for the amount of the installation in excess of the cost of the EFV.
Recommendation
Staff recommends the Commission accept the tariff for filing and direct the Company to file “clean copies” with an effective date of August 9, 2017.
______
John Clementson, Assistant Chief Engineer
Engineering Division
______Felix Patterson, Public Utility Auditor
Accounting Investigations Division
______
Jennifer Ward, Regulatory Economist
Telecommunications, Gas, and Water
cc:H. Robert Erwin Jr.,GeneralCounsel
David J. Collins, Executive Secretary
Terry J. Romine, Chief Public Utility Law Judge
Obi Linton, Director, Office of External Relations
Tori Leonard, Communications Director
ATTACHMENT 1
ATTACHMENT 2
[1]Docket No. PHMSA-2011-0009. 49 CFR Part 192, Notice of Proposed Rule MakingPipeline Safety: Expanding the Use of Excess Flow Valves in Gas Distribution Systems to Appliances Other Than Single-Family Residences.
[2] This calculation uses the estimated 3,000 qualified service lines and an estimated cost between $1,400 and $3,700.
[3] Respectively, Mail Log # 214546, 213422, and 215564.