Corrosion was a major cause of pipeline leaks for gas utilities in 2017, according to an S&P Global Market Intelligence analysis of federal leak repair data, underscoring the importance of replacing older pipes.
Looking at gas utilities with at least 5,000 miles of distribution main and service lines, the 10 companies with the highest ratios of repaired leaks to miles of pipe had distribution and service systems that were on average 8.4% iron, 8.8% bare steel without cathodic protection and 3.8% coated steel without cathodic protection, according to figures from the U.S. Pipeline and Hazardous Materials Safety Administration.
Cathodic protection on pipelines uses direct current to combat the electrochemical process that corrodes steel pipe material. The 10 utilities with the lowest leak ratios had no or little unprotected steel and iron.
"Even though the amount of cast iron pipelines is declining, there have been a number of recent incidents caused by cast iron gas distribution main failures, resurging attention to the risks associated with cast and wrought iron pipelines," PHMSA noted on its website, pointing to a gas fire in New York earlier in 2018, among other incidents.
Bay State Gas Co., which does business as Columbia Gas of Massachusetts, sustained a series of explosions and fires on its distribution infrastructure Sept. 13. The company has been working to replace its aging gas system in recent years, and federal investigators have said both new and old pipe — hundred-year-old cast iron and recently installed plastic — were present in the vicinity of the overpressurization on the lines. One person died and many others were injured as fires and explosions spread across more than 60 locations in three Massachusetts communities.
The NiSource Inc. subsidiary has in recent years reduced the proportion of its system that is made from aging components. In 2013, about 20% of Columbia Gas of Massachusetts' gas mains and service lines were made of leak-prone materials, but by 2017, that figure had fallen to 13.75%. In that time, the company saw its leak repairs fall from 4,125 to 2,691, or 0.31 repair per mile in 2017, down from about 0.5 in 2013. The proportion of corrosion-related leaks the company has repaired annually over the five years increased, up from 21.45% in 2013 to 35.15% in 2017.
The 10 companies with the highest repaired-leak ratios had an average of about 30% of their leaks derive from corrosion in 2017. This compares to about 10% at the 10 companies with the fewest leaks repaired per mile, the data showed.
Equipment-related leaks were also more common among the companies with higher ratios of leaks per mile repaired, causing an average of more than 20% of these utilities' leaks in 2017. Among the companies with lower leak repair ratios, equipment-related issues caused about 13.2% of the leaks on average, according to the data.
Excavation damage is one of the leading causes of incidents nationally, causing roughly 30% of the incidents on gas distribution pipeline systems in 2017, and it was often one of the leading leak causes for companies with more modern systems and with fewer leaks repaired, according to the S&P Global Market Intelligence analysis.
Utilities in recent years have pursued extensive pipe replacement projects to minimize the mileage of leak-prone pipe in their systems. According to the American Gas Association, the nation's gas utilities spend more than $20 billion annually on safety improvements for their distribution and transmission systems.
Consolidated Edison Co. of New York Inc., which in 2017 had the highest repaired-leaks-per-mile ratio for the fourth consecutive year, has been spending heavily to replace its aging system. Over 2015-2017, ConEd spent $123.8 million, $154.1 million and $294.9 million to replace 75, 79 and 86 miles of main, respectively, according to company spokesman Allan Drury.
In 2014, more than 22% of ConEd's distribution main and service materials were made of steel without cathodic protection and over 15% were iron. By 2017, those proportions were down to just under 20% and to about 13.6%, respectively.
Safety spending, which regulators have supported through accelerated cost recovery treatment in rates, has helped companies boost their rate bases. The rate base, or the value of a company's assets, is what a utility's rate of return applies to, so the value of the rate base affects a utility's earnings potential. Investing in system upgrades, therefore, can contribute to higher utility earnings.
"One of the things that's really driving earnings for many of these companies ... is not as much the growth in use of natural gas but ... pipe replacement and modernization," Ryan Kelley, natural gas portfolio manager at Hennessy Funds, said in an interview. "That has been a major earnings driver. It's in all of their five-year projections, whatever company you're talking about ... and it's part of the investment thesis in the industry, as well."
When CenterPoint Energy Inc. in April announced its planned $8.5 billion acquisition of Vectren Corp., CenterPoint executives emphasized the potential for regulated asset growth, including through system upgrade work. At the time, the companies said the Indiana-based Vectren had plans to spend $6.5 billion on its utilities through 2027, with the largest portion of that being a $3.8 billion investment to upgrade the gas distribution system and replace aging pipelines.
Vectren has been among the 10 utilities with the highest leak repair ratios since 2014, holding sixth place in both 2017 and 2016.