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Push for rapid gas utility modernization may slow, sector expert says


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Push for rapid gas utility modernization may slow, sector expert says

The push for rapid system modernization at natural gas utilities may be slowing as regulators try to strike a balance between customer costs and the need for infrastructure investments, a utility-focused consultant said.

Utilities have spent heavily in recent years on upgrading their systems, tackling challenges ranging from aging cast iron and bare steel pipes to deploying smart meters to better manage usage. These investments give utilities a higher base on which to earn their rates of return.

Regulators have increasingly allowed utilities to recover these costs more quickly — through so-called trackers or rider fees — to allow pressing work to happen faster. But Russell Feingold, vice president of the consulting group Black and Veatch, told attendees at the American Gas Association Financial Forum that regulators in some jurisdictions may be ready to slow down some of the accelerated investments.

"One of the issues that comes up is the magnitude and pace of infrastructure replacement," Feingold said May 21 at the event in Fort Lauderdale, Fla. "I think with these trackers or infrastructure riders that have been in place for a number of years now in some jurisdictions, the question that commissions and, perhaps more importantly, consumer advocates are arguing [over] is: How far do we have to go before the system is modernized to the point where it is operating in a safe, reliable and cost-efficient way? ... How much is enough?"

Long-term programs that add fees to customer bills may create "rate fatigue," according to Feingold, who has participated in utility rate proceedings. To protect ratepayers, regulators are asking for more granularity and clarity on what investments are necessary at this stage, he said.

"The commission at first might have gone very fast, and then when they start seeing other cost increases come about, they might decide to slow things down a bit," Feingold said.

Utilities in some jurisdictions have faced pushback for continuing to invest in modernization at the same rate they have been in recent years, and regulators have not always authorized the full extent of new requests to fund upgrade programs.

For some utilities, the accelerated infrastructure replacement programs — and the steady rate base boost they have provided — are coming to their natural close as companies finish up with projects that have been ongoing for years, Feingold noted. The past several years were an "opportune time" to have taken on high-cost projects, since low gas prices kept the commodity part of customer bills down, offsetting the uptick in other charges related to modernization work, he said.