| National Grid's Brooklyn subsidiary once again ranked among the top 20 US gas utilities most actively addressing pipeline leaks. It also operates in one of the states where regulators are scrutinizing investments in the gas grid. Source: S&P Global Commodity Insights. |
Pipeline leak repair activity by US gas utility operators dipped slightly in 2022, remaining roughly consistent with the long-term trend, despite growing scrutiny of pipeline betterment programs as some regulators seek to align utility spending with state climate goals.
Natural gas utilities with at least 5,000 miles of distribution mains and service lines reported 453,027 pipeline leak repairs in 2022, down 2.8% from the prior year. In 2021, leak repairs rebounded as companies ramped up work and deployed new strategies, with some seeking to exceed federal safety requirements and leverage pipeline betterment programs to achieve emissions reduction targets.
The 2022 data, compiled by S&P Global Market Intelligence in fall 2023, offers a snapshot of leak repair activity at time of transition.
Beginning in 2020, public utility commissions began launching proceedings to scrutinize gas system planning and infrastructure investments in light of state-level climate goals. In some cases, regulators have directed gas utilities to consider strategic retirements and nonpipe alternatives — such as building electrification and demand response — in lieu of repair or replacement.
That marked a shift from the prior decade, when a sharpened focus on pipeline safety following several catastrophic incidents bolstered regulators' support for accelerated infrastructure replacement programs.
Environmentalists and consumer advocates have lately criticized these programs for encouraging overspending. The industry argues that the programs have improved distribution system safety and contributed to a 69% decline in gas grid emissions since 1990, according to the American Gas Association.
At least 11 states and Washington, DC, have launched "future of gas" proceedings. Those include California, Colorado, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island and Washington, according to tracking by the Building Decarbonization Coalition and S&P Global Commodity Insights.
In a series of recent adverse rate case decisions for gas utilities, the Illinois Commerce Commission recently ordered the state's gas utilities to participate in a future of gas proceeding.
Uncertain impact of future of gas proceedings
In California, home to one of the most advanced future of gas proceedings, Southern California Gas Co. reported an 8.7% year-over-year increase in leak repairs and a higher leak repair ratio, while Pacific Gas and Electric Co. posted a 12.9% decrease and a lower ratio.
The industrywide decline in leak repair activity in 2022 did not appear to signal a strong trend to the downside. Out of the top 25 companies most actively fixing leaks, 12 fixed fewer in 2022 than they did in the previous year. Among the 25 comparable companies that fixed the most leaks on an absolute basis, 17 saw a year-over-year decline in activity.
To determine which companies most actively repaired leaks, Market Intelligence calculated a leak repair ratio for each company. The ratio measured a company's total leak repairs against its total distribution main and service line mileage, as reported to the US Pipeline and Hazardous Materials Safety Administration.
Industry leak repairs in line with past years
Some companies that ramped up pipeline leak repairs in 2021 moderated their activity in 2022.
Southern Co. subsidiaries Northern Illinois Gas Co., which does business as Nicor Gas, and Virginia Natural Gas Inc. decreased leak repair work 17% and 23.6%, respectively, in 2022, after posting higher year-over-year increases in 2021 of 29.6% and 28.2%. Both remained in the top 10 after steadily climbing the rankings in recent years.
The 24 utilities that individually repaired more than 5,000 leaks accounted for a combined 74% of repairs, roughly in line with the previous year, the Market Intelligence analysis found. As in past years, the group most active in repairing leaks consisted mostly of utilities that operate older systems with leak-prone bare-steel and cast-iron pipes, while the least active companies typically operate modern gas grids largely composed of plastic pipes.
Throughout much of the industry, pipeline replacement remains a major component of gas utility capital expenditure.
Among 46 utilities, planned capital spending in the gas sector rose to $68.7 billion for the forecast 2023–2025 period as of December 2023, compared to the roughly $60 billion of planned capex for the 2021–2023 period at the start of 2021, according to data tracked by Regulatory Research Associates, a group within S&P Global Commodity Insights.
However, gas capital spending as a percentage of total planned capex for the utility group has fallen to under 16% from 19%. That implies that despite its expansion, gas utility capex is not keeping pace with investment in electric generation, transmission and distribution, said Lillian Federico, energy research director at RRA.
Questions over future investment
Comparing 2023–2025 forecast data gathered in October 2022 to the same data gathered in December 2023 illustrates another trend: Estimated gas capex fell to $68.7 billion in December 2023 from $71.8 billion in October 2022.
"While we cannot definitively say that stakeholder and regulator pushback on gas infrastructure plans and efforts to restrict the use of gas for heating and cooking is driving this trend, it makes intuitive sense," Federico said. "Nevertheless, this trend is counterintuitive, given the costs associated with compliance with more stringent federal safety regulations."
Leak repair remains a priority among policymakers, including climate-minded legislators. In 2020, Congressional Democrats successfully pushed for new federal rules requiring distribution system operators to conduct leak repair programs and use advanced detection technologies.
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Yet Federico saw signs of this dynamic bleeding into recent rate cases. In Washington Gas Light Co.'s recently concluded rate case, the Maryland Public Service Commission reverted to using a valuation for reliability-related new plant investment that is typically considered less constructive.
"These types of shifts in ratemaking policy are bound to influence the amount of capital companies are willing to commit to gas infrastructure investment," Federico said.
Still, the PSC declined to consider issues raised by the state's consumer advocate about the effectiveness of Washington Gas's accelerated pipeline replacement program, saying those issues are more better suited for the commission's future of gas proceeding.
Future of gas proceeding policies take shape
More advanced proceedings have offered stakeholders in states such as Maryland a glimpse of potential outcomes.
A year ago, California Public Utilities Commission staff proposed a plan to begin decommissioning the state's gas grid. Utility regulators in New York and Colorado have directed gas utilities to propose nonpipe alternatives.
Reviving its long-dormant future of gas proceeding, the Massachusetts Department of Public Utilities recently signaled that gas utilities will have to prioritize building electrification, demand-side gas reductions and networked geothermal districts over blending low-carbon fuels into the grid.
In New Jersey, regulators recently extended Public Service Electric and Gas Co.'s current pipeline replacement program, rather than approving an expanded third phase. Commissioners cited policy uncertainty raised by their recently initiated future of gas proceeding.
In Illinois, the state's decade-old pipeline replacement framework, the Qualifying Infrastructure Plant, will expire Dec. 31. Moving forward, the Illinois Commerce Commission will scrutinize this spending during rate cases, just as it launches its future of gas proceeding.
"This process will force gas utilities to plan for a different gas spending landscape in light of the changing energy and affordability landscape," the Natural Resources Defense Council said in a Dec. 8 blog post.
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