Pa. utilities seek rate increases to fund improvements

Posted: January 22, 2013

Pennsylvania utilities are queuing up to tap into a new method to raise rates to generate funds for infrastructure improvements.

The new funding mechanism, approved by the legislature last year, allows utilities to add a surcharge to bills to replace aging gas mains and power lines.

Philadelphia Gas Works on Friday became the first gas utility in the state to file for the "distribution system improvement charge," or DSIC. PPL Electric Utilities in Allentown last week was the first electric company to request the surcharge, which the Pennsylvania Public Utility Commission is expected to act on in three or four months.

Utilities have been pushing for the funding surcharge for several years, but the legislation got a boost after fatal natural gas explosions in Allentown and Philadelphia underscored the need to upgrade aging energy distribution systems. Investor-owned water utilities have had the DSIC scheme since the 1990s.

"This improves safety and reliability at a cost which for PGW customers is lower than they would pay under the traditional funding that we had to rely on," said Steven P. Hershey, PGW's vice president of regulatory and external affairs.

The DSIC, which utility insiders pronounce "disc," was championed by utilities that wanted an easier way to pay for capital projects without the hassle of a protracted rate proceeding.

The law, which was approved unanimously by the legislature and signed last February by Gov. Corbett, limits the surcharge to 5 percent of the nonfuel portion of a customer's bill.

PPL's plan is expected to add on less than two-tenths of one percent, or 7 cents on a typical monthly residential bill for 1,000 kilowatt-hours of usage.

PGW's surcharge, which would generate about $22 million a year, would add about $3 a month to a typical residential customer's bill, Hershey said. Low-income customers who are enrolled in a plan that links their payments to their income would not be affected.

PGW's long-term infrastructure improvement plan, filed in December with the PUC, calls for ramping up the current pace of replacing 18 miles of cast-iron distribution lines each year.

The surcharge would allow PGW to increase the pace to 25 miles a year. The added mileage would target larger high-capacity gas mains.

The 176-year-old utility has the largest amount of cast-iron mains in the state. Of PGW's 3,000 miles of gas mains, more than 250 miles were installed before 1900. Current standards call for pipe made of polyethylene, a high-density plastic, or coated steel, which resists corrosion.

"The more cast iron we can get out of the ground, the more reliable the system can be," said Douglas A. Moser, senior vice president of gas management products.

In a typical rate case, a utility will borrow funds to pay for improvements and then seek to recover the money through a rate increase.

"That costs millions of dollars, many months, a lot of delays," one of the bill's sponsors, State Sen. Robert M. Tomlinson (R., Bucks), said last year.

Hershey said a major advantage of the new funding method is that PGW can pay for the improvements out of the cash flow generated by the rate increase, reducing the utility's interest expense.

"Now we won't need to borrow to do this work," he said. "We'll be allowed to begin recovering the costs pretty much simultaneously with putting the new mains in service."


Contact Andrew Maykuth at 215-854-2947, @Maykuth on Twitter or amaykuth@phillynews.com.

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