American Gas Association Managing the Reduction of the Nation s Cast Iron Inventory

Transcription

1 American Gas Association Managing the Reduction of the Nation s Cast Iron Inventory 2013 The American Gas Association (AGA) advocates for natural gas utility companies and their customers, while providing a broad range of programs and services for member natural gas pipelines, marketers, gatherers, international natural gas companies and industry associates. AGA promotes growth in the efficient use of natural gas on behalf of natural gas utilities and the customers they serve. By emphasizing the attributes of natural gas as a clean, domestically abundant, efficient and secure energy source, AGA s diverse audiences recognize natural gas is part of the solution to achieving the nation s environmental, economic and energy efficiency goals. Executive Summary The AGA Board of Directors has designated Pipeline Safety as the number one priority of its member companies. It encompasses the repair, replacement and reconditioning of pipelines and related facilities and is a primary focus of natural gas utilities as they maintain safe and reliable operations. In Section 7 of the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, Congress directed the Secretary of Transportation to develop a report on the national cast iron inventory and the progress being made by owners and operators in implementing management and replacement plans for that inventory. This paper creates a foundation for framing the discussion of cast iron main in natural gas distribution systems nationwide. The following key points are offered for consideration: Cast iron distribution main is one of several legacy assets that have long been recognized as warranting attention in terms of management, replacement and/or reconditioning. The industry has recognized this and has been actively managing cast iron, eliminating a large percentage of the national inventory, and thereby driving down the number of cast iron-related incidents. Since 2011, this risk management process has been formalized at the national level under PHMSA s Distribution Integrity Management Program (DIMP) regulations. Each operator s DIMP plan is audited by their state regulator (or PHMSA) to ensure that risk mitigation is optimized, accounting for asset conditions, system size, operating environment and customer base. Operators are supportive of accelerating risk reduction, but doing so will take both time and resources. It is incumbent upon operators and their state regulators to agree upon rate-making mechanisms that support accelerated reduction of cast iron risk in a timeframe and at a cost that will not unduly burden the operator, their consumers, or the communities they serve. The quantity of cast iron main nationwide has dropped from just under 63,000 miles to well under 34,000 miles of main since 1985, representing a 46% reduction over 28 years; while national distribution incident data shows a significant decline in the number of incidents on cast iron mains over the same period (Figure 3). This is indicative of industry s ongoing recognition of the inherent risks of cast iron pipe along with successful management and attrition programs. These have been further enhanced by risk-based DIMP plans.

2 PHMSA and state regulators are acutely aware of remaining cast iron risks, particularly with respect to breakage of pipe less than 24 diameter, and have acted appropriately. States have jurisdiction over all cast iron pipelines in the contiguous states, PHMSA having sole jurisdiction elsewhere. Replacement and reconditioning of a system remains a state-by-state and company-specific issue. PHMSA has encouraged operators and regulators to take measures to facilitate the reduction of cast iron pipe inventory and AGA has urged state regulators to adopt innovative rate cases that accelerate cast iron attrition. Many state-level stakeholders have supported the requested safety enhancements. Low natural gas prices currently present an opportunity for regulators to support upgrading the pipeline infrastructure without inflicting overly burdensome increases to utility bills. With respect to cast iron, AGA anticipates the cost to retire, replace or recondition all cast iron nationwide is upwards of $82 billion. The cost to customers will be more or less burdensome depending upon each operator s inventory, the size of the operator s customer base and regional construction costs. These variations are extraordinarily wide, ranging from under $600 to over $16,000 per customer. Operator experience in managing major capital improvement programs, supported by innovative rate making approaches, will help to speed the reduction of the cast iron inventory at optimal cost, but it will still take a number of years to eliminate all of the high risk cast iron because of the nature of the older, established and congested regions where these assets are concentrated and the disruptions and numerous other challenges that go along with replacement programs in such areas. 2

3 Table of Contents 1. INTRODUCTION...4 A. CHARACTERISTICS OF CAST IRON PIPE & THE HISTORY OF CAST IRON REPLACEMENT ACROSS THE U.S....4 B. THE CURRENT STATUS OF CAST IRON MAIN REMAINING IN THE U.S NATIONAL CAST IRON INVENTORY AND INCIDENT DATA...6 A. CAST IRON MILEAGE NATIONAL AGGREGATES...6 B. INCIDENT DATA - NATIONAL AGGREGATES CAST IRON RISK MANAGEMENT PROGRAMS...8 A. PARAMETERS USED TO ALLOCATE RISK...8 B. MANAGING RISK AND IDENTIFYING THREATS...8 i. Pipeline monitoring...9 ii. Accelerated Replacement Programs ECONOMIC AND REGULATORY CONSIDERATIONS...9 A. OPERATIONAL COSTS...10 B. LOGISTICAL ISSUES...11 C. INFRASTRUCTURE RATE RECOVERY MECHANISMS CONCLUSION

4 1. Introduction a. Characteristics of cast iron pipe and the history of cast iron replacement across the U.S. Natural gas is a clean and abundant domestic energy source that fuels America s way of life. Natural gas is delivered directly from its source to customers for residential, commercial and industrial use through an extensive 2.4 million mile pipeline system. Depending on the amount of natural gas being transported and the location of the pipeline, distribution systems vary in size, material type and pressure. The distribution infrastructure has been constructed over time using construction methods and materials available at the time - including cast iron, bare steel and copper. Today, most companies use only coated and cathodically protected steel and plastic. Each of the pipe materials has relative strengths and weaknesses; for example, plastic pipe does not corrode, while steel pipe is more damage resistant. This paper provides a summary of the historical installation of cast iron pipe in urban population centers during the first half of the 20 th century and ending in the 1950s. It explains the process by which operators have since worked to manage the risks and reduce the inventory of cast iron main. Cast iron main has the following issues: Compared to steel or plastic, it is relatively brittle. Smaller diameter cast iron pipe is many times more prone to breakage or cracking than large diameter cast iron. The vast majority of cracks and breaks in small cast iron can be handled as leak responses and only rarely result in serious consequences. Breakage of cast iron main larger than 12 in diameter is very infrequent, though due to the volume of gas carried, can have significant consequences. The preferred handling of small diameter cast iron is replacement. For pipes from in diameter, reconditioning using one of the modern lining techniques may be attractive. Cast iron greater than 24 in diameter is a small percentage of the overall inventory. It has very substantial wall thickness, and is highly resistant to failure, and therefore may not warrant reconditioning where free of joint leaks. Cast iron, like unprotected steel is susceptible to corrosion. In the case of cast iron, this process is known as graphitization. It is most frequently caused by stray currents from rail systems or by soil types that promote current flow. These issues are well known, and locations that have experienced graphitization have generally surfaced in the many decades since the last installation of cast iron main. Mains thus affected by graphitization have in most cases already been replaced. Individual operators factor graphitization into their integrity programs in accordance with their own experience, and for many it is a rare occurrence. Frost heave and subsequent thawing can put a bending stress on cast iron. Smaller diameter lines are most susceptible to cracking or breaking due to frost heave. Operators in northern climates with soils prone to frost heave also account for this in their integrity programs and may adjust their leak survey programs as well. Third party activities may also damage cast iron, either by direct impact or through undermining, or poor trenching and backfilling practices. The national 811 program and associated communications activities have had a substantial positive impact on this issue. For these reasons, cast iron, which is generally concentrated in certain older areas, has been identified as one of the higher risk materials; however, in some instances the risk associated with cast iron, depending on the unique system characteristics, may be lower than other areas of the system, e.g. those including bare steel or certain vintage plastics. Where graphitization has not been an issue, the remaining threats to cast iron are generally not time dependent. As a result, pipe age may be not be a concern. 4

5 Although operators and regulators are effectively managing remaining cast iron pipelines, it is desirable to accelerate the replacement of high risk systems with more modern materials and construction techniques to continue improving the overall safety of the nation s gas distribution system. Operators have developed substantial expertise in managing these systems and assess risks throughout their pipelines on an ongoing basis. As all risks are naturally competing for an operator s resources, each operator s DIMP plan is designed to continuously assess, prioritize and mitigate risks for optimal effectiveness. Under DIMP, which is audited by the jurisdictional regulators, operators track and trend the safety performance of various materials in their distribution systems and implement mitigation measures to address the highest risks. DIMP plans are often used as part of rate cases to state regulators and the public with an understanding of how operators plan to safely manage the pipeline system and to justify expenditures for long-term repair, replacement and reconditioning projects. b. The current status of remaining cast iron mains in the U.S. In 1970 PHMSA began collecting data about gas pipelines categorized by pipe material type. In 1985, gas distribution pipeline operators reported 62,908 miles of cast iron and 1,447 miles of wrought iron pipe, which differ in the type of joints used. Operators began submitting merged cast and wrought iron data to PHMSA beginning in For purposes of this paper, cast and wrought iron will be collectively referred to as cast iron. This paper therefore uses 1985 as a base year to allow meaningful trending. As of 2011, there was approximately 33,619 miles of buried cast and wrought iron main distributing natural gas in the United States. Much of this pipe continues to provide excellent service. However, cast iron mains can be susceptible to breaks, cracks, joint leaks, and occasionally, corrosion, which is why they may be placed in a higher risk category. Early distribution systems used cast and wrought iron to supply gas through both large and small diameter piping, typically in 12 foot long segments. Since these pipelines transported wet, manufactured gas, the joint packing material absorbed moisture and generally did not leak. As dry, natural gas began supplanting manufactured gas used in the mid-20th century, the packing material sealing the joints dried out, causing minor leaks. A variety of sealing techniques have been implemented over the years to re-seal the joints, and joint repair technology has been improving which has reduced leaks and increased the integrity of cast iron joints. Natural gas utilities are aware of the challenges of cast iron piping with respect to pipeline safety, and have been proactive in the reconditioning and replacement of their cast iron systems where necessary. The inventory of cast iron main nationwide has decreased by 46 percent since By the 1950 s, operators stopped installing cast iron as more advanced and cost-effective materials became available. In 1989, the U.S. Department of Transportation eliminated references for design and construction standards of cast iron, ductile iron, wrought iron and other materials from 49 CFR 192 and 195, thereby disallowing these materials for use in new construction. 1 Several industry documents have been published outlining procedures to determine serviceability of cast iron pipe such as AGA XL0702 Distribution Pipe: Repair and Replacement Decision Manual and the GPTC Guide for Gas Transmission and Distribution Piping; Appendix G ). Additionally, PHMSA released advisories ALN-91-02, ALN-92-02and ADB-1205 following the incident in Allentown, PA, which required operators to implement programs to analyze their cast iron pipeline and related factors such as age, existing graphitic damage, soil corrosiveness etc. 1 RSPA + USDOT - [Docket No. PS-95; Amdt and ] 5

6 2. National Cast Iron Inventory and Incident Data a. Cast iron mileage National aggregates PHMSA collects annual pipeline mileage data from operators categorized by pipeline type and size, and has done so since the 1970 s. The graphs and tables below show the aggregate mileage of cast iron and unprotected steel mains, from 1985 to the present day. The figures show that cast iron piping mileage has been reducing at a rate of miles/yr since 1985 and is continuing a downward trend. Mileage Reduction = -1.68% of total miles/yr or miles/yr Figure 1: Aggregate cast iron mileage from Cast iron reduction was occurring at a rate miles/yr during this period, or 1.68 percent of the total miles on an annualized basis. Spikes in 1994 and 1996 are data discrepancies in PHMSA reporting and/or collection. 6

7 Rate of cast iron reduction (of total cast iron) = -1.68%/yr Figure 2: Quantity of cast iron as a percent of total distribution mains mileage of all material types, including plastic. Overall cast iron makes up less than 3 percent of the total distribution mileage in 2011, and is decreasing annually. Spikes in 1994 and 1996 are data discrepancies in PHMSA reporting and/or collection. b. Incident data - National aggregates PHMSA also collects data from operators on incidents occurring on their gas distribution systems as defined by 49 CFR Incidents are categorized by pipeline type, size and other metrics. National cast iron incident data shows that the number of significant incidents on cast iron pipe has reduced from 22 in 1985 to 3 incidents in 2012, a difference of 86%. (Fig. 3). Figure 3: Total incidents vs. Cast iron incidents. 7

8 3. Cast Iron Risk Management Programs In late 2009, PHMSA promulgated pipeline safety regulations for managing the integrity of gas distribution pipelines through 49 CFR 192 Subpart P. Operators were required to create and implement DIMP plans by August Operators are required to know the specific characteristics of their systems and operating environment in order to identify threats, evaluate risks, measure performance, monitor results and take action to reduce the greatest risks. Based on service territory and in concurrence with state regulators, operators determine what steps to take to reduce risk, using system knowledge, experience and sound judgment. Operators also consider the cost to customers and disruption-to-service prior to replacement of pipeline. (Note: Since there is no cast iron transmission main, all cast iron in the U.S. is covered under DIMP.) It is understood by operators and regulators that cast iron systems are more susceptible to leakage, cracking, and potential incidents due to natural forces than modern pipeline materials such as plastic or steel which were installed more recently. Using risk ranking combined with replacement prioritization methodologies, the sections of pipe most susceptible to leakage and cracking can be identified and rectified, thereby helping to reduce the likelihood of incidents occurring on the system. After a risk analysis of a section of a system takes place, operators address a number of things when installing or replacing a segment of distribution piping, including: design, permitting, construction, inspection, testing, commissioning and site restoration. Each of these areas of focus vary in complexity and timeframe depending on geographical location, soil conditions, population density customer types and numbers, and numerous other factors. The completion of these tasks helps to ensure that the safety of the public is maintained and minimizes the impact to the environment and public infrastructure already in place. Today, only three percent of the entire national gas distribution pipeline system is composed of cast iron, and that is continuously being reduced as operators implement their integrity management programs. a. Parameters used to allocate risk Each operator s distribution pipeline systems vary in size, pressure, materials, population densities, geological conditions, and underground infrastructure among other things. The parameters operators use to allocate risk to specific pipelines are dependent on the understanding of each unique system and what methodology works best to identify sections of the system that require further examination. Cast iron and other pipe identified as high priority for repair, replacement or rehabilitation is taken into account holistically under the operator s integrity management program. This ensures proper direction of resources and funds to the highest priority sections of pipe. Replacement of a single material type should not be undertaken solely to reduce the amount of that material if it poses a lower relative risk than other material types, as that could have a negative impact on overall safety. b. Managing risk and identifying threats Identification of threats is vital to risk assessment. According to the DIMP rules, operators must consider the following categories of threats to each gas distribution pipeline: corrosion, natural forces, excavation damage, other outside force damage, material or weld/fusion failures, equipment failure, incorrect operations and other concerns that could threaten the integrity of its pipeline. An operator must consider reasonably available information to identify existing and potential threats. Sources of data could include, but are not limited to, incident and leak history, corrosion control records, continuing surveillance records, patrolling records, maintenance history, and excavation damage experience. 8

9 Operators maintain and monitor their systems using a variety of methodologies and at frequencies specified in 49 CFR 192 or at higher frequencies specified by the state or by the operator themselves. i. Pipeline monitoring Operators conduct leak surveys, including additional leak surveys during periods of sub-surface frost. Other techniques to monitor system performance include conducting winter patrols, having 811 one call centers in place so 3 rd party excavators can inform utilities of excavation, implementing operator qualification requirements, and managing and monitoring construction and excavation activities to determine if pipeline replacement can be done concurrently with public improvement projects. This eliminates the risk of cast iron pipe failure and future disruption to neighborhoods. Operators also educate emergency responders (such as local fire services) regarding their systems as part of a comprehensive pipeline safety program. ii. Accelerated Replacement Programs In April 2011, the Secretary of Transportation announced the Pipeline Safety Action Plan that called for pipeline operators to accelerate their efforts to replace pipeline facilities and take other actions to enhance the integrity of systems. This call to action by DOT set expectations for operators and state commissioners (NARUC) to work on replacement efforts expeditiously and also included a recommendation for timely cost recovery mechanisms to facilitate such efforts. These methods streamline the rate case approval process saving the operator, regulator, and consumer the substantial costs associated with a full rate case process. As of 2011, pipeline infrastructure replacement programs existed in nearly 30 states 2 and continue to increase. PHMSA continues to urge utility commissions to accelerate work on high-risk pipeline infrastructure such as certain vintage plastic pipe, mechanical couplings used for joining and pressure sealing pipe that are prone to failure, unprotected bare steel and cast iron. Operators continually look at changing risk profiles to determine where resources should be allocated and are sensitive to the call for accelerated replacement following recent pipeline incidents. Operators strive to inform the public that action is continually being taken to reduce risk and replace pipe where necessary to improve safety, taking into consideration all logistical and economic variables. 4. Economic and Regulatory Considerations While the primary objectives of efforts to address leak-prone pipe infrastructure is to preserve public safety and maintain the reliability of supply, equally as important is responsible management of costs for replacement or reconditioning. Cost management is particularly important for distribution companies that have significant replacement challenges ranging from permitting, upheaval of urban and suburban infrastructure and high construction costs. It is vital that operators and regulators have strategic smart modernization plans to optimize replacement costs through careful planning and operational efficiency. Whenever possible, operators also coordinate cast iron replacement with municipal construction projects to minimize both cost and disruption. Integrity management and upgrade projects should occur in a timely manner through balanced rate cases

10 a. Operational costs Replacing cast iron and other distribution pipeline is challenging, complicated and time-consuming. Field operations and replacement costs can be highly variable due to differences in location, population densities, underground infrastructure, permitting issues, and available resources. Operators may also have costs for traffic control, pavement restoration and in some cases, supervision by authorities, while simultaneously minimizing customer service disruptions and outages. The table below shows an average range of 2011 costs associated with replacing cast iron mains. The table provides a rough estimate of the overall cost to remove the national cast iron inventory. National Cast Iron Inventory (2011) Diameter Cost per mile Cast Iron Mains (Miles) Avg. Replacement cost <4" $1,584,000 - $2,112,000 14,518 $26,764,075,800 4" to 12" $1,848,000 - $3,696,000 17,224 $47,740,104,720 >12" $3,696,000 - $5,016,000 1,877 $8,178,516,324 TOTAL 33,619 $82,682,696,844 Table 1: Estimation of replacement of national cast iron inventory (as per 2011). Note: Cost per mile ranges are estimates provided by AGA operators With the recorded 33,619 miles of cast iron in the country as of 2011, the total cost of replacement would likely exceed $82 billion and would require a highly uneven distribution of funding from each state, depending on the amount of cast iron present and the number of customers served. Getting access to infrastructure funds of this magnitude can become increasingly challenging, especially during economic recessionary periods. However, low supply costs in recent years provide some room for regulators to allow operators to increase capital project programs while maintaining overall customer bills at consistent levels. This opportunity is important to recognize and should be used to facilitate cast iron replacement and reconditioning programs. Cast iron replacement scenarios The following examples, taken from three actual operators, illustrate the very wide variability in the potential impact of cast iron reduction on customers. One example is an operator with a Large cast iron inventory (between 1,000-5,000 miles) and two are operators with Low cast iron inventories (<1,000 miles). Operators with a high and low customer count, both with low inventory, are outlined. High Cast Iron Inventory Operator Diameter Mileage Cost per mile Avg. Cost per mile Replacement Cost/Diameter <=4" $1,584,000 - $2,112,000 $1,848,000 $1,403,011,645 4" to 12" $1,848,000 - $3,696,000 $2,772,000 $3,323,002,883 >12" $3,696,000 - $5,016,000 $4,356,000 $478,308,188 Total Replacement Cost $5,204,322,715 No. of Customers: 608,781 Cost/Customer $8,549 Table 2: Estimation of replacement of cast iron for an operator with high inventory Diameter Mileage Cost per mile Avg. Cost per mile Total Cost <=4" $1,584,000 - $2,112,000 $1,848,000 $888,888,000 Low Cast Iron 4" to 12" $1,848,000 - $3,696,000 $2,772,000 $956,340,000 Inventory Operator >12" 5.00 $3,696,000 - $5,016,000 $4,356,000 $21,780,000 (High customer Total Replacement Cost $1,867,008,000 number) No. of Customers: 3,281,746 Cost/Customer $569 Table 3: Estimation of replacement of cast iron for an operator with low inventory, high customer number Low Cast Iron Inventory Operator (Low customer number) Diameter Mileage Cost per mile Avg. Cost per mile Total Cost <=4" $1,584,000 - $2,112,000 $1,848,000 $318,502,800 4" to 12" $1,848,000 - $3,696,000 $2,772,000 $853,748,280 >12" $3,696,000 - $5,016,000 $4,356,000 $122,621,400 Total Replacement Cost $1,294,872,480 No. of Customers: 78,660 Cost/Customer $16,462 Table 4: Estimation of replacement of cast iron for an operator with low inventory, low customer number 10

11 These figures show that funding cast iron replacement is a complex state-by-state, and operator-by-operator issue. Note: Cost per mile ranges are estimates provided by AGA operators b. Logistical issues As mentioned earlier, replacement of pipeline, especially in densely populated areas, can become disruptive, complex, time-consuming and resource intensive. Looking back at the costs associated with replacement on a national and regional level, even if somehow $82.7bn was obtained by operators immediately, it would be logistically infeasible to replace all the nation s cast iron in a short time period. As distribution pipelines are often located under roads and in populated areas, contractor and utility excavation becomes highly disruptive to traffic flow and neighborhoods, potentially causing external economic losses as a result. Operators must mobilize and coordinate a larger workforce, which becomes more challenging when contractor resources are limited. It becomes vital, therefore, that replacement of cast iron be done in a strategic fashion that balances risk and cost benefits to the public and their respective utilities. Operators work with their state utility commissions to manage costs and conduct replacement efforts in manageable timeframes. c. Infrastructure rate recovery mechanisms Traditionally, operators utilize rate case adjustments to fund major infrastructure repair and upgrade costs, however the lag time between regulatory rate case approval and cost recovery can involve multi-year delays that impact the utilities credit rating, translating into higher costs for customers. As a result, innovative rate mechanisms have been developed that include infrastructure cost trackers, infrastructure base rate surcharges, and deferred regulatory assets to offset this lag time and allow reasonable recovery of infrastructure investment that includes replacement of pipe. Currently there are at least 48 active cost recovery mechanisms that have been adopted in 22 states. AGA and the American Gas Foundation have released papers describing these mechanisms in detail. (See appendix) 5. Conclusion Managing the reduction of the national cast iron gas main inventory has been in progress for decades. The process has become part of formalized pipeline industry risk reduction practices, under Federal distribution integrity management regulations. Operators are amenable to accelerating the ongoing reduction or reconditioning of their assets, with priority given to specific assets with the highest risk scores on their systems. For operators with cast iron systems, segments of those systems may be at or near the top of their priorities. The time needed by an operator to reduce its risk related to cast iron is directly related to the extent, location, condition and historical performance of its cast iron system, and the funding that can be made available to complete the task. This will vary from operator to operator. Additionally the potential impact upon utility customers can vary by orders of magnitude. In some cases, this can have a profound impact on timelines. Due to the variability of local impacts and conditions, accelerated reduction of an operator s cast iron inventory has to be based upon agreements with state regulators. 11

12 APPENDIX AGA - Natural Gas Round Up June Rate Recovery Infrastructure Investment Update AGF - Gas Distribution Infrastructure - Pipeline Replacement and Upgrades (Cost recovery Issues and Approaches) 12

13 NOTICE In issuing and making this publication available, AGA is not undertaking to render professional or other services for or on behalf of any person or entity. Nor is AGA undertaking to perform any duty owed by any person or entity to someone else. Anyone using this document should rely on his or her own independent judgment or, as appropriate, seek the advice of a competent professional in determining the exercise of reasonable care in any given circumstances. The statements in this publication are for general information and represent an unaudited compilation of statistical information that could contain coding or processing errors. AGA makes no warranties, express or implied, nor representations about the accuracy of the information in the publication or its appropriateness for any given purpose or situation. This publication shall not be construed as including, advice, guidance, or recommendations to take, or not to take, any actions or decisions in relation to any matter, including without limitation relating to investments or the purchase or sale of any securities, shares or other assets of any kind. Should you take any such action or decision; you do so at your own risk. Information on the topics covered by this publication may be available from other sources, which the user may wish to consult for additional views or information not covered by this publication. Copyright 2013 American Gas Association. All rights reserved. 13