CenterPoint Energy customers in Minnesota face an immediate rate hike and more increases in the future as the state’s largest natural gas utility makes a big push to rebuild its aging pipeline network.
A 4.9 percent interim rate increase that takes effect Oct. 1 was approved Thursday by the state Public Utilities Commission. That rate will stay in effect for about 10 months as regulators review a slightly larger permanent rate hike.
CenterPoint, which serves 823,000 customers in Minneapolis and 260 other Minnesota communities, says it will more than double investment in its distribution system from $65 million a year to at least $140 million a year for up to 15 years.
The Houston-based company, which last sought higher Minnesota rates in 2008, told regulators that customers likely will need to pay even more over the next seven to 10 years.
“We believe there will be more rate hikes than in the past,” Joseph Vortherms, CenterPoint’s Minneapolis-based division vice president for regional operations, said in an interview Thursday.
The company said it won’t immediately seek another rate hike next year and left open what may be coming after that.
CenterPoint is like many urban gas suppliers that have been in business for a century or more. It operates a vast, aging network of buried pipelines, much of it built from the 1940s through the 1960s as the nation’s population boomed, Vortherms said.
Now, the company says more of that infrastructure needs attention, and at a faster pace, under federal safety regulations that have required all utilities to systematically study their systems’ risks, a process called “integrity management.”
On CenterPoint’s system, for example, there still are 46 miles of cast-iron distribution pipes, mostly installed before 1930. That kind of obsolete pipe was implicated in a February 2011 gas explosion in Allentown, Pa., that killed five people and destroyed eight homes.
“The intent of integrity management was to start to uncover all of this stuff and make it more public,” said Rick Kuprewicz, president of Accufacts, a Redmond, Wash., pipeline safety consulting firm. “There are going to be some costs associated with this. People are getting tired of the terrible failures.”
Across the country, many gas utilities are boosting infrastructure investment to comply with federal rules, according to the American Gas Association, the industry’s Washington-based trade group. Just replacing the nation’s cast-iron pipes, mostly installed before 1950, is expected to cost $80 billion over 20 years, said Philip Bennett, managing senior counsel for the association.
Utilities like CenterPoint see the timing as right. Customers’ bills actually have gone down about 25 percent since 2008 thanks to the growing volume and lower price of natural gas from the boom in shale extraction. In Minnesota and other states, utilities only earn money delivering gas. Lower gas costs have been passed on to customers via the fuel adjustment on their bills. “This is a very good time to invest in infrastructure,” Bennett said. “Since gas prices are low, we can afford to spend more money on infrastructure.”
Besides replacing old iron pipe, CenterPoint also plans to accelerate replacement of 54 miles of transmission line. Hundreds of miles of bare steel mainlines also would be improved over the next decade or more. The utility also wants to accelerate removal of 89,700 gas meters inside customers’ homes that will be replaced with outside meters.
Yet another project would replace the last remaining 8 miles of buried polyvinyl chloride pipelines installed in the 1960s. The brittle material is more vulnerable to breaking, the company says. Most gas distribution pipes now are made of polyethylene, a durable, flexible plastic.
The projects would keep about 400 workers employed for years, the utility says.
CenterPoint, which is double the size of the next largest Minnesota gas utility, has more work to do than the state’s other major gas companies. Xcel Energy, with 437,000 gas customers in St. Paul and elsewhere, said it has completed replacing all its iron pipes. So has Minnesota Energy Resources, the state’s No. 3 gas supplier with 217,000 customers in Rochester and other communities.
Vortherms said CenterPoint’s infrastructure investments aren’t driven by immediate safety issues or accidents, including the March 2011 rupture of a 20-inch transmission line in south Minneapolis.
“We believe our system is safe,” said Vortherms, who compared the stepped-up investment to preventive replacement of a water pump on a car at 100,000 miles. “It is generally cheaper and easier rather than having it go out when you are on 494.”
Over the next 10 months, CenterPoint will make its case for the requested $44 million rate increase before an administrative judge and later the PUC. If approved at that level, it would be the utility’s largest rate hike, but the PUC has pared back prior requests by 44 percent on average since 1977.
The interim rate hike will be an across-the-board increase. When the company filed the rate hike request last month, it proposed tacking much of the permanent increase on the basic charge, which is paid regardless of how much gas is used. For residential customers, the charge would increase from $8 per month to $15 per month.
One effect of that strategy is that an average residential customer’s bill would increase in the summer, when gas usage and bills usually are lower. Winter gas bills would go down, on average.
Over a year, the average residential customer would see a 6.8 percent increase to $739. By comparison, those customers paid $1,015 in 2008, when gas prices peaked, CenterPoint says.
PUC Chairwoman Beverly Jones Heydinger said Thursday that another consequence of the proposed pricing strategy is that the lowest-usage customers would pay disproportionately more.
“This is going to be a huge increase for them, approximating 20 percent,” she said.
The strategy is a sharp contrast to CenterPoint’s former tiered-rate pricing, which was designed to promote conservation by making high-use customers pay more. The experiment launched in 2010 and was dropped the following year amid complaints that it was unfair.
Commissioner Dennis O’Brien questioned the level of the interim rate hike but voted for it. State law gives regulators limited grounds to curb interim rate hikes. Customers would get refunds, with interest, if the permanent rate hike is less than the interim level.
“The economy is still struggling, certainly with job creation, and this is a burden on the working people of the state,” O’Brien said.