National Fuel Gas seeks new tracker, rate case stay-out in NY

National Fuel Gas Distribution Corp. filed a request Dec. 9 with the New York Public Service Commission to implement a system improvement tracker to recover qualified leak-prone pipe removal costs incurred from April 1, 2023, through Sept. 30, 2024.

If the PSC approves the system improvement tracker, or SIT, National Fuel Gas Distribution, or NFGD, indicates that it would agree to a rate case stay-out under which it would not file a new base rate case prior to October 2023, with a rate year starting Oct. 1, 2024.

NFGD seeks a PSC decision on or before the commission's March 2023 deliberative session.

According to the utility, "granting such relief would facilitate the continued momentum the company has achieved with its cost-effective replacement of [leak-prone pipe, or LPP], which generates both safety and environmental benefits, including the reduction of greenhouse gas emissions."

As part of NFGD's rate case decided in 2017, the PSC approved a system modernization tracker, or SMT, which allows for the recovery of incremental qualified LPP costs. In that decision, the PSC authorized NFGD an 8.70% return on equity and ordered that an earnings-sharing mechanism be implemented effective April 1, 2018, requiring NFGD to share earnings above a 9.20% ROE equally with customers. The earnings-sharing mechanism is to remain in place until new rates are established in the company's next rate case.

NFGD was initially authorized to include in the SMT the plant installed to replace LPP through March 31, 2020. NFGD was permitted to petition the PSC to extend the initial date through which it was permitted to recover its incurred qualified LPP costs through the SMT. In two subsequent decisions, the PSC extended the date through which the company is able to recover its incremental LPP costs through the SMT. Currently, qualified LPP costs incurred through March 31, 2023, are recovered through the SMT.

Annual recoveries under the SMT are subject to a cap of 2.5% of annual operating revenues, or $13.8 million, with incremental costs in excess of the annual limit deferred for future recovery.

According to NFGD, the total deferred SMT regulatory asset balance, including amounts deferred in excess of the 2.5% aggregate revenue cap, was $21.3 million on Sept. 30, 2022.

NFGD states that if the SIT is approved, it would be able to replace all of its LPP distribution mains and services by approximately 2035. Without approval of the new tracker, however, it would not be able to maintain the current LPP replacement level.

NFGD proposes that annual recoveries under the SIT be subject to a 1% cap of annual operation revenues, or $5.5 million. Incremental LPP costs that exceed the annual limit would be deferred for future recovery.

The utility proposes that if qualified costs for LPP replacement post-March 31, 2023, are less than the $5.5 million SIT annual cap, it be permitted to recover a portion of its SMT regulatory asset through the SIT mechanism.

NFGD states that "utilizing the SIT for this purpose is appropriate because it allows the company to more timely collect LPP costs as they are incurred." As noted by NFGD, "recovering a portion of the SMT regulatory asset through the SIT benefits customers because it helps prevent the SMT regulatory asset from becoming too large thereby limiting the impact of a customer rate increase going into the company's next rate case filing." In addition, NFGD notes that accelerating the recovery of the SMT regulatory asset will benefit customers by lessening the carrying costs associated with the regulatory asset that will ultimately be collected from ratepayers.

According to NFGD, "implementation of the SIT is in the public interest. The ongoing reduction of LPP will further improve the safety and reliability of the company's natural gas distribution system and continue the company's long-standing LPP program that has significantly reduced methane emissions, all of which are aligned with New York's climate policy and the [PSC's] clean energy and safety goals."

NFGD is a subsidiary of National Fuel Gas Co.