NY regulators approve tracker, rate case stay-out for National Fuel Gas

The New York Public Service Commission issued an order March 17 approving National Fuel Gas Distribution Corp.'s request to implement a system improvement tracker to recover qualified leak-prone pipe removal costs incurred from April 1, 2023, through Sept. 30, 2024. As agreed to by the utility (NFGD), the approval is contingent on a rate case stay-out under which the company will not file a new base rate case prior to October 2023, and new base rates will not be effective prior to Oct. 1, 2024.

Annual recoveries under the system improvement tracker (SIT) are subject to a 1% cap of annual operation revenues, or $5.5 million. Incremental leak-prone pipe (LPP) costs that exceed the annual limit can be deferred for future recovery.

The approved SIT allows NFGD to recover a portion of the deferred regulatory asset associated with its existing system modernization tracker (SMT). Specifically, if qualified costs for LPP replacement after March 31 are less than the $5.5 million SIT annual cap, NFGD may recover a portion of its SMT regulatory asset through the SIT mechanism. The total deferred SMT regulatory asset balance was $21.3 million on Sept. 30, 2022, and is projected to be about $43.4 million on Sept. 30, 2024.

In approving the petition, the PSC found that implementing the SIT in conjunction with the stay-out provision is in the public interest. In its order, the commission outlined several benefits of implementing the SIT and stay-out. These benefits include enabling NFGD to continue replacing LPP while allowing for recovery of incremental LPP replacement costs related to the investment without having to file a full rate case; permitting the recovery of a portion of the existing SMT deferral will lessen carrying costs associated with the deferral and limit customer rate impacts in a future proceeding; and continuing the company's current base rates without an increase until at least Oct. 1, 2024.

As noted by the PSC, customers will continue to be "protected" by the continuation of the earnings sharing mechanism (ESM) that will be in place until new rates are established in the company's next rate case. Under the ESM, NFGD is required to share earnings above a 9.20% ROE equally with customers. The ESM is to remain in place until new rates are established in the company's next rate case.

NFGD is a subsidiary of National Fuel Gas Co.

Background of company request

On Dec. 9, 2022, NFGD filed a petition to implement the tracker in exchange for a rate case stay-out. NFGD stated that if the SIT is approved, it would be able to replace all of its LPP distribution mains and services by approximately 2035.

As part of NFGD's rate case decided in 2017, the PSC approved the 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 ESM be implemented effective April 1, 2018.

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 can recover its incremental LPP costs through the SMT. Currently, qualified LPP costs incurred through March 31 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.