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3 Description: –To replace all cast iron and bare steel pipe on Duke Energy’s gas distribution systems in Ohio and Kentucky on an accelerated basis. Purpose: –Cast iron removed from Office of Pipeline Safety’s list of approved pipeline materials in 1971 –Prior program would take 80 years to replace pipes –High inventory of gas leaks on system –Potential O&M savings (approximately $5 million per year) –Enable the Company to increase system pressure and support distributed generation
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Alternative Rate Structure
Paul SmithVice President, RatesDuke Energy OhioJune 20, 2006
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ACCELERATED MAIN REPLACEMENT PROGRAM
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ACCELERATED MAIN REPLACEMENT PROGRAM
Description:– To replace all cast iron and bare steel pipe on Duke Energy’s gas
distribution systems in Ohio and Kentucky on an accelerated basis.
Purpose:– Cast iron removed from Office of Pipeline Safety’s list of approved
pipeline materials in 1971
– Prior program would take 80 years to replace pipes
– High inventory of gas leaks on system
– Potential O&M savings (approximately $5 million per year)
– Enable the Company to increase system pressure and support distributed generation
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ACCELERATED MAIN REPLACEMENT PROGRAM
Study and Evaluation– Retained Stone & Webster to review our plan and make
recommendations• Findings –
– Ohio – 1,169 miles of cast iron and bare steel mains dating to 1873, representing 25% of the system. Also, 272 miles of bare steel services.
– Kentucky – 150 miles of cast iron and bare steel mains dating to 1887, representing 16% of the system. Also, 64 miles of bare steel services.
Original Cost estimate: Ohio = $716 million; Kentucky = $135 million
Proposed 10 year program in both jurisdictions– Aggressive– Necessary and achievable
Proposed “Rider AMRP” in both Ohio and Kentucky
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ACCELERATED MAIN REPLACEMENT PROGRAM
Construction Process
Physical work performed by contractors
Company solicits bids in September for following calendar year
Work broken down into “modules” – 3 to 5 miles of main (and associated services)
10 or 11 contracting firms submit bids – Company tracks quality and productivity for each contractor
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ACCELERATED MAIN REPLACEMENT PROGRAM
Revenue Requirement Calculation
Return on Net Program Investment– Plant additions since beginning of program (not in base rates)– Less retirement of plant replaced– Less accumulated depreciation on above
• Accumulated depreciation on additions• Cost of removal• Original cost retired
– Less deferred taxes on accelerated depreciation
Return based on pre-tax rate of return approved in last base rate case
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ACCELERATED MAIN REPLACEMENT PROGRAM
Revenue Requirement Calculation (Continued)
Return of Net Program Investment– Annualized depreciation expense on additions– Less annualized depreciation expense on retirements
Change in Operation & Maintenance Expense– Less reduction in main maintenance expense since beginning of
program
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ACCELERATED MAIN REPLACEMENT PROGRAM
Annual Filing - Ohio
Preliminary Filing (November) - 9 months actual & 3 months estimate
Updated Filing (February) - 12 months actual data
PUCO Staff Audit - intervenors also request information
PUCO Staff Report issued mid-March
Hearing scheduled in early April – generally stipulated
Revised Rider AMRP effective May 1
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ACCELERATED MAIN REPLACEMENT PROGRAM
Rate Structure - Ohio
Rate Class Year 1 Year 2 Year 3 Year 4 Year 5
RS and RFT - Monthly Charge 1.00$ 1.84$ 2.84$ 3.81$ 4.81$
GS and FT - Monthly Charge 3.75$ 9.84$ 15.55$ 20.60$ 25.56$
IT - per Mcf 0.01$ 0.02$ 0.03$ 0.03$ 0.03$
Rider AMRP Tariff
Note: Annual increases in Rider AMRP rates were subjected to stipulated rate caps
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ACCELERATED MAIN REPLACEMENT PROGRAM
Annual Filing - Kentucky
Actual data filed in March
Commission Staff and AG review filing
Hearing usually held in July
Revised Rider AMRP effective for service rendered in September
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ACCELERATED MAIN REPLACEMENT PROGRAM
Rate Structure - Kentucky
Rate Class Year 1 Year 2 Year 3
RS - Monthly Charge 0.63$ 2.10$ 3.29$
GS - Monthly Charge 2.76$ 9.16$ 14.33$
FT - per Mcf 0.045$ 0.149$ 0.234$
IT - per Mcf 0.018$ 0.061$ 0.096$
Rider AMRP Tariff
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Alternative Rate Structure
Reasons Rider AMRP was approved
Focus was on improved SAFETY of gas distribution system
Significant reduction in gas leak inventory
Significant reduction in main maintenance expense and pass through of savings to customers
Amount of capital investment required
Study and testimony of Stone & Webster
Other gas utilities had similar riders approved, most notably Atlanta Gas Light Company
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Alternative Rate Structure
Questions
and
Further Discussion
