Energy and Natural Resources: Horizons

Need to modernize your pipeline? Here's

how.

By Stefan Krantz

Aging infrastructure and increasing regulation have made modernizing the tens of thousands of miles of U.S. pipeline facilities a matter of great consequence.

But modernization is easier said than done. For federally-regulated interstate natural gas pipelines, it requires navigating a patchwork of new regulations issued by the Pipeline and Hazardous Materials Safety Administration, the Environmental Protection Agency, and the Federal Energy Regulatory Commission (FERC). It also costs billions of dollars — dollars that pipelines are entitled to recover from their customers if they can properly justify the need for, and cost of, modernization.

The stringent regulatory landscape has made modernization slow going so far. FERC’s recent Modernization Policy Statement — which allows companies to recover modernization costs outside of the traditional ratemaking process — should, in theory, speed up the process. Meeting its standards, however, is still a complex task involving numerous stakeholders, including the pipeline’s customers and their advocates, state utility commissions, and other federal regulatory bodies.

Still, we expect more and more pipelines to try to implement their plans this way. When they do, here’s what they need to keep top-of-mind:

• Understand what the plan is — and paper it. Figure out where and what needs to be upgraded, clearly delineate it, and support it with documentation, research, and analysis. At each stage in the process, companies need to be able to demonstrate that everything they propose is grounded in regulatory requirements.
• Develop a shipper engagement program. Companies will want to strike the appropriate balance between seeking stakeholder input while simultaneously ensuring the company maintains control over the modernization projects it needs and the execution of the strategic modernization plan. 
• Prepare the filing strategically. Companies must lay out a comprehensive modernization plan that not only details the programs envisioned — along with a timeline for implementation — but also ties the overall program to regulatory requirements, thereby increasing the likelihood the Commission will approve it. 

In short, companies seeking to successfully utilize FERC’s Modernization Policy Statement must scrutinize their own plans as carefully as others will.