National Grid. The Narragansett Electric Company. Docket No. December 27, Submitted by: Submitted to: Rhode Island Public Utilities Commission

Transcription

1 National Grid Gas Infrastructure, Safety, and Reliability Plan FY 2014 Proposal December 27, 2012 Docket No. Submitted to: Rhode Island Public Utilities Commission Submitted by:

2 Thomas R. Teehan Senior Counsel December 27, 2012 VIA HAND DELIVERY & ELECTRONIC MAIL Luly E. Massaro, Commission Clerk Rhode Island Public Utilities Commission 89 Jefferson Boulevard Warwick, RI RE: National Grid s Proposed FY 2014 Gas Infrastructure, Safety, and Reliability Plan Docket No. Dear Ms. Massaro: On behalf of National Grid 1, I have enclosed ten (10) copies of the Company s proposed Gas Infrastructure, Safety, and Reliability Plan (the Gas ISR Plan or Plan ) for fiscal year This proposed Gas ISR Plan is designed to enhance the safety and reliability of the Company s Rhode Island natural gas distribution system. The proposed Plan was submitted to the Division of Public Utilities and Carriers ( Division ) for review. The Company received and responded to discovery requests from the Division and has met with the Division s representatives regarding this proposed Plan. The Division has agreed to the overall spending portion of this plan, but will continue to review and discuss particular Plan provisions as the Commission conducts its proceeding in this matter. The Gas ISR Plan is designed to protect and improve the gas delivery system through proactively replacing leak-prone gas mains and services, upgrading the system s pressure regulating systems, responding to emergency leak situations, and addressing conflicts that arise out of public works projects. The Plan is intended to achieve these safety and reliability goals through a cost-effective, coordinated work plan. The level of work that the Plan provides will sustain and enhance the safety and reliability of the Rhode Island gas pipeline infrastructure and directly benefit all Rhode Island gas customers. The Plan includes a description of the categories of work the Company proposes to perform in fiscal year 2014 as well as the proposed targeted spending levels for each work category. This filing includes the pre-filed direct testimony of three witnesses: Mr. Walter F. Fromm, whose testimony introduces the Plan document; Mr. William R. Richer, whose testimony explains the Company s revenue requirement 1 (hereinafter referred to as National Grid or the Company ). 2 The Gas ISR Plan is submitted in compliance with the provisions of R.I.G.L

3 Luly Massaro FY 2014 Gas ISR Plan December 27, 2012 Page 2 of 2 calculation; and Ms. Mariella C. Smith, whose testimony describes the rate design and calculation of the ISR rate factors and provides the customer bill impacts of the proposed ISR factor rates. For the average residential heating customer using 846 therms, the cumulative impact of the FY 2014 Gas ISR Plan will represent an annual increase of $2.09, or 0.2 percent. This ISR Plan presents an opportunity to facilitate and encourage investment in the Company s gas utility infrastructure and enhance its ability to provide safe, reliable, and efficient electric service to customers. Thank you for your attention to this transmittal. If you have any questions, please feel free to contact me at (401) Very truly yours, Enclosures Thomas R. Teehan cc: Steve Scialabba Leo Wold, Esq. James Lanni

4 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PRE-FILED DIRECT TESTIMONY OF WALTER F. FROMM December 27, 2012

5 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM Table of Contents I. Introduction and Qualifications... 1 II. Purpose of Testimony... 2 III. Overview IV. Capital Investment Plan... 6

6 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 1 OF I. INTRODUCTION AND QUALIFICATIONS Q. Please state your name, business address, title and areas of responsibility. A. My name is Walter F. Fromm. My business address is 40 Sylvan Road, Waltham, Massachusetts I am employed by National Grid USA Service Company, Inc. ( National Grid ) as Manager, Network Strategy-Gas. I am the Rhode Island state Jurisdictional Lead for all gas Network Strategy issues, including those related to the capital investment strategy for ( Narragansett or the Company ). In my role, I work closely with the Rhode Island Jurisdictional President and staff on all local issues related to the Company s Rhode Island gas system. My responsibilities also include working with regulators on issues related to the gas system, development of strategies to support Company objectives regarding investment in the gas system, and to provide testimony regarding capital investments in the Company s gas system during state regulatory proceedings Q. Please describe your educational background and professional experience. A. I am a Professional Engineer in Massachusetts (#40443) and New Hampshire (#11271). I received a Bachelor of Science degree in Civil Engineering from the University of Massachusetts at Lowell. My experience includes working for approximately two and a half years as a Design Engineer at the Boston Water and Sewer Commission, performing engineering, design, and environmental permitting associated with the construction of new and replacement water, sewer and drainage facilities. I spent almost five years

7 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 2 OF working as a Project Engineer at Fay, Spofford & Thorndike, Inc., continuing my career in the utility engineering and environmental permitting field. I have been employed at National Grid for approximately 13 years in a variety of roles. I joined National Grid as the Supervisor of Short-Term Planning. I later became a Senior Gas Engineer, then Principal Gas Engineer, Manager of Project Engineering & Design, and Manager of Main & Service Replacement. In March 2012, I assumed my current responsibilities Q. Have you previously testified or appeared before the Rhode Island Public Utilities Commission (the Commission )? A. Yes. I previously testified before the Commission at hearings and technical conferences regarding the Company s Accelerated Replacement Program and regarding the subsequent fiscal year ( FY ) 2012 Gas Infrastructure, Safety, and Reliability ( ISR ) Plan. I also provided pre-filed direct testimony for the Company s FY 2012 Gas ISR reconciliation filing in Docket No In addition, I also testified and represented the Company at hearings and technical conferences for the FY 2013 Gas ISR Plan in Docket No II. PURPOSE OF TESTIMONY Q. What is the purpose of your testimony? A. The purpose of my testimony is to describe the Company s proposed Gas ISR Plan for FY

8 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 3 OF ( ISR Plan or the Plan ) 1. Through my testimony, I provide the Commission with Exhibit 1, the Company s proposed FY 2014 Gas ISR Plan, which details the work to be done under the proposed ISR Plan and the anticipated capital investments associated with that work. Mr. William R. Richer is providing testimony on the calculation of the revenue requirement impact associated with the Company s proposed FY 2014 Gas ISR Plan, and Ms. Mariella C. Smith is providing testimony relative to (1) how the rate design was established for the ISR mechanism; (2) the calculation of the ISR rate factors; and (3) the customer bill impacts of the proposed ISR factor rates III. OVERVIEW Q. How was the ISR Plan prepared? A. The Company s FY 2014 Gas ISR Plan was prepared by the Company and submitted to the Division of Public Utilities and Carriers (the Division ) for review. The Company met with the Division and responded to questions from the Division about each of the components of the Plan, including the inclusion of a gas expansion pilot program. The Division agreed to the spending portion of the Plan and will continue to review particular Plan provisions as the Commission conducts its proceeding in this matter. The proposed ISR Plan will allow the Company to meet state and federal safety and reliability requirements and to maintain its gas distribution system in a safe and reliable condition. 1 Pursuant to Rhode Island statutory provisions, the Company is required to annually file an infrastructure, safety, and reliability spending plan with the Commission for review and approval. (R.I.G.L ) In addition to budgeted spending, the annual ISR Plan is to contain a reconcilable allowance for the anticipated capital investments and other spending for the upcoming fiscal year. The Company s FY 2014 runs from April 1, 2013 through March

9 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 4 OF The FY 2014 ISR Plan should improve the safety and reliability of the Company s gas system for the immediate and long-term benefit of Rhode Island s natural gas customers Q. What is the ISR Plan designed to accomplish? A. The Gas ISR Plan is designed to maintain and upgrade the Company s gas delivery system proactively replacing leak-prone gas mains and services, upgrading the system s pressure regulating systems, responding to emergency leak situations, and addressing conflicts that arise out of public works projects. The Plan attempts to attain these safety and reliability goals through a cost-effective, coordinated work plan. The level of work that the Plan provides will sustain and enhance the safety and reliability of the Rhode Island gas pipeline infrastructure and directly benefit Rhode Island gas customers. The Company now submits this Plan to the Commission for final review and approval Q. Are you sponsoring any exhibits through your testimony? A. Yes. The Company s proposed FY 2014 Gas ISR Plan document is attached as Exhibit 1 to my testimony. It is organized as follows: Section 1 Introduction and Summary Section 2 Gas Capital Investment Plan (including major categories of work) Section 3 Revenue Requirement Calculation 31, 2014, and the proposed ISR Plan would be effective April 1, Pursuant to R.I. G. L (d), the Company and the Division are to work together over the course of 60 days in an attempts to reach an agreement on a proposed plan, which would then be submitted to the Commission for review and approval.

10 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 5 OF Section 4 Rate Design Section 5 Bill Impacts As noted above, Mr. Richer will testify about and sponsor the revenue requirement calculation included in Section 3 of the Gas ISR Plan, and Ms. Smith will testify about and sponsor rate design and bill impacts outline in Sections 4 and 5 of the Plan Q. What types of infrastructure, safety, and reliability work does the proposed ISR Plan include? A. The Plan seeks not only to maintain the gas distribution system, but also to proactively upgrade its condition to prevent problems before they arise. A safe and reliable gas delivery system in Rhode Island is essential to the health, safety, and well-being of its citizens and is functional to maintaining a healthy economy and continuing to attract new residents and businesses. The Commission embarked on a course of addressing Rhode Island s aging gas infrastructure in 2008, with the establishment of the Accelerated Replacement Plan (the ARP ). In addition to the type of infrastructure, safety and reliability work performed under the ARP, the ISR Plan includes spending related to safety and reliability for public works, mandated programs, special projects, and reliability programs. Included in the ISR Plan document is a description of the Company s proposed budget for capital investment for FY 2014 and a capital forecast for FY 2014 through FY

11 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 6 OF 7 1 IV. CAPITAL INVESTMENT PLAN Q. What levels of spending are proposed in the ISR Plan? A. For FY 2014, the Company proposes ISR spending totaling $65.3 million. The ISR Plan is broken down into categories of programs designed to maintain the safety and reliability of the Company s gas delivery infrastructure. For each program category in the Plan, the Company proposes the following levels of spending: $36.5 million combined for proactive Main and Service Replacement Programs. $0.5 million for Reactive Main Replacement. $1.8 million for Public Works Programs. $13.5 million for Mandated Programs (capital leak repairs, meter replacements, corrosion and non-leak other) $9.0 million for Gas System Reliability, including work relative to System Automation and Gas Control, Pressure Regulating Facilities (including Heater Program, Vent Pole Installation and Control Line Integrity Work), System Reliability Enhancement, Water Intrusion Program, LNG Facilities, and Valve Installation/Replacement. $4.0 million for Special Projects, including the carryover of new main installation work related to the relocation of I- 195 in order to aid in the economic development of Downtown Providence, the replacement of a boil-off compressor at the Exeter LNG Facility, and the introduction of a pilot program designed to provide commercial and residential customers with incentives for gas expansion pilot program.

12 THE NARRAGANSETT ELECTRIC COMPANY d/b/a NATIONAL GRID R.I.P.U.C. DOCKET NO. RE: FY 2014 GAS INFRASTRUCTURE, SAFETY, AND RELIABILITY PLAN WITNESS: WALTER F. FROMM PAGE 7 OF Q. In your opinion, does the Gas ISR Plan fulfill the requirements established in relation to the safety and reliability of the Company s gas distribution system in Rhode Island? A. Yes. The Gas ISR Plan for FY 2014 is designed to establish the capital investment in Rhode Island that is necessary to meet the needs of its customers and maintain the overall safety and reliability of the Company s Rhode Island gas distribution system Q. Does this conclude your testimony? A. Yes, it does.

13 DOCKET NO. National Grid Gas Infrastructure, Safety, and Reliability Plan FY 2014 Proposal December 27, 2012 Submitted to: Rhode Island Public Utilities Commission Submitted by:

14 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Table of Contents Section 1: Introduction and Summary... Section 2: Gas Capital Investment Plan... A. Main Replacement Program and Service Replacement Program B. Reactive Main Replacement C. Public Works D. Mandated Programs E. Reliability F. Special Projects Section 3: Revenue Requirement... Section 4: Rate Design... Section 5: Bill Impacts...

15 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 1: Introduction and Summary Section 1 Introduction and Summary

16 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 1: Introduction and Summary Page 1 of 5 Introduction and Summary FY 2014 Proposal National Grid 1, in consultation with the Division of Public Utilities and Carriers ( Division ), has developed the following proposed fiscal year ( FY ) 2014 gas infrastructure, safety, and reliability ( Gas ISR ) plan (the Gas ISR Plan or Plan ) in compliance with R.I.G.L (c)(2) (the Decoupling Act ), which provides for an annual gas infrastructure, safety and reliability spending plan for each fiscal year and an annual rate reconciliation mechanism that includes a reconcilable allowance for the anticipated capital investments and other spending pursuant to the annual pre-approved budget The proposed Gas ISR Plan addresses capital spending on gas infrastructure and other costs relating to maintaining the safety and reliability of the gas distribution system. The proposed Plan that the Company is submitting for its gas distribution operations is the product of a collaborative effort with the Division. The Gas ISR Plan is designed to maintain and upgrade the Company s gas delivery system through proactively replacing leak-prone gas mains and services, accelerating the Company s replacement of leak prone facilities, upgrading the system s pressure regulating systems, responding to emergency leak situations, and addressing conflicts that arise out of public works projects. The Plan attempts to achieve these safety and reliability goals through a cost-effective, coordinated work plan. The level of work the Plan provides will sustain 1 2 (hereinafter referred to as National Grid or the Company ). R.I.G.L , An Act Relating to Public Utilities and Carriers Revenue Decoupling.

17 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 1: Introduction and Summary Page 2 of 5 and enhance the safety and reliability of the Rhode Island gas pipeline infrastructure and directly benefit Rhode Island gas customers. The Company now submits this plan to the Rhode Island Public Utilities Commission ( Commission ) for final review and approval. 3 This Introduction and Summary presents an overview of the proposed FY 2014 Plan for the statutory categories of costs, the resulting FY 2014 revenue requirement associated with the proposed Gas ISR Plan (in conjunction with the base rate proceeding in Docket No. 4323), an illustrative tariff provision enabling the rate adjustments and mechanism underlying the proposed Gas ISR Plan, an illustrative rate design, and the estimated typical bill impacts resulting from the illustrative rate design. The proposed Gas ISR Plan describes the Company s multi-year plan upon which its FY 2014 Plan is based, and it describes the system safety and reliability activities and addresses capital investment in utility infrastructure for the upcoming fiscal year. The proposed Plan also itemizes the recommended work activities by general category and provides budgets for capital investment. As envisioned in the Revenue Decoupling Statute, after the end of the fiscal year, the Company would true up the Gas ISR Plan s budgeted levels to actual investment and expenditures and reconcile the revenue requirement associated with the actual investment and expenditures to the revenue billed from the rate adjustments implemented at the beginning of each fiscal year. The Company will continue to file quarterly reports with the Division and 3 Pursuant to R.I.G.L (d), the Company and the Division must work together over the course of 60 days in an attempt to reach an agreement on a proposed plan, which would then be submitted to the

18 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 1: Introduction and Summary Page 3 of 5 Commission concerning the progress of its Gas ISR programs. In addition, when the Company makes its reconciliation and rate adjustment filing described below, it will file an annual report on the prior fiscal year s activities. The Company is cognizant that, in implementing the Gas ISR Plan in any fiscal year, the circumstances encountered during the year may require reasonable deviations from the original Gas ISR Plan. In such cases, the Company would include an explanation of any significant deviations in its quarterly reports. The FY 2014 level of capital investment provided in the Company s proposed Gas ISR Plan to maintain the safety and reliability of its gas delivery infrastructure is $65.3 million. A description of the Company s proposed capital investment plan for FY 2014 is provided in Section 2. The revenue requirement description and calculations are contained in Section 3. Gas Capital Investment Plan The Company s proposed gas capital investment plan contained in Section 2 summarizes capital investments in terms of the following key categories: Main Replacements and Service Replacements, Reactive Main Replacements, Public Works, Mandated Programs, Gas System Reliability, and Special Projects. Section 2 itemizes the proposed activities by sub-categories and provides budgets for capital investment. The Company proposes that capital investments be recovered in a manner consistent with the calculation of the rate base in Docket No and in conjunction with the Company s base rate filing in Docket No The Company has included its capital budget, identified the relevant projects that would be part of the FY 2014 Gas Commission for its review and approval.

19 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 1: Introduction and Summary Page 4 of 5 ISR Plan, and provided its explanation of why these projects are necessary to provide safe and reliable service to its customers. The Company has also provided a five-year capital plan to provide a longer-term approach to infrastructure, safety, and reliability and to demonstrate how the FY 2014 Plan would be incorporated into that longer-term planning approach. Revenue Requirement Based upon the estimated amounts for the proposed Plan, the Company has provided a calculation of the proposed revenue requirement resulting from the proposed FY 2014 capital investment plan. Section 3 contains a description of the revenue requirement model and an illustrative calculation for FY This calculation would form the basis for the Gas ISR rate adjustment, which would become effective April 1, 2013, upon Commission approval. As provided in Section 3, Schedule A, Sheet 6 of the Company s gas tariff, the Company will reconcile this rate adjustment as part of its annual Distribution Adjustment Charge ( DAC ) filing. The pre-tax rate of return on rate base would be that rate of return approved by the Commission in the Company s last general rate case and, going forward, it would change as the Commission may approve changes to the rate of return in future rate case proceedings. Any change in the rate of return would be applicable on a prospective basis effective on the date on which the change is effective. Rate Design The revenue requirement calculated under the proposed Gas ISR Plan is appropriately allocated to the Company s rate classes. For purposes of rate design, the revenue requirement

20 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 1: Introduction and Summary Page 5 of 5 associated with the capital investment is allocated to rate classes based upon the rate base allocator from the Company's Settlement agreement in Docket No For rate classes, the allocated revenue requirement is divided by the applicable fiscal year forecasted therm deliveries for each rate class, arriving at a per-therm factor unique to each rate class. Other related costs mutually agreed upon between the Division and the Company would be allocated to all rate classes on a consistent per-unit basis. The proposed rate design is contained in Section 4. Bill Impacts The estimated typical bill impacts associated with the rate design contained in Section 4 are provided in Section 5. Since the FY 2014 revenue requirement was based upon FY 2014 capital costs that were incremental to the FY 2014 capital costs included in the Company's base rates per the Settlement Agreement in Docket No. 4323, the Company used the base rates provided in its Settlement Agreement for both the current and proposed bill comparisons. In addition, because these base rates now include ISR capital costs for FY 2012 and FY 2013, the Company zeroed out the current ISR factor in the current analysis. As shown in Section 5, the bill impact of the Gas ISR Plan for the average residential heating customer for the period April 1, 2013 through March 31, 2014 would be $1.82, or 0.2 percent.

21 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Section 2 Gas Capital Investment Plan FY 2014 Gas ISR Plan

22 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 1 of 15 Gas Capital Investment Plan FY 2014 Proposal The Company and the Division have worked diligently to arrive at a Gas ISR Plan that meets the goals of the Decoupling Act to provide a safe and reliable gas distribution system for Rhode Island. Background The Company developed its proposed capital investment plan to meet its obligation to provide safe, reliable, and efficient gas distribution service for customers at reasonable costs. 4 The Gas ISR Plan includes capital investment spending needed to meet state and federal regulatory requirements applicable to the Company s gas system and to maintain its distribution infrastructure in a safe and reliable condition. It includes infrastructure, safety and reliability work for cast-iron and non-cathodically protected steel mains and non-cathodically protected steel inside services, to address the replacement of leak-prone gas main and at-risk services. The plan also contains capital spending related to safety and reliability for public works, mandated programs, gas reliability, and special projects, including a gas system expansion pilot program. As the Decoupling Act recognizes, in order to continue providing safe and reliable gas delivery service to customers, it is critical that the Company remain vigilant with respect to investing in its infrastructure and that it has the appropriate and timely cost recovery to do so. 4 The Company delivers natural gas to approximately 253,000 Rhode Island residential and commercial and industrial customers in 33 cities and towns in Rhode Island. To provide this service, the Company owns and maintains over 3,100 miles of mains and approximately 190,000 services.

23 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 2 of 15 To that end, the Company is outlining the proposed FY 2014 Plan, 5 which identifies the capital spending it expects to place into service during FY Table 1 contains a description of the proposed budget for the capital investment plan for FY Table 2 contains a five-year Capital Forecast for FY 2014 through FY The Company proposes to invest a total of $77.2 million, $65.3 million of ISR investments that would be included in either the rate base included in Docket No or in the FY 2014 Gas ISR recovery mechanism. 6 The FY 2014 Gas ISR Plan is designed to maintain the safety and reliability of the Company s gas delivery infrastructure. Table 3 includes the FY 2013 Capital Budget filed in the FY 2013 ISR Plan, along with the FY 2013 Forecast through Q As set forth on Table 1, of the $65.3 million that the Company proposes for its FY 2014 Gas ISR Plan spending, the Company proposes the following levels of spending for each category of programs: $36.5 million combined for proactive Main and Service Replacement Programs. $0.5 million for Reactive Main Replacement. $1.8 million for Public Works Programs. $13.5 million for Mandated Programs (capital leak repairs, meter replacements, corrosion and non-leak other). $9.0 million for Gas System Reliability, including work relative to System Automation and Gas Control, Pressure Regulating Facilities (including Heater Program, Vent Pole Installation and Control Line Integrity Work), System Reliability Enhancement, 5 6 FY 2014 is defined as the twelve months ending March 31, From the $77.2 million of total investment, the Company would remove $11.9 million of projected growth spending.

24 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 3 of 15 Water Intrusion Program, LNG Facilities, and Valve Installation/Replacement. $4.0 million for Special Projects, including the carryover of new main installation work related to the relocation of I-195 in order to aid in the economic development of Downtown Providence, the replacement of a boil-off compressor at the Exeter LNG Facility, and the introduction of a pilot program designed to provide commercial and residential customers with incentives in providing gas main extensions. The Company is excluding $11.9 million for growth spending from the proposed FY 2014 Gas ISR Plan. As noted above, the Company will continue to file quarterly reports with the Division on the progress of its Gas ISR programs. Description of Large Programs and Projects The proposed FY 2014 Gas ISR Plan is comprised of several programs that account for the total amount of plan spending for FY Those programs are described in detail below. A. Main Replacement Program and Service Replacement Program The value of, and need for, targeted spending on the replacement of leak-prone gas main and services is well-documented and has been accepted by both the Division and the Commission. For FY 2014, the Company forecasts spending $33.4 million on its main replacement program (approximately 50 miles of leak prone pipe) and $3.1 million on the service replacement program (1,100 services) for a total spend of $36.5 million on these two programs.

25 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 4 of 15 B. Reactive Main Replacement The Company proposes to spend $0.5 million in Reactive Main Replacement. This category of work consists of emergency main replacements due to leaks or other unplanned work where main condition dictates immediate replacement. Reactive Main Replacement would account for approximately 1.0 mile of emergency main replacements. C. Public Works The purpose of the Public Works program is to address existing gas infrastructure conflicts, as appropriate, to improve the safety and reliability of the Company s natural gas distribution system in conjunction with public works projects, providing significant incremental benefits to customers and communities. Municipal work affords the Company an opportunity to replace additional leak-prone pipe and reduce paving costs by coordinating the Company s main replacement work with these planned public works construction projects, while also benefitting customers and communities by improving service delivery and minimizing construction impacts and inconvenience. National Grid has an ongoing plan to replace targeted (integrity-based selections) mains on a risk-based approach. Integration of the Company s Integrity programs with the public works process has yielded increased system reliability and system integrity. This integration has also optimized capital spending through coordination with planned public works projects. While the primary purpose of Public Works spending is to address direct conflict with

26 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 5 of 15 existing gas infrastructure, Public Works spending provides the opportunity to coordinate other system improvement work, such as the replacement of leak-prone pipe, system reliability upgrades, the elimination of redundant main, and regulator station upgrades. The Company will manage multiple projects to address the dynamic nature of the public work process through effective liaison activity. Specifically, it must be recognized that, while municipal schedules and plans change due largely to funding, other factors also contribute to the scheduling of these projects (e.g. political, demand maintenance, etc.). Municipal changes in projects can and do create additional work in developing and coordinating the Company s planning and budgeting processes. Using the Company s five-year work planning process, the Company can provide some flexibility in scheduling, coordinating, and engineering projects in concert with municipal public works initiatives. For FY 2014, the proposed plan incorporates $1.8 million in spending under the Public Works category and an additional $1.3 million in reimbursable projects. D. Mandated Programs Spending for Mandated Programs falls into four categories: Corrosion, Meter Replacement, Capital Leak Repairs, and Non-leak Other. The Corrosion Program adds cathodic protection to existing coated steel main installed prior to U.S Department of Transportation ( DOT ) requirements (pre-1971). In 1971, the Code of Federal Regulations, Part 192, required the cathodic protection of all new buried steel gas facilities. Cathodic protection effectively extends the service life of buried steel facilities (as compared to

27 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 6 of 15 unprotected buried steel facilities) and can prolong replacement by twenty years or more. National Grid has standardized the process used to determine the cost-effectiveness of cathodically-protecting steel pipe installed prior to National Grid is targeting adding cathodic protection to ten miles of pre-1971 pipe during FY 2014 for the purpose of extending the life of the pipe. Capital costs for the Meter Replacement Program are required for the procurement of replacement meters. The Capital Leak Repair Program addresses leaking gas services and extends the useful life of cast iron mains through the encapsulation of leaking cast iron joints. Non-leak Other is associated with the capital costs for service relocations, meter protection, service abandonments, and the installation of curb valves. For FY 2014, the proposed plan includes $13.5 million for all categories of mandated work. E. Reliability Reliability spending includes programs to address system automation and control, system pressure regulating facilities (including heaters, vent pole installations and control line integrity), system reliability enhancement, water intrusion projects, LNG facilities, and valve installation and/or replacements. The proposed FY 2014 Gas ISR Plan includes $9.0 million in spending for Reliability. These programs are summarized below. 1. System Automation and Control The primary purpose of this program is to (a) meet the new DOT code requirements under 49 CFR Part 192, Docket ID , issued on December 3, These new code provisions contain the following pipeline

28 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 7 of 15 safety requirements: (a) Control Room Management/Human Factors, (b) modernization of the Company s system data and telemetry recording, and (c) increasing the level of system automation and control. The overall program will increase the safety, reliability, and efficiency of the gas system and, by extension, the level of service the Company provides to its customers. National Grid s ability to provide safe and reliable service is governed to a large extent by the Company s ability to maintain adequate pressure in its gas mains. To accomplish this task, National Grid has 205 pressure regulator stations disbursed throughout its Rhode Island gas service territory. While a limited number of these regulator stations have full system telemetry and control capability, most do not. In addition to monitoring and controlling the regulator stations, National Grid must also monitor system end points to ensure that adequate system pressures are being maintained in remote areas under a variety of operating conditions. Increased monitoring of these system low points is exacerbated by the need and desire to minimize the amount of system reinforcement necessary to support system load, thereby reducing our capital requirement, and to maximize the operational efficiency of the gas distribution system. National Grid is proposing implementation of a system automation and control program that would address approximately 20 percent of its pressure regulating facilities and adding select end-point monitoring. National Grid s

29 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 8 of 15 proposal for FY 2014 would provide AC power to fifty (50) regulator stations, telemetry to forty (40) sites and install remote controls at five (5) locations. 2. Pressure Regulating Facilities The pressure regulating facilities have been designed to reliably control system pressures and maintain continuity of supply during normal and critical gas demand periods. Each station has specific requirements for flows and pressures based on the anticipated needs of the station. A facility includes both pressure regulating piping and equipment as well as control lines, but may also include a heater or a scrubber. A program has been initiated to address condition-based assessments. Accepted engineering guidelines provide for design, planning, and operation of these gas distribution facilities. Applicable state and federal codes are followed to help ensure safe and continuous supply of natural gas to our customers and the communities we serve. National Grid s proposed plan would address condition-based assessments and perform work at the following facilities in FY 2014: Regulator Stations: 1. Elliot Street, N. Providence 2. Gentian, N. Providence 3. Wilson, Johnston 4. Taunton, E. Providence 5. Chestnut, Providence 6. Wood, Bristol 7. Division Street, East Greenwich 8. St. Georges, Middletown

30 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 9 of Tiverton Gate Main Road, Tiverton 10. Allens Avenue, Providence Heater Projects: 1. Route 116 Gate, Lincoln 2. Portsmouth Gate State, Portsmouth Control Line Projects: 1. Ann & Hope Way, Cumberland 2. North Bend Street, Pawtucket 3. North Country Club, Warwick 4. Traver Avenue, Johnston In addition to the work identified above, the Company is proposing to install vent poles at another twenty (20) pressure regulating facilities during FY System Reliability Enhancement Program The System Reliability Enhancement Program identifies projects that support system reliability through standardization and simplification of system operations (e.g., system up-ratings and de-ratings and regulator elimination), integration of systems (e.g. tie-ins) and new supply sources (e.g. take stations). 4. Water Intrusion Program The Water Intrusion Program identifies projects that address recurring customer outages resulting from water intrusion into low-pressure distribution systems through the replacement of existing leak-prone pipe. 5. LNG Facilities

31 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 10 of 15 LNG facility upgrades include replacement of aging equipment and infrastructure at the Rhode Island stations excluding the Providence facility. 6. Valve Installation/Replacement Valves are used to sectionalize portions of the gas network when required to support both planned and unplanned field activities. Valve replacement is necessary to ensure the Company s continued ability to effectively isolate portions of the distribution system as inoperable valves are identified. New valve installations are also occasionally needed to provide the capability to reduce the size of an isolation area where existing valves would result in broader shutdown than desired. F. Special Projects Three projects have been identified for FY The first project is the carryover of work associated with the Rhode Island Department of Transportation ( RIDOT ) project to relocate sections of interstate I-195 through the City of Providence. This work is required to safely and reliably serve the new parcels of land, and aid in the economic development of this area. The second project is the replacement of the boil-off compressor located the at Exeter LNG facility. The Company has had difficulty procuring parts to maintain the aging equipment, and believes that a replacement is a more prudent proactive approach to maintaining

32 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 11 of 15 plant reliability and safety. The third project is the Gas Expansion Pilot Program, which is described below. The Gas Expansion Pilot Program would provide for the prudent expansion of the Company s gas infrastructure to remove or reduce financial barriers that may prevent residential and commercial customers from taking advantage of historically low gas commodity prices. The recent abundance of natural gas supply has led to historically low commodity prices and a number of states are recognizing this market shift and are now examining programs that would expand the availability of natural gas as an energy source within their jurisdictions. Currently, in Rhode Island, customers may be required to pay a Contribution In Aid of Construction ( CIAC ) to help cover the costs associated with main extensions required to provide them gas service. This upfront capital cost can present a significant barrier for potential customers. The Gas Expansion Pilot Program seeks to remove or reduce this impediment by supporting projects that have the opportunity to bring gas service to more customers where the costs described above would otherwise have acted as a barrier. At this time, the Company and the Division have agreed that the Gas Expansion Pilot Program would be funded at a level of $3.0 million for the FY 2014 Gas ISR Plan. The Company and the Division are finalizing more specific criteria that would be used under the program to identify and evaluate these potential residential and commercial customers. A detailed description of the pilot program criteria will be submitted in this proceeding to the Commission when it has been finalized.

33 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 12 of 15 Table 1 Capital Investment Plan Growth - Mains - Services - Reinforcement Replacement Program - Main Replacement - Service Replacements FY 2014 ($000s) Description $ 11,942 Installation of new main and services. Spending is generally not included in the Gas ISR Plan. $ 36,462 Includes the replacement of approximately 50 miles of leak prone gas main and approximately 1,100 highpressure, unprotected steel gas services with inside meter sets. Public Works $ 1,821 Includes all municipal public works projects including $1.3 million of reimbursable work. Reactive Main Replacement $ 500 Emergency work resulting in the immediate replacement of main resulting from leaks or other unplanned work Mandated Programs $ 13,522 All emergency service replacements resulting from leaks. All cast iron joint leak repairs. Replacement of approximately 19,000 meters Install corrosion protection on approximately 8.5 miles of main. Non-leak other related work load. Reliability $ 8,987 System Automation Regulator Stations Heater Upgrades Control Lines Installation of vent poles Reactive Water Intrusion projects Special Projects $ 4,000 Carryover of the RIDOT I-195 relocation project originally indentified in the FY 2013 filing Replacement of boiler-off compressor at Exeter LNG facility Main extension pilot program TOTAL $ 77,233

34 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 13 of 15 Table 2 Capital Forecast (000s) Investment Categories FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 TOTAL Growth (1) $ 11,942 $ 16,325 $ 15,944 $ 16,485 $ 16,891 $ 77,588 Main Replacement Program (2) $ 33,362 $ 37,107 $ 39,991 $ 43,705 $ 44,579 $ 198,743 Service Replacement Program (3) $ 3,100 $ 3,100 $ - $ - $ - $ 6,200 Sub-total $ 36,462 $ 40,207 $ 39,991 $ 43,705 $ 44,579 $ 204,943 Public Works $ 1,821 $ 1,857 $ 1,857 $ 1,857 $ 1,857 $ 9,249 Reactive Main Replacement $ 500 $ 510 $ 510 $ 510 $ 510 $ 2,540 Mandated Program $ 13,522 $ 14,671 $ 14,824 $ 14,880 $ 14,936 $ 72,833 Reliability $ 8,987 $ 8,690 $ 9,371 $ 9,135 $ 11,231 $ 47,412 Special Projects $ 4,000 $ 387 $ - $ - $ - $ 4,387 TOTAL $ 77,233 $ 82,648 $ 82,497 $ 86,571 $ 90,004 $ 418,953 (1) Growth is generally not included in the Gas ISR Plan (2) Main Replacement mileage increases annually (50, 53, 55, 60, 60) (3) Service Replacement Program is projected to conclude in FY15

35 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 14 of 15 Table 3 Capital Spending by Investment Categories Fiscal Year 2013 Year to Date - Through September 30, 2012 ($000s) Fiscal Year 2013 to Date Fiscal Year 2013 Total Investment Categories Budget Actual Variance Budget Forecast Variance Proactive Main Replacement Program $17,695 $20,454 $2,760 $33,362 $31,680 ($1,682) Service Replacement Program $2,072 $2,960 $888 $3,906 $3,956 $50 Public Works Program $947 $,71 ($876) $1,785 $1,785 $0 Reactive Main Replacement Program $541 $109 ($432) $1,020 $500 ($520) Mandated Program $6,435 $6,000 ($436) $12,133 $11,928 ($205) Reliability Program $4,767 $2,560 ($2,206) $8,987 $6,655 ($2,332) Special Project (I-195) $0 $0 $0 $692 $0 ($692) Total Capital Investments $32,456 $32,154 ($302) $61,885 $56,505 ($5,381) FY 2013 Capital Spending by Category: Proactive Main Replacement Program $2.8M variance to budget year-to-date To date, the Company has installed 38.7 miles of the planned 50 miles and has abandoned 17.8 miles (12 percent ahead of plan). The Company is on target to meet its proposed replacement of 50 miles of leak prone gas main and is currently projecting year-end costs to be less than budget due to lower than forecasted unit costs. Service Replacement Program $0.9M variance to budget year-to-date To date, the Company has completed 918 of the 1,625 service replacements and 22 of the 49 farm taps and is currently projected to be on budget at year-end. Public Works Program ($0.9M) variance to budget year-to-date To-date, public works construction activity is below forecast; however, it is anticipated that construction activity will increase in the upcoming months. The Public Works Program is currently projected to be on budget at year-end. Reactive Main Replacement Program ($0.4M) variance to budget year-to-date To-date, the lower-than-budget spending is due to lower-than-forecasted unplanned emergency-related work. This variance is currently projected to carry through to year-end.

36 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 2: Gas Capital Investment Plan Page 15 of 15 Mandated Program ($0.4M) variance to budget year-to-date To date, the primary driver for the lower-than-budget spending is the shifting of resources to accelerate the service replacement program and to address growth related services. However, it is expected that Mandated Program spending will be on or near budget at fiscal year-end. Reliability Program ($2.2M) variance to budget year-to-date To date, the lower-than-budgeted spending is primarily driven by the delay in the relocation of three regulator stations (Canal Street, Friendship Street, Westerly) due to conflicts with a water main as well as fewer water intrusion projects than forecasted. This variance is currently projected to carry through to year-end. Special Project (I-195) Deferred to FY 2014 To date, there has been no spending on this project. All proposed work for FY 2013 has been deferred to the FY 2014 plan.

37 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 3: Revenue Requirement Section 3 Revenue Requirement FY 2014 Gas ISR Plan

38 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 3: Revenue Requirement Page 1 of 9 Revenue Requirement FY 2014 Proposal The attached proposed revenue requirement calculation reflects the revenue requirement related to the Company s proposed investment in its Gas Infrastructure, Safety, and Reliability ( ISR ) Plan ( ISR Plan ) for the fiscal year ( FY ) ended March 31, Notably, the revenue requirement for the FY 2014 ISR recovery mechanism excludes amounts embedded in base rates in Docket No for FY years 2012, 2013, and 2014 investments. As shown on Page 1, Column (a) of Attachment 1, the Company s FY 2014 Gas ISR Plan revenue requirement totals $664,509 and consists of the revenue requirement on FY 2014 proposed incremental non-growth ISR capital investment, as calculated on Attachment 1, Page 2, plus the FY 2014 revenue requirement on incremental non-growth ISR capital investment of $-0- and $459,728 for FY 2013 and FY 2012 incremental investment, respectively. Incremental nongrowth capital investment for this purpose is intended to represent the net change in net plant for non-growth infrastructure investments during the relevant FY and is defined as capital additions plus cost of removal, less annual depreciation expense not ultimately embedded in the Company s base rates (excluding depreciation expense attributable to general plant). These amounts are shown on Lines 1 through 8. For illustration purposes only, Column (b) of Page 1 of Attachment 1 provides the FY 2015 revenue requirement for the respective vintage year capital investments as calculated on Attachment 1, Pages 2 and 3. Importantly, these amounts will be trued up to actual investment

39 DOCKET NO. FY 2014 Gas Infrastructure, Safety, and Reliability Plan Section 3: Revenue Requirement Page 2 of 9 activity after the conclusion of the FY, with rate adjustments for the revenue requirement differences incorporated in future ISR filings. Impacts of Base Rate Case Docket No on FY 2014 Gas ISR Revenue Requirement In April 2012, the Company filed an application with the Commission seeking a change in base rates for its electric and gas distribution businesses. The application was assigned Docket No The test year used in the Company s request was calendar year The effective date of new rates in that proceeding is February 1, 2013 for a Rate Year ending January 31, On October 19, 2012, the Company entered into a settlement agreement with the Division and the U.S. Department of the Navy with regard to the Company s base rate change request. On November 14, 2012, the Company entered into an amended settlement agreement (the Amended Settlement Agreement ) with the Division and the U.S. Department of the Navy with regard to the Company s base rate request. The Commission approved the Amended Settlement Agreement on December 20, The base rate change request and associated Amended Settlement Agreement have affected various aspects of the FY 2014 Gas ISR Plan as follows: The FY 2014 revenue requirement associated with the Company s capital investment in gas utility infrastructure is based on incremental capital investment in excess of capital investment that has been reflected in rate base in the Company s base rate case. The FY 2014 ISR revenue requirement has been calculated on estimated FY 2014 incremental capital investment, as well as on incremental capital investment for FY 2012 and FY 2013 because some or all of the capital investment for these years will occur beyond the end of the test year ended December 31, The FY 2014 gas infrastructure revenue requirement has been calculated based upon the agreed-to level of embedded depreciation expense and associated composite depreciation rate, effective property tax rate, capital structure, and cost