What Is Really Preventing Atmos From Making Critical Pipeline Safety Upgrades Right Away?

The regulatory and legislative wheels are in motion for Atmos Energy to more quickly upgrade its aging, dangerous natural gas distribution pipelines in North Texas. Speed is important because after a natural gas explosion in a home that killed a girl last year, Atmos found a worrying number of leaks in North Dallas.Dallas Rep. Rafael Anchia has filed legislation to require natural gas utilities to upgrade lines made of older materials by the end of next year. That’s faster than Atmos’ plan to replace such pipelines by the end of 2021.But if you live in a neighborhood with natural gas leaks, all of this is taking far too long to play out, as residents can’t tell which spot is most likely to explode next.A cynic might say that’s the way things often go in corporate America when the needs of customers conflict with the interests of shareholders. To that we say, but Atmos is a regulated monopoly, and those goals are supposed to align.Atmos, as with all natural gas utilities, is required to maintain its network of distribution pipelines to meet safety standards, as regulated by the Texas Railroad Commission. When the network needs upgrading to meet those standards, Atmos is required to make those investments, and the company is entitled to recoup the cost plus a profit margin by raising customer rates.This involves what used to be a long, onerous process of filing a rate case every few years and waiting for the money to finally roll in via customer bill payments. But Atmos persuaded the Railroad Commission a few years ago to implement an accelerated rate hike approval process, and the time between investment and payback has contracted.All of that means that Atmos can upgrade the aging lines and expect customers to pay for the cost of those upgrades plus a profit. In fact, capital investment is a key profit mechanism for regulated companies.That leaves us with the question: Why doesn’t Atmos make every upgrade right away?We have two theories.1. The scope of the needed upgrades in North Texas is so large that it is difficult to muster the workforce to do the entire job simultaneously and immediately. Replacing a pipeline involves digging up streets, alleys and private property and working with various crews and contractors to replace the line, fill in the hole, and replace the concrete or landscaping. This can be hugely disruptive to residents.Atmos said via email on Friday: “Factors that may influence the rate of acceleration include the availability of materials; trained and qualified employees to design, coordinate, and inspect this level of construction activity; contractors to fill material for street repairs; increase demand of line-locate contractors due to increasing activity; inclement weather and city resources to support this pace of replacement. In consideration of these factors and regulatory requirements, we are continuing forward with pipeline replacement as quickly and safely as possible.”2. The Atmos board has boosted its dividend regularly, handing out large amounts of its profit to shareholders. Could Atmos throw more money at the problem by rebalancing how it uses cash to allow for more investment in pipeline upgrades faster? Or is the board reluctant to do that because their priorities are not as clear as they should be?Last year, the board increased the dividend 8.2 percent, amounting to a total cash payout of around $215 million. And in 2018 Atmos also boosted capital investment to $1.5 billion for the entire company, which includes regulated utility operations outside of Texas and a non-regulated pipeline company. How much more in capital investment would it take to finish up the North Texas pipeline upgrades? Could Atmos trim back its dividend to make cash available for more safety investment? Shareholders might forgo a little dividend in the short term but still reap the benefits when customers begin paying for the upgrades. Atmos’ answer via email is that the company relies on investors and creditors to finance a portion of its capital investments. “As an investor-owned utility, we can only attract these additional resources if we are financially healthy. This means we must maintain manageable debt balances, grow earnings and increase dividends.”Atmos last week filed with the city of Dallas for a rate hike of $10.1 million, which is in line with prior annual rate increases. If the company invests more, it would be entitled to raise rates to compensate. We have no problem with Atmos recouping from customers a fair rate of return on safety upgrades.We would urge Atmos and its shareholders as they meet in a few weeks to seriously consider whether making more investment money available for safety upgrades could shorten the amount of time that some customers live on top of a leaking time bomb.What's your view?Got an opinion about this issue? Send a letter to the editor, and you just might get published.  Continue reading...

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