1. Who Pays for Safety? Who Should? November 19, 2015

2. 2 American Gas Association Founded in 1918, represents more than 200 local energy companies that deliver clean natural gas to more than 177 million Americans nationwide. Members deliver 94% of the natural gas in the US. Today, natural gas meets more than one-fourth of the United States’ energy needs.

3. Who Pays for Federal and State Oversight of Pipeline Safety?

4. PHMSA User Fees Fund PHMSA and state pipeline safety programs. Note: Some states also charge user fees to help fund state pipeline safety programs. Assessed on hazardous liquid, LNG facilities, and natural gas transmission pipelines. Natural gas user fees are intended to be paid for by the natural gas customer. Part of the transportation cost paid by distribution companies Costs are part of the bill paid by customers 4

5. How do transmission and distribution operators pay for pipeline safety projects?

6. Process by which a pipeline operator, its customers, and the operator’s regulatory body determine a fair price for the pipeline’s services. This includes pipeline safety programs, infrastructure repair and replacement, and other expenses. 6 Ratemaking

7. Three areas that determine the rate an operator can charge Rate base: Amount of $$ operators have invested in the facilities and equipment – Land, buildings, pipe, valves, tools, trucks, etc. Expenses: Include labor to perform operating and maintenance activities, taxes, depreciation, and general costs such as leases and overhead. Rate of return: Cover the cost of capital investment, including a fair return for investors. 7

8. Setting Rates: Natural Gas Transmission Interstate transmission operators: Do not own the natural gas they transport Paid regulated rate by the customer for transport service FERC regulates the rates, terms & conditions of service Must be “just and reasonable” and not unduly discriminatory Rates include pipeline safety costs & PHMSA user fees Intrastate transmission: Rates regulated by state

9. Setting Rates: Distribution Pipelines Distribute purchased gas to customers within a set geographic area. Utilities pass on the cost of gas directly to customers and do not earn on the commodity. There can be incentives for less gas usages. Customers pay a fee for gas distribution service – fee may include a fixed monthly amount as well as an amount based on actual usage of the commodity. This fee includes pipeline safety costs. State public utility commissions regulate rates, terms, and conditions of the distribution service fee and ensure utilities operate in the public interest. For example, they may: Prohibit utilities from turning off residential customer’s gas service for nonpayment during cold weather Ask for expanded safety programs Require utilities to offer energy conservation programs

10. Reviews all utility expenses and proposed expenses, including pipe replacement, cost of safety programs, and operations and maintenance expenses. Disallows all expenses it determines to be improper, imprudent, or unnecessary. This can include the rate that pipelines are replaced. Reviews the amount utility stockholders have invested in utility plant and other facilities and allows a reasonable ROI necessary to provide good service. 10 Role of State Commissioners in Intrastate Transmission & Distribution Rates

11. So Who Pays For Pipeline Safety? We all do

12. Christina Sames Vice President Operations and Engineering csames@aga.org. 12 Find Us Online www.aga.org www.truebluenaturalgas.org http://twitter.com/naturalgasflk www.facebook.com/naturalgas www.linkedin.com/company/5090 5?trk=tyah