Gas distribution replacement programs are big, complex, and critical capital initiatives to manage. Natural gas utilities spend $22 billion and modernize 30,000 miles of distribution pipeline annually to ensure safety and to enhance system reliability and integrity. From our experience providing technology and consulting to 14 of the top 50 U.S. gas utilities and helping them manage some $2.6 billion in annual gas infrastructure spend, we’ve seen utilities across the country ramp up their efforts to meet the challenge.
Whether you’re ramping up, down, or maintaining your program, a key success factor is ensuring that your program is working at the right rate and making a noticeable dent on your inventory of assets to be replaced. But how can you be sure you’re on track to deliver on your specific cost, schedule, and performance objectives?
Digging into the Data
Recently, a group of PowerAdvocate consultants reviewed the annual data release from the Pipeline and Hazardous Materials Safety Administration (PHMSA), the primary federal agency for pipeline safety which closely monitors gas distribution. Combining this report with gas program insights drawn from the Power Advocate Energy FactBaseTM we’ve started to answer a number of questions, like:
- What’s the total market size for gas replacement activity?
- What are good ways to estimate and track spend on gas replacement among peer utilities?
- How much of the target replacement infrastructure (for example, cast iron and unprotected steel) remains across the industry? How quickly is it being replaced?
- Do companies replace the infrastructure at the same rate or different rates?
- Who are the highest-performing gas utilities in terms of replacing infrastructure? What differentiates them from the pack?
- Do accelerated gas distribution programs correlate with financial performance for utilities? Why and how much?
These are nuanced questions which deserve their own responses. We’ll cover several of these questions in this 4-part blog post series along with a webinar tailored for gas industry professionals to understand how these industry metrics work together and what it means for them.
Analysis Preview: Individual Company Performance
In completing the study, PowerAdvocate developed a unique point-of-view on “enterprise level” rate of replacement for gas utilities – a metric that shows all of a utility’s operating units and infrastructure types rolled into a single number.
The basic idea: most major utilities have some kind of gas distribution infrastructure replacement program, and many utilities tout their “accelerated programs.” As seen in utility press releases, many accelerated programs target completion in the 2020s or shortly thereafter – sometime over the next 8 to 15 years. We were curious to see what non-accelerated programs look like in the gas industry. Completion in 20 years? 25 years? Or were more or less all utilities’ programs accelerated?
As the chart below shows, we developed hypothetical ranges for accelerated and standard rates of replacement and plotted the results for the top 50 utilities by remaining program spend. We thought there might be a trend for companies with higher remaining spend (i.e., more old pipes to replace) to have lower replacement rates, so we’re showing the results plotting Anticipated Remaining Program Spend and Replacement Rates. But most of all, we wanted to see if the data supported our hypothesis that most utilities would have replacement rates between 4 percent and 12.5 percent per year.
What we found surprised us. The majority of the top 50 utilities are not on track to complete replacement of the target assets within the next 25 years. And furthermore, performance is largely scattered and doesn’t appear to follow clear patterns. Our upcoming blog post series and webinar will provide additional insights into our analysis.
Gas Distribution Replacement Rates - Top U.S. Utilities
Mains and Services, including Cast Iron, Bare Steel and Pre-1970s Plastic
(source: PowerAdvocate analysis of PMSHA data)
This Simple Metric Can Start a Positive Change
The take-away for utilities: Overall replacement rate for gas distribution is a simple metric that you can track, compare against peers, and use to drive your strategic planning and conversations with stakeholders. Your team can benefit from knowing whether they’re in the green band and how to get there.
Finding out your competitive position is just the beginning of the conversation on improving your team’s performance and achieving better safety outcomes in this critical industry sector. In the upcoming industry webinar we’ll share:
- how these new metrics of infrastructure replacement rate and anticipated remaining program spend may be used for performance measurement
- examples of strategic procurement for gas replacement, and
- lessons learned from utility leaders.
This is the first in a series of posts on U.S. gas distribution sector, led by PowerAdvocate’s Gas Transmission & Distribution Practice Area. Read the second post in the series: 2 New Metrics to Evaluate Gas Distribution Replacement Performance