Massachusetts utility regulators order critical reforms to gas utility pipeline safety programs

On April 30th, utility regulators at the Massachusetts Department of Public Utilities (DPU) ordered major reforms to six gas utilities’ pipeline spending plans, known as Gas Safety Enhancement Plans (GSEPs). The reforms prioritize three overarching objectives: safety, affordability and compliance with the Commonwealth’s climate goals. 

The orders set a new, high, national standard for states grappling with the challenge of cost-effectively mitigating the risks posed by aging gas infrastructure while embarking on the transition to safer, cleaner energy to heat our homes.

The orders apply to National Grid, Unitil, Berkshire Gas, Liberty, Eversource and NSTAR Gas.

Old iron and steel gas pipes pose risks

Around the country, many of the underground pipes that deliver methane gas for home heating are made of materials at elevated risk of failure – mostly, but not exclusively, steel without corrosion protection and cast iron (modern pipes are made of plastic or protected steel). This is particularly true in older, colder cities like Boston, home to the nation’s second gas system initially built in the early 19th century for street lighting. These risky pipes are often referred to as “leak prone pipes.” 

Leak prone pipes pose a number of risks. As the name suggests, they leak methane, which is many times more potent as a climate pollutant than carbon dioxide. And pipe failures can lead to explosions, causing property damage, injury, and death. For both our climate and public safety, it’s incumbent on gas utilities to mitigate these risks.

A call to action

After a pipe explosion in California in 2010, federal pipeline safety regulators issued a Call to Action, encouraging gas utilities to accelerate efforts to address leak prone pipe. Many states, including Massachusetts, passed new laws to provide gas utilities powerful incentives and rich rewards for spending more money each year on pipe replacement. 

That utility spending has led to big increases in utility profits, and to customers’ monthly bills, as many Bay Staters experienced this winter. 

It’s not working

But in Massachusetts, as in other states, this huge increase in spending does not appear to be leading to a corresponding decrease in safety risk. Nationally, gas utilities spent over $28 billion on pipe replacement in 2023, more than four times their level of spending in 2010. But despite hundreds of billions of dollars spent on pipe replacement over the past decade, federal regulators have found no meaningful decrease in leak repair rates. 

This national failure also holds true here in Massachusetts. Just in terms of the basic task of pipe replacement, Massachusetts utilities are spending more and more each year, while the amount of pipes they replace remains flat. 

Another way of looking at this data: the cost per mile of pipe replacement has grown from $1.32 million per mile in 2015 to a planned $3.46 million per mile in 2025 – almost tripling. 

Incentives gone awry

One explanation for these failures is mission drift: instead of optimizing GSEP’s for safety, the utilities have optimized them for profits. 

Under traditional regulation, utilities’ opportunity to profit increases as they spend more money on infrastructure. This is purposeful: underinvestment in utility infrastructure can create reliability and safety problems. This incentive to invest helped utilities grow to meet increasing consumer demand over the second half of the 20th century. 

But this regulatory approach also has well known challenges. First, while the regulatory incentive for growth generally worked as more customers joined the system and consumed more gas, it is misaligned with current trends of declining demand for gas, driven by more efficient homes, more efficient gas appliances, and many customers swapping gas appliances for highly efficient electric ones, like heat pumps and induction stoves.  

Second, this traditional regulatory approach creates incentives for overinvestment, that is, spending on infrastructure that drives up profits, but does not provide sufficient improvements in service to customers in return. This practice is often called gold-plating, as if a utility placed a thin layer of gold over its pipes. Gold-plated pipes would be much more expensive and therefore much more profitable for the utility, but would provide zero additional benefit to utility customers. 

As this is a long-standing dynamic in utility regulation, regulators have developed a number of tools to attempt to keep excessive utility spending in check. In its attempt to incentivize spending on leak prone pipes, Massachusetts’ GSEP law, like those in other states, weakened or removed these checks. But instead of leading to greater rates of pipe replacement and risk reduction, this regulatory shift super-charged the utility incentive to spend wastefully.

Referencing a limit the DPU previously put on how much annual spending utilities could pursue under this special regulatory treatment (up to the amount that would cause a bill increase of 3 percent of the utility’s prior-year total revenue), DPU wrote in its order:

“Rather than being narrowly tailored, the development of GSEP project lists seem to be geared toward assembling, in an unsystematic manner, a sufficient number of projects to achieve a level of spending at or above the current 3.0 percent revenue cap. The risk-prioritization process must be more rigorous to ensure the continued safety of the gas distribution system while protecting ratepayers against excessive spending at and above the revenue cap.”

Key elements of the DPU order

The DPU ordered a number of reforms to the utilities’ GSEPs in an attempt to achieve its priorities of safety, affordability, and alignment with the state’s climate goals.

These priorities can be in tension. For example, while not practically possible, one can imagine a utility replacing its remaining 1,000 miles of leak prone pipe in a single year. That would drastically reduce safety risk, but the amount of spending it would require over a short period of time would lead to an astronomical rate hike and unacceptable affordability burdens on customers. 

But just because these priorities can be in tension does not mean that policy cannot be crafted to better balance and align them. The essential task is to maximize risk reduction at the lowest cos. One way utilities can accomplish this is by considering a range of risk mitigations beyond investing in new fossil fuel infrastructure. Considering alternatives to long-term fossil fuel investments also aligns with state climate goals. 

There are in fact a number of actions gas utilities can take to address the risks posed by leak prone pipes without fully replacing them with a new gas pipe made of modern material. These include a variety of “advanced repairs” such as the use of robots or inserting a liner within the pipe, and pipe retirement – that is, taking the pipe out of service and meeting impacted customers’ energy needs in other ways, such as electrification. While pipe replacement will certainly need to remain a risk mitigation strategy in some circumstances, these alternatives could prove to more cost-effectively reduce risk, while facilitating the state’s clean energy goals. 

The DPU order takes several important steps to move GSEPs in this direction:

Ending the “replacement first” approach

The DPU states in its order:

“A remediation strategy that relies primarily upon replacement of leak-prone pipe, rather than consideration of advanced leak repair technology, might be defensible under the statutory and regulatory regime in existence upon passage of the Gas Leaks Act in 2014.”

That is, following the adoption of the law that created the GSEP process in 2014, utilities might defensibly proceed with pipe replacement as its primary and presumptive risk mitigation strategy, without significant consideration of alternative strategies. 

However, as the order notes, the Massachusetts legislature reformed the 2014 Gas Leaks act twice in recent years. First, in 2022 An Act Driving Clean Energy and Offshore Wind added advanced repair technology as a risk mitigation measure. Second, in 2024 An Act Promoting A  Clean Energy Grid, Advancing Equity, and Protecting Ratepayers substituted a variety of words such as “measure,” “retirement,” and  “remediation” for the word “replacement.” 

Under the law governing GSEPs, and through this order, utilities can no longer justify GSEPs that pursue a strategy of pipe replacement without rigorously considering alternatives. 

Referencing the fact that utilities typically charge its customers for infrastructure investment over 50-60 years, the DPU concluded:

“It is no longer reasonable to proceed on the basis that leak-prone pipe must be remediated in a manner that presumes the existence of a natural gas distribution system in perpetuity.”

Re-prioritizing risk prioritization

Under a replacement-first risk mitigation approach, some utilities have argued that while risk prioritization is important, other operational considerations can take precedence. They argue that they are reactively addressing their highest risk pipes, while systemically replacing the remaining pipes. Given that these pipes may have been in service for 60-80 years, they argue, a difference of a year or two does not matter too much. Therefore, they conclude. it is acceptable to prioritize things over a rigorous approach to always pursuing the most cost-effective risk mitigations. 

But this dynamic changes significantly when considering alternatives to replacement, as Massachusetts utilities now must. When no longer presuming that all pipes will be replaced, and when considering a suite of mitigation strategies, it becomes more important to have a rigorous, transparent method of measuring risk, measuring risk mitigation and calculating benefit cost-ratios in order to compare mitigation strategies. 

Towards this end, the DPU ordered its staff to convene a GSEP Risk Assessment Working Group, to meet over the summer to “develop proposed risk-based prioritization principles that will guide the 2025 GSEP filings this fall.”

Containing costs

While considering alternatives to replacement, and a more rigorous, transparent approach to risk prioritization should help contain utility costs, the DPU took further action to protect customers’ pocketbooks. 

The first is to lower the current annual revenue cap from 3 percent to 2.5 percent. This places a tighter limit on the amount of spending utilities can do under the more favorable-to-them GSEP regulatory structure. DPU indicated it would likely continue to lower that cap to 2 and then 1.5 percent in coming years. 

Second, the DPU eliminated “carrying charges” for investments made above the revenue cap – essentially, charging interest until the utility could begin charging its customers for that spending via traditional regulatory approval. In simple terms, this places further a disincentive for utilities to engage in wasteful spending, another way to protect customers from unjustified rate increases.

What the DPU orders mean

As with any policy change, implementation is critical, but the reforms enacted by the DPU should lead to safer gas utility service, less severe increases to customer bills, and a smoother transition to safer, cleaner energy to heat our homes.