National Grid PLC has proposed a major restructuring of its natural-gas distribution rates in Rhode Island that would allow the utility company to speed up replacement of aging gas lines, create a discount for low-income customers and protect the company from revenue losses that result from the conservation efforts of its customers.

The proposals, contained in a 1,500-page filing made to the Public Utilities Commission yesterday, would be paid for by an increase in distribution rates, which haven’t been raised in 10 years, National Grid said.

(Distribution charges, which account for about 30 percent of a typical customer’s bill, cover the cost of operating and maintaining the network and do not include charges for the gas itself.)

The proposed rate increase would add $6.17 to a typical heating customer’s bill each month, an increase of about 5.1 percent. It would increase the total amount of money collected for natural-gas service by about $20 million, the company said.

National Grid has asked that the increase be effective May 1. The PUC will hold hearings before ruling on the proposed changes.

The filing represents the first significant changes to natural-gas distribution rates since National Grid acquired New England Gas in August 2006. The calculations used to arrive at the rate increase take into account some of the savings achieved by the purchase of New England Gas and KeySpan Corp. Those acquisitions have resulted in savings of about $7 million, and the company is proposing to share about $3.6 million of that savings with its Rhode Island customers.

The rate-increase request is being largely driven by the need to accelerate its program for replacing unprotected steel pipes and cast-iron mains, the company said, which are corroding faster than anticipated. Water and soil interact with these metals and weaken them over time, which has led to an increased number of gas leaks in its pipelines.

“National Grid determined that there is an unacceptable level of leaks in certain areas where cast- iron and unprotected bare-steel piping is concentrated, and the rate of occurrence of these leaks is increasing,” said Susan L. Fleck, vice president of engineering standards and policy for National Grid USA, in testimony submitted as part of yesterday’s filing.

“Specifically, the Rhode Island gas operation has averaged over 1,400 total leaks per year in its system since 2005, which is more than 5 percent higher than the leak rate of 900 leaks per year for the years 1991 through 2004,” Fleck said. “This experience is a clear indication that damage and deterioration associated with corrosion is accelerating.”

National Grid wants to nearly double the $10.8 million it will spend on pipeline replacement this year. It has proposed spending about $21.5 million next year and $26.7 in each of the following three years.

About 43 percent of its 3,102 miles of the gas distribution network consists of cast-iron and bare-steel pipes, the company said. The replacement piping is made of plastic, which doesn’t corrode.

Unless it speeds up the replacement rates, it will take 60 years to replace the remaining bare-steel pipes and 160 years to replace the remaining cast-iron mains, National Grid said.

The company said that without speeding up the replacement program, “unrelenting corrosion will inevitably undermine its ability to meet demand and operate the system safely and reliably.”

Another significant proposal is the creation of a new discount for low-income customers. National Grid has suggested a discount of 10 percent off the distribution rates for customers who meet the criteria.

Low-income electricity customers have benefited from a discounted rate, and consumer advocates have long called on the gas company to institute one for its customers.

Those who are eligible for federal heating assistance under the LIHEAP program would also be eligible for the discounted gas rate, according to Gary Ahern, vice president of pricing and distribution for National Grid’s New England and New York gas business.

The company estimates that 16,000 heating customers and 2,500 non-heating customers would qualify for the lower rate. The savings for a typical heating customer would be about $2 a month, and about $1.42 a month for a non-heating customer.

The overall cost of the low-income rate would be about $1.6 million, National Grid estimates. The company proposes to pass on this cost to all ratepayers.

National Grid also wants to change the rate structure in a way that protects the company from losing profits and revenue needed to maintain the distribution system, if demand for gas declines due to conservation.

Right now, National Grid’s revenues are tied to gas usage. If people use more, the company takes in more money. Conversely, if they use less, the company will have less revenue.

The company wants to “decouple” its revenues from demand because the current rate structure discourages the company from being more aggressive in its efforts to help customers conserve.

“Stated simply, by implementing programs to help customers to use even less gas, the company is, at the same time, undermining its financial health,” said Nickolas Stavropoulos, executive vice president of gas distribution for National Grid, in testimony submitted yesterday.

The company has already seen a big reduction in gas demand because of conservation. Through December, annual gas consumption by a typical residential heating customer in Rhode Island fell by nearly 11.4 percent, resulting in a decrease in revenues of about $7.6 million each year. The company has seen similar reductions in usage by its commercial and industrial customers, Stavropoulos said.

Finally, National Grid has proposed that ratepayers fund a program that would encourage its 31,000 non-heating customers to switch to natural gas for their heating needs. Most of those customers use heating oil, said Ahern.

The company has proposed spending about $1.4 million a year to provide rebates on new gas heating equipment, and for a marketing campaign to encourage customers to switch. Another $3.6 million would be spent each year on capital improvements that would be needed to support the additional customers.

Ahern said that getting more customers to switch to gas would make more efficient use of the distribution system. All customers would benefit from adding the extra demand because it would minimize future rate increases, he said.PROPOSED GAS RATE INCREASES

National Grid natural gas distribution rate increases, proposed for May 1.

SOURCE: National Grid

THE PROVIDENCE JOURNAL

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