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UGI Utilities could face $25 million costs over 2011 Pennsylvania gas explosion

16 October 2012

UGI Utilities faces a $386,000 fine over the fatal February 2011 Allentown gas explosion, but complying with the rest of a settlement agreement with state regulators could raise the company's costs to $25 million in the first two years. The blast destroyed eight homes and killed five.

The February 2011 gas explosion in Allentown killed five
The February 2011 gas explosion in Allentown killed five

After that, thanks to a new state law spurred to passage in part by the explosion, the Pennsylvania utility can apply to add a stand-alone fee to its customers' bills that would have them pay most of the cost of replacing all UGI's cast-iron distribution lines within an accelerated 14-year timeline.

Investigators determined the blast was caused by gas leaking from a nearby cast-iron main, and filed a 179-count complaint against UGI Utilities. The investigators alleged the company failed to ensure the gas had adequate odorant that would help customers detect leaks, erred in its response to the explosion and failed to respond to signs the line was a danger.

To settle the complaint, UGI agreed to pay the fine and improve its gas distribution system, including cutting six years off its 20-year cast-iron pipeline replacement schedule.

Pennsylvania Public Utility Commission investigators say UGI will spend $2 million to $4 million to install new equipment that improves the introduction of a gas odorant called mercaptan into its gas lines in major population centers, according to documents filed with the proposed settlement.

Based on figures provided by UGI, investigators predict that accelerating the pace of cast-iron pipeline replacement will cost the company $18 million a year in 2013 and 2014.

UGI would be eligible to recover up to $24.75 million of those pipeline replacement costs in the first two years using a Distribution System Improvement Charge authorized by the new law, but the utility has agreed as part of the settlement to forgo such a charge until 2015.

Add the civil fine of $386,000, which the utility can't recover from ratepayers, and the total cost to the company tops $25 million.

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