6. Recovery of Inspection Costs

Applicant states that, due to the fact that D.00-06-038 placed responsibility on it for compliance with all applicable state and federal codes and regulations when contractors install EQVs on its facilities, it must inspect all installations not previously inspected. This will result in approximately 52,000 inspections at a cost estimated not to exceed $400,000.

Applicant has begun its inspection program. As of December 17, 2000, it had performed 9,600 inspections. The inspections revealed 308 (3.2%) minor leaks and 87 (0.9%) cathodic protection deficiencies. The majority of the minor leaks and deficiencies occurred on EQVs installed prior to implementation of new standards that took effect on October 1, 1998. Applicant states that none of these minor leaks or deficiencies constitutes a serious safety issue or presents an immediate safety hazard. Applicant expects the results of the remaining inspections to be similar.

The customers and contractors who participated in the program chose to do so based on the rules and charges in effect at the time. Therefore, Applicant believes that charging the inspection costs to current participants would be unfair. Instead, Applicant proposes to recover the costs from all core customers. It says that the cost to individual core customers would be miniscule. Applicant states that there is a rationale for allocating the costs to all core customers because the inspections may avoid a mishap that could affect members of the public in the vicinity of a customer with a faulty EQV installation. None of the protestants addressed the inspection cost issue.

We will deny the application with respect to recovery of inspection costs. Applicant has not demonstrated that the further inspections it proposes are necessary, or that the costs of such inspections are properly recoverable from core customers.

First, Applicant represented that the inspection program which it requested and which the Commission authorized was sufficient at the time. Applicant concluded, however, that its liability for any problems had increased due to D.00-06-038. Nevertheless, the inspections already performed revealed no serious safety issues or immediate safety hazards, and Applicant does not expect any to be found.¹ There is no danger to the public. Therefore, Applicant has not demonstrated that the additional inspections are necessary.

Moreover, this is a program that was to be paid for by the participants who benefited from it. However, Applicant believes that charging the further inspection costs to participants would be unfair. Program participants decided to participate based on the costs specified at the time. If the additional inspection costs were to be charged to participants, Applicant would be changing the terms of the program after the fact. Had the participants known of the additional costs at the time, they may have chosen not to participate in the program. Therefore, we agree that to impose additional costs now would be unfair. However, this does not justify recovery of those costs from core customers.

Applicant instituted the inspections as a business decision to protect itself from perceived increased liability. However, if it would be unfair for program participants who benefited from the program to pay for the additional inspections, it would be much less fair to require ratepayers who did not benefit from the program to pay for them.

Applicant has not demonstrated that the additional inspections are necessary. Even if they were necessary, core customers should not be required to pay for them. Therefore, we will not approve Applicant's request for recovery of inspection-related costs from core customers. Applicant is free to continue the inspections at its shareholders' expense.

¹ We note that Finding of Fact 10 of D.00-06-038 states: "Installation of an EQV on the utility side of the meter poses a significant safety hazard because the gas on that side of the meter, upstream of the regulator, is under higher pressure." (Emphasis added.) Under Applicant's program, however, contractors may not install EQVs upstream of the meter, which is where such a safety hazard could exist. They can only install EQVs downstream of the pressure regulator. (See Appendix B of D.96-09-044.) This means that EQVs are installed between the pressure regulator, which reduces the pressure to the level that is used in the customer's facilities, and the meter. Therefore, such EQVs operate at the same low pressure as the customer's facilities, i.e., the standard delivery pressure of 1/3 pound per square inch. Applicant's witness Robert Dowell stated in this proceeding in Exhibit SCG-2 that the point raised in Finding of Fact 10 of D.00-06-038 "pertains more to the initial installation itself." Dowell further stated that serious leaks can easily be detected by smelling the odorant present in the gas, and would be quickly reported by the EQV customer or Applicant's meter readers performing routine safety checks while reading the meter.