Cutting Natural Gas Expansion Subsidies is Only the First Step
Posted on October 28, 2022 by Charlotte Shuff and Bob Jenks
Tags, Energy, General Interest
State regulators ordered this month that NW Natural must reduce the number of customer dollars it spends on expanding its gas system. This is an important step forward for protecting natural gas customers from financial risk.
CUB advocated for the Public Utility Commission to reduce and phase out these expansion subsidies. Although regulators chose to only reduce the subsidies, CUB applauds the Commission’s decision. CUB’s analysis demonstrated that expanding the natural gas system adds risk to existing customers.
What Are NW Natural Customers Subsidizing?
Existing customers pay for expanding NW Natural’s business through a subsidy called a “line extension allowance.” These funds offset the costs that building developers would otherwise incur to connect a new building to the gas pipeline system. This encourages new homes to be built with gas.
In 2022, each new gas hookup cost customers $2875. The company was set to spend approximately $28 million annually to add 10,000 customers each year for the foreseeable future.
Regulators Cut the Expansion Subsidy in Half by 2024
With the new order from regulators, NW Natural will have to reduce the amount customers subsidize over the next three years. Starting November 1, 2022, a new gas hookup will cost customers $2300. In November 2023, that will drop to $1840. Finally, in 2024, that amount will reduce to $1380.
NW Natural will reduce its expansion subsidy by $27 million over the next three years. In this time, the customer cost per new gas hookup will be less than half of what it is today. This reduction saves customers not just the amount spent on expansions, but also millions of dollars extra from profit margins that the company is allowed to add to the subsidies.
Customer-Funded Expansion Subsides Add More Risk
CUB is concerned that continuing to grow the natural gas system will harm the current and future customers of NW Natural. Adding gas service to new buildings increases the cost of service to existing customers. It adds additional risk to customers in the future.
Climate Regulation Increases the Cost of Growth
Continuing to ask customers to fund expansion subsidies not only costs them money now but also costs them later.
Climate change requires a reduction in the combustion of fossil fuels, including natural gas. The
state’s Climate Protection Program requires that gas utilities reduce their emissions by 50% by 2035. It is important to recognize that this 50% reduction is from a historic baseline.
From this baseline, NW Natural must reduce its emissions by 1.03 million metric tons. However, if NW Natural continues to add customers to its system, it will have to reduce emissions by 1.42 million metric tons. Instead of a 50% reduction in baseline emissions, to accommodate load growth NW Natural will require a 69% reduction in baseline emissions, which will significantly increase the cost of compliance.
By continuing to subsidize adding new customers to the gas system, NW Natural is putting existing customers at risk. Every new customer added means more emissions that will have to be reduced—and paid for by the people of Oregon—later.
Meeting Climate Goals Means Reducing Natural Gas Demand
To meet climate regulation targets, NW Natural is proposing energy efficiency investments and “renewable” natural gas (ex: factory farm gas). With the largest increase in spending coming from energy efficiency, this cost will continue to go up as new customers are added. Expanding the system through customer-funded subsidies does not make financial sense.
Even with the lower expansion subsidy through 2024, the dollars do not add up for meeting climate goals while adding customers. Adding a new customer after 2024 will cost $1380 for people already on the system. And say that a new customer uses 600 therms of gas per year. To reduce 600 therms of emissions from a new home, avoiding a new hookup would save existing customers $1380.
Compare this to an energy efficiency program that gets 60 customers to reduce their usage by 10 therms/customers. Both programs save 600 therms. But one also saves $1380 by eliminating the remaining subsidy. The other costs money through incentives to get customers to implement the energy efficiency investment.
Not Acting Now Could Leave Many Gas Customers Behind
CUB is concerned that the cost of gas provided by NW Natural will increase as the company adds hundreds of millions of dollars in new spending related to energy efficiency and alternative fuels as it attempts to comply with climate regulations.
As the cost of gas increases, many customers may opt to convert to high-efficiency heat pumps which provide efficient heating and cooling. This could create a significant problem for the customers who are left – customers who cannot afford a heat pump or do not control the heating equipment in their building.
Low-income households and renters could be particularly hard hit by increasing costs of the gas system. These customers would be asked to pay for, not just the high cost of compliance, but the stranded costs associated with customers who have left the system.
When You Are in a Hole, Stop Digging
Will Rogers once said that “if you find yourself in a hole, stop digging.” This is where we are now. We have a gas system that must reduce emissions by 1.03 million metric tons within 13 years. If we keep digging – adding new buildings to the gas system – we will have a gas system that has to reduce emissions by 1.42 million metric tons.
Limiting the expansion of the gas system by limiting new customers hooking up to the system
reduces emission compliance costs and benefits existing NW Natural customers. It is why CUB, supports phasing out expansion subsidies and limiting overall expansion for natural gas.
In addition to phasing out expansion subsidies, CUB supports additional policies to limit new customers joining the gas system. This includes local moratoriums on new residential gas connections or similar statewide policies.
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10/28/22 | 0 Comments | Cutting Natural Gas Expansion Subsidies is Only the First Step