NW Natural Massively Overspent on Expanding Its System

Posted on July 23, 2024 by Charlotte Shuff
Tags, Energy, General Interest

This year, NW Natural is asking to raise rates by 18% for residential customers. Gas bills have skyrocketed over the past five years. If this increase is approved, an average NW Natural home could pay $1,123 in 2025—up more than 100% since 2020.

We are also troubled to see that NW Natural is once again attempting to expand subsidies to grow its system (and its profits) at the expense of customers.

After digging into the utility’s request, we have found that NW Natural has failed to meet current caps on this spending as set by regulators. Overspending has run rampant as the utility continues to expand on customers’ dime. In fact, NW Natural has overspent on 1 in 5 new hookups since 2018.

What’s Included in NW Natural’s Request

NW Natural is asking for $154.9 million, $110 million of which would be charged to Oregon households.

With the proposed increase, winter bills alone would go up $22.73 a month for an average household. Customers could face an average bill of $150 per month next winter. Overall, customers could see an increase of $169.68 per year.

The gas utility’s $154.9 million request includes:

Higher profit margins
Expanding subsidies for growing the gas system
Higher bills for customers in new gas buildings
Changing accounting for how customers pay for large investments
Infrastructure upgrades

NW Natural Asks to Expand Subsidies for Growing the Gas System

Existing customers pay for expanding NW Natural’s business through a subsidy called a “line extension allowance.” This subsidy is often paid to building developers, encouraging new homes to be built with gas.

Subsizing Growth No Longer Makes Sense

While in the past it made sense to add more customers, it no longer benefits existing customers. The old theory of this subsidy was that it is good for customers. As new customers joined the system, they would help reduce bills for everyone by spreading costs to more people.

But now, new customers add more costs to the gas system as utilities must focus on reducing emissions. In the past, it would only take about five years for a new customer to cover the subsidy. We are now looking at twenty-five years to make the benefit worth it. If these new customers leave sooner, as we expect them to, everyone else has to pay those costs. And that’s on top of the subsidy cost we’re paying now.

Regulators Already Ordered NW Natural to Reduce Subsidies

In 2022, state regulators ordered that NW Natural must reduce the number of customer dollars it spends on expanding its gas system. That year, NW Natural was allowed to invest up to $2875 existing customer dollars to hook up a new customer. Regulators required NW Natural to lower that amount each year, allowing only about $1380 by the end of 2024. CUB fought hard to win this reduction.

NW Natural is now trying to increase the subsidy for growing its system to up to $3,600 per new building. This is a 25% increase from what regulators struck down not even two years ago. Expanding this subsidy could cost customers millions of dollars per year for decades.

NW Natural Has Ignored Caps on Subsidies for Years

Despite regulators ordering the utility to reduce the amount they spend for new customer hookups, NW Natural has ignored caps on these subsidies.

NW Natural Overspent on 1 in 5 New Hookups Since 2018

CUB dug into NW Natural’s overspending dating back to 2018 and the results are shocking. In that time, the utility added around 40,000 new customers costing $82.6 million. NW Natural overspent on 7,599 new customer subsidies totaling $16.2 million since 2018.

The gas utility overspent on almost 1 in 5 cases of adding new customers.

The most expensive connection NW Natural covered was $86,553 for a single home in 2021 when the cap was $2,875. And that did not include the profit the utility was allowed to make on the new infrastructure, which customers must pay for in addition to the subsidy. Over 65 years, paying off just this one building will cost customers about $324,000.

Since 2018, NW Natural has spent more than $25,000 per new building every year—including after the cap was reduced in 2022.

Overspending Went Unnoticed Before CUB’s Investigation

Before 2022, it was considered standard practice for customers to subsidize expanding the utility system. There wasn’t a question that spreading costs to more people was good for customers. As CUB looked into the cost of meeting emissions reduction goals, we found that this practice no longer made sense to customers.

Last year, CUB investigated the subsidy policy for Avista, the second-largest gas utility in Oregon. What we found was rampant overspending with very little oversight. So we decided to dig further into NW Natural’s subsidy this year.

What we have found in both NW Natural and Avista’s overspending is appalling. And it is troubling that this issue has persisted for years without notice from regulators.

We Must Eliminate Growth Subsidies for the Gas System

In 2022, CUB celebrated the major reduction in NW Natural’s subsidy cap on adding new buildings. We have now shown that reducing the subsidy is not enough—we must eliminate it.

CUB is advocating for phasing out this subsidy entirely. Customers should not be paying any amount to expand the gas system when it is no longer a benefit to them. We are asking regulators to phase out this practice entirely over the next three years.

We already eliminated Avista’s subsidy in 2023. Now we need to eliminate this unnecessary and harmful expense for NW Natural customers.

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