NW Natural’s proposed High Pressure Gas Service—what’s in it for residential customers?
Posted on October 18, 2013 by Sommer Moser
Tags, Public Involvement and Coalitions
Earlier this summer, NW Natural made a filing with the Commission (Advice No. 13-10) seeking approval to provide High Pressure Gas Service (HPGS) to “qualifying” non-residential customers. NW Natural’s proposal for HPGS would allow these non-residential customers to install facilities on their property that would provide fuel to vehicles utilizing compressed natural gas—largely vehicle fleets like delivery trucks and city busses.
So what does this have to do with NW Natural’s residential customers? The short answer: NW Natural needs to demonstrate that residential customers will receive a benefit if it provides this new service to HPGS customers. NW Natural also needs to show that residential customers will not subsidize the new service in the long-term. NW Natural hasn’t done that yet. Gas service is not an essential service like electricity is—it’s hard to plug appliances into natural gas. But customers always have the ability to use another energy source (i.e. electricity, propane) to meet the energy needs met through natural gas. Accordingly, natural gas utilities have an obligation to extend service only if the expected revenues from new customers cover the incremental costs and make a contribution to system costs, thus providing a benefit to other ratepayers.
NW Natural’s line extension policy, contained in Schedule X, is an example of this principle. Schedule X requires new customers to assume financial responsibility for costs associated with extending service if those costs are greater than the benefits the service will provide other ratepayers.
The allowable costs for extending service are based upon the “construction allowance,” which differs between residential and non-residential developments. For residential developments, the construction allowance is based on the type and number of gas-fired appliances to be installed to ensure that the customer’s gas usage will be great enough to provide a benefit to the system.
Customers without gas heating or gas water heating have a low construction allowance because they will provide little revenue to the system, whereas customers with gas heating have a higher construction allowance because they will provide greater revenue to the system. But in both cases, the expectation is that the customers will provide net margin revenues within five years and therefore provide a net benefit to the system in year six. This ensures that NW Natural’s growth is profitable and that there is no long-term subsidy from residential customers for this non-residential service.
CUB’s position on these issues is supported by the National Association of State Utility Consumer Advocates (“NASUCA”). NASUCA notes that, “[g]as distribution utility ownership, operation or maintenance of natural gas refueling stations may result in cross-subsidies of the new services by traditional ratepayers, either directly or indirectly, due to the complex overlapping of monopoly and competitive utility roles.” NW Natural has already conceded that there are implicit subsidies from other customers through labor and legal costs with the evaluation and development of its HPGS project.
While CUB recognizes that there may be non-system benefits from NW Natural offering HPGS, particularly through reductions in greenhouse gas emissions, the utility is still required to demonstrate that offering HPGS to its commercial and industrial customers will provide a net benefit to all ratepayers. As we discussed earlier, existing policy already requires the cost of extending service for other commercial or industrial projects to contribute to the system at some point. HPGS should be no exception and should include program specific costs such as labor and legal costs. High pressure gas service is a competitive service and should not be subsidized by other customer classes in the long-term.
NW Natural must be required to demonstrate that there is a net benefit to existing customers and that there will be no long-term cross-subsidization between existing customers and HPGS customers. Thus far, NW Natural has not provided this analysis. So, CUB is asking the Commission to require the Company to demonstrate a net benefit to the system before approving NW Natural’s HPGS request.
The Commission is scheduled to address NW Natural’s HPGS filing at a special public meeting on October 28, 2013 at 2:30 PM
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04/04/17 | 0 Comments | NW Natural’s proposed High Pressure Gas Service—what’s in it for residential customers?