Pa. may allow utilities to raise rates to pay for gas-main extensions

Peco contract workers install yellow plastic gas mains in Bryn Mawr in a recent gas-main extension project. Pennsylvania lawmakers are considering a bill that would allow utilities to raise rates to extend service to new customers. Credit: Peco

Should current Pennsylvania utility customers pay the cost to extend gas service to their neighbors?

The state House Consumer Affairs Committee on Wednesday ventured into that minefield of potentially clashing interests when it heard testimony in Harrisburg on a proposal to allow utilities to impose a surcharge on all customers to pay to extend gas mains. Under current rules, only the customers who benefit from the new gas service pay the costs.

Utilities say demand for new gas service has grown because of Pennsylvania’s shale-gas boom, but they have been unable to satisfy that demand because the upfront cost for customers to build new mains is so high. New gas mains cost between $500,000 and $1 million a mile to build.

“With all the natural gas we have in Pennsylvania, we need to be able to try to get these facilities into underserved and unserved areas," said Rep. Robert Godshall (R., Montgomery), the committee chairman and the bill's sponsor.

Under Public Utility Commission regulations, utilities in the state typically can't raise rates to pay for projects that benefit a few customers unless there is a larger public benefit. 

When a new gas main is requested, utilities must apply an economic test in which the costs of the project are measured against expected revenue. If gas-main extension fails that economic test, those who want the service are obliged to pay any "uneconomic" costs.

When prospective gas customers include the cost of adding lines inside their houses and new appliances, many decide the cost of a new main is too high.

The PUC has allowed eight gas utilities, including Peco and UGI in Philadelphia’s suburbs, to establish programs in recent years to reduce the initial price of gas mains and to allow customers to finance the cost in monthly installment payments.

Godshall's proposal, known as House Bill 107, would allow utilities to pick up more of the costs by assessing a fee of up to 2.5 percent of the utility’s distribution charge to pay for gas-main extensions. Godshall likened the surcharge to the system improvement charges permitted under a 2012 state law to pay for upgrades of aging utility infrastructure.

The Energy Association of Pennsylvania, the utility trade group, and representatives of several utilities expressed support for the proposal as a fitting way to extend the benefits of shale-gas production to a broader population.

Morgan O’Brien, chief executive of Peoples Natural Gas, a Pittsburgh utility, said the surcharge would amount to about 30 cents a month for the average residential customer, “an insignificant charge in the grand scheme of things.”

“What’s going to be our legacy?” asked O’Brien. “What will we have done with this tremendous amount of gas beneath our feet? Will it be that we just poke holes in the ground and move that gas to other parts of the country, other places of the world? Or are we going to take advantage of that gas to benefit the people who live here, the people who work here?”

But the state’s acting consumer advocate, Tanya J. McCloskey,  and PUC Chair Gladys M. Brown urged the legislators to be cautious, fearing that a surcharge would divert resources and attention from utilities’ need to replace 10,000 miles of “at risk” gas mains.

“Compelling the state’s existing natural-gas customers to subsidize the cost of connecting new customers, when those expenses have traditionally been the responsibility of new customers, is a substantial and possibly contentious change,” said Brown. She added that the charge had the “potential of pitting existing residents against new arrivals, old neighborhoods against new developments, and aging communities against growing regions.”

Brown also expressed concerns about the bill's provision allowing utilities to include in the surcharge the cost of customers' new in-house piping and appliances. "These costs will ultimately be borne by the existing customer base with no discernable benefit to them or any utility-owned and -operated infrastructure," she said.

But one customer advocate said he supported the legislation because it would make energy costs more affordable for low-income customers.

Patrick Cicero, executive director of the Pennsylvania Utility Law Project, which represents low-income customers, said the bill would make it possible for some to replace expensive oil- and propane-heating systems and come under the protection of state-regulated utilities.

He said the program would "help close the gap for low- and moderate-income households to obtain natural-gas service."