Novmber 22, 2013
PURA Approves Statewide Natural Gas Expansion Plan
Goal is 280,000 conversions by 2023
Connecticut's Public Utilities Regulatory Authority (PURA) today issued a decision expected to broadly expand availability of natural gas service to residents and businesses throughout the state.
The gas infrastructure expansion plans filed by Connecticut's three investor-owned gas companies aim to convert 280,000 customers to natural gas over a ten-year period. The plans target customers passed within 150 feet by an existing main (on-main customers) but not yet connected, as well as potential customers who are off-main but can cost-effectively convert.
PURA's ruling eases viability criteria the gas companies use to evaluate projects, lengthening payback periods to reduce upfront costs required from new customers connecting to the gas distribution system. It also introduces a "portfolio" approach to gas extensions whereby 60% of the customers necessary to make a project viable must commit to gas service before construction starts. This change will work to allow more customers to cost-effectively connect to the distribution system.
Today's decision also establishes new rate and cost recovery mechanisms. "New" customers added after January 1, 2014, will be charged a monthly premium over current rates to offset incremental costs of expansion, in lieu of making a one-time upfront payment to cover connection costs. On-main customers added after January 1, 2014, will pay a ten-year, 10% premium on the distribution component of standard rates, while off-main customers added after January 1, 2014, will pay a ten-year, 30% premium on the distribution component of standard rates. The distribution component of rates averages between 40-60% of the overall monthly bill. After the initial ten years of service, "new" customers return to standard rates. Some customers, such as those far from the main or with complex construction requirements, may still incur upfront costs.
Recent legislation directed Connecticut's investor-owned gas companies: Connecticut Natural Gas, the Southern Connecticut Gas Company, and Yankee Gas Services Company, to file the infrastructure expansion plans consistent with goals articulated in the Department of Energy and Environmental Protection's Comprehensive Energy Strategy released in February. The gas companies finalized and submitted modified proposals with PURA on July 26, 2013.
CNG and Southern plan to convert 29,500 low-use (non-heating) customers to heating, add 113,700 new on-main customers and 54,000 new off-main customers by 2023. Yankee proposes to convert 10,000 low-use customers to heating, add 41,296 new on-main customers and 31,125 off-main customers by 2023.
Non-firm margin "credits" - revenue earned through interruptible and off-system sales - will be used to offset expansion costs for current natural gas customers rather than returned to customers as a bill credit. If the new customer surcharge and non-firm margin revenue prove insufficient to cover ongoing expansion costs, a system expansion reconciliation charge on existing customer bills will be used to make up the difference.
PURA's decision directs the gas companies to develop a process review approach to identify cost saving opportunities at each major expansion process step, such as service installations. The ruling states that an incremental "business-as-usual" approach would not achieve break-through improvements that could significantly affect overall project costs and customer rate impacts. According to the ruling, defining standardized consistent process approaches among the three companies can drive best practices, enhance measurement and comparison, and maximize overall efficiency.
To help inform customers contemplating gas conversion, the gas companies are to develop for PURA's review and approval a conversion cost calculator. PURA Commissioner Michael A. Caron noted that this requirement "is designed to give customers ready access to the tools necessary to decide whether gas conversion is the best solution for their individual needs." PURA also ordered the Companies to develop a user-friendly form to assist customers in obtaining multiple vendor quotes for heating equipment and ancillary gas conversion goods and services.
Today's ruling denies the gas companies' request for additional financial incentives to meet customer conversion targets and other policy objectives, but indicates PURA's willingness to revisit the issue if the companies demonstrate tangible cost savings and other efficiencies under the plan.
Natural gas prices have declined in recent years due to enhanced domestic recovery technologies. PURA's ruling acknowledges societal benefits, including increased or retained employment, local economic development, environmental benefits and transit-oriented development goals that may be enabled by the gas expansion plan.
While the gas companies testified that the annual rate impact of the expansion plan should be no more than 3% over the ten-year planning horizon, PURA remained circumspect. PURA's commissioners indicated that they would review project revenues, and adjust the viability model if the approach approved today begins to adversely impact future rates. PURA Vice-Chairman John W. Betkoski, who was the lead commissioner on the case, commented that the final ruling "strikes the right balance between ensuring price stability for current customers while maximizing opportunity to expand gas availability consistent with Governor Malloy's overall energy strategy."
PURA also established re-evaluation "triggers" to reconsider the expansion plan, including: substantial failure to meet customer conversion forecasts, 5% upward pressure on residential rates in any given year (or 15% over the life of the plan), or spikes in the price of natural gas in comparison to delivered heating oil.
Arthur H. House, Chairman of the three-member PURA panel, stressed the decision's economic importance for residents and business throughout Connecticut. "We have set the stage to expand the availability of gas service to allow more Connecticut residents and businesses to reap the benefit of historically low gas prices. At the same time, we have incorporated appropriate safeguards to protect existing customers."