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January 25, 2013

Natural gas use may get legislated boost

---- — More than 18,000 customers have switched to natural gas in the last two years, as consumers scramble to take advantage of historically low prices.

Sen. Gene Yaw, chairman of the Senate Energy Committee, said he expects to unveil legislation that will encourage gas utilities to expand service so more Pennsylvanians can switch to natural gas as a fuel source.

The expansion of drilling in the Marcellus Shale region has driven down the price of natural gas, but almost half of Pennsylvania residents live in areas not served by gas utilities, a study by the Center for Rural Pennsylvania found.

In the past five years, the price of natural gas has dropped 67 percent,” Yaw said. “It’s cheaper than heating oil. We think Pennsylvania should be able to take advantage of that.”

Gas industry officials said they are interested in expanding to meet any increase in demand, but they are wary of any plan that would make them absorb costs that would either drain money that could be used to maintain existing and aging infrastructure or force them to pass along rate increases to current customers.

Terry Fitzpatrick, president of the Energy Association of Pennsylvania, a trade group, noted that gas companies are being pulled in two directions – with some arguing that they ought to be spending more on expansion while there is also public interest in utilities stepping up their efforts to safely maintain infrastructure.

Thursday, the Public Utility Commission fined UGI $500,000 for a 2011 natural gas explosion that killed five people in Allentown. The settlement also requires the Reading-based company to replace all its cast iron pipelines within 14 years and to improve its testing and monitoring programs.

Fitzpatrick said if the push to expand access to natural gas has existing customers subsidizing the costs of adding new customers, it would create problems.

“You need balance,” he said. “We need to see the details.”

In a letter to other lawmakers about the plan, Yaw and Senate Majority Leader Dominic Pileggi said their Natural Gas Expansion and Development Initiative would include encouraging governments to switch to natural gas to heat municipal buildings; offer incentives to school districts, colleges and hospitals to switch to natural gas and create funding alternatives to help extend natural gas into underserved areas.

Extending a gas main can cost anywhere between $500,000 and $1 million a mile, Fitzpatrick said.

Currently, a company will calculate whether there would be enough new customers to make system expansion worth the cost. Creating incentives for government and other large non-profit customers to switch to gas could be significant by creating anchor customers to make it feasible to extend gas lines into new areas.

In most cases, it only makes sense to extend gas lines into new areas where there is a large commercial or industrial customer setting up shop. Then nearby residential customers can hook onto the line, as well. Typically, there is not enough revenue generated by residential customers alone to offset construction costs.

Joseph Swope, a spokesman for UGI, which with 585,000 gas customers is the largest natural gas utility in Pennsylvania, said the company was able to extend service to Parkland High School near Allentown because UGI was extending service to a chemical factory nearby. There is now discussion about building residential developments in the area, as well.

Swope downplayed the notion that there might be a conflict between the need to maintain existing infrastructure and expand to meet new demand.

“If you are not growing your system, you are spreading higher (operational) costs on a fixed number of customers,” he said.

In 2011, UGI had a record year when 7,300 customers converted to gas from other fuels. About 80 percent of those customers switched from heating oil.

Last year, the record was shattered as 11,000 customers converted to gas.

Nonetheless, “there are a number of Pennsylvanians who want natural gas and we can’t get to them,” Swope said.

Utilities can demand that new customers foot a share of capital costs associated with installing the main. Fitzpatrick said one utility has applied with the PUC to develop a program that would require all customers to pay a share of capital costs associated with extending main lines over a period of time, amortizing the costs.

 

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