Appalachian Basin

New York PSC Looking to Expand Natural Gas Services

The New York PSC is looking into expanding natural gas services in the state. Why? It’s cleaner, affordable, and available in abundant supply just over the border currently and potentially within the state in the near future.

The New York Public Service Commission (PSC) issued an order in November 2012 to begin examining the policies to expand natural gas services in the state. According to the document, “33% out of the roughly 3 million New York households that currently heat with fuels other than natural gas, live within an existing natural gas franchise area.”  This means there exists great potential for expansion at a minimal costs to investors and consumers, in a state that is already one of the largest consumers of natural gas in the country. Read on to find out the many other reasons why the PSC is considering this action.

What is the purpose of the order?

Natural gas meter for consumers.

If the potential exists for expansion and the gas is available abundantly locally, then why does the PSC need to review their policies? Currently extensions of lines that fall within a franchise area, generally 100 feet from a line give or take, is governed by 16 NYCRR §230 of the Commission’s regulations (p. 6). This regulation breaks down expansions by number of customers served, feet installed and other measures including when customers would receive a surcharge for the expansion. A policy from December 1989, Gas Expansion Policy Statement, dictates expansion into new franchise territories. From the order (emphasis added),

Given the significant changes in the natural gas industry, and the potential economic and environmental advantages of natural gas, it is appropriate to revisit the issues related to the natural gas system. Concerns remain regarding subsidization of expansions by existing ratepayers, particularly as such benefits shareholders. Given the potential advantages available from a well-planned expansion of the natural gas delivery system, however, Staff, the Commission and indeed all stakeholders will benefit from a better understanding of the existing system and policies, as well as the benefits and costs of expansion, improvement or other changes.

Toward that end, we institute this proceeding to review our policies regarding expansion of the natural gas delivery system. (p. 8)

The review will culminate in a “technical conference” on the matter with the opportunity to ask questions and view presentations on current policies and any revisions being considered. Comments in response to the 21 questions outlined in the Appendix of the order will also be taken until January 24.

Why now?

The policies regulating expansion in the state are over 20 years old, so it makes sense that the PSC would want to review a policy that may or may not be dated based on changes in the energy sector, specifically in terms of natural gas development. But why now? What has changed in recent years to make the decision more of a priority?

Natural gas is cleaner than other fossil fuels used for home heating and under current market conditions costs a third as much. Moreover, New York State is well-located geographically to take advantage of existing and newly developed natural gas supplies located outside our State but which, when competitively-priced, are available to supply customers within the State. New York’s location relatively close to these new sources of supply could provide the State a competitive advantage in attracting and retaining employers concerned about costs of, and access to, a reliable source of energy. In addition, consumers may enjoy significant savings in household fuel expenses which in turn could benefit the State’s economy to the extent that households redeploy those savings. (p. 1, emphasis added)

Oh right, the Marcellus Shale has changed the outlook of local (or regional) natural gas supplies, and apparently at least one government office in New York State is taking notice. It’s important to also note the date this order was issued, November 30, 2012. That’s the day after the New York DEC missed the deadline for making a decision on regulations governing natural gas development in the state, starting the expansion period that will end this Friday. Perhaps, and this is merely speculation, but just maybe the time to review decades old policies has come because despite the order specifically mentioning out-of-state availability of natural gas deposits, there could be significant in-state potential in the very near future as well. I’m not looking to put words in the Commission’s mouth, but it does seem a very real possibility that would make this review understandably justifiable.

But that’s all speculation on what the report doesn’t say. What really caught our eyes was what it does say. “Natural gas is cleaner than other fossil fuels…” “New York State is well-located geographically…” “…could provide the state a competitive advantage…” “consumers may enjoy significant savings…” And that’s just the first paragraph.

Understanding the benefits and challenges of expansion

The PSC lays this section out by breaking  down the benefits in various categories. Please look at the order for the sources used by the PSC for each of these statements. Emphasis has been added to all statements below.

Price (p. 3)

As of October 30, 2012, the spot market price of natural gas was $3.42 per dekatherm (Dt) and, on an energy equivalent basis, the price of No. 2 home heating oil, the most common alternative to natural gas, was $22.28. Current projections from the federal Energy Information Administration (EIA) indicate that this relationship is expected to continue for a considerable period.

Residential customers who are able to convert to natural gas from No. 2 oil, propane, kerosene or electricity can significantly lower their fuel costs. Under current price conditions, the typical homeowner who converts from No. 2 oil to natural gas could save about $1,300 per year, although it could be more if they convert to a high efficiency furnace or boiler. Assuming approximate installation costs for a new high efficiency heating system of between $3,000 to $5,000, a homeowner’s payback period could be less than four years.

Emissions (p. 4)

Natural gas is a cleaner fuel than No. 2 oil, kerosene or propane in terms of emissions of particulate matter, nitrous oxide, sulfur dioxide, and carbon dioxide. It is also significantly cleaner than coal. Per unit of energy, natural gas emits approximately 28% less carbon dioxide than petroleum derived fuels and has significantly lower levels of nitrogen oxides (NOx), sulfur dioxide (SO2) and particulate matter. Use of natural gas that displaces oil or coal consumption will result in lower overall emissions.

Extending Low Income Programs (p. 4)

Expanded availability of natural gas also has the potential to help low-income programs and customers. While many of the State’s low-income households heat with natural gas, many others heat with other fuels, including oil, kerosene, propane, wood or coal. Lowering fuel costs incurred by low-income customers through conversion to natural gas could provide a significant and direct benefit to these customers. It would also increase the impact of scarce assistance resources available to the low-income customer such as the Home Energy Assistance Program (HEAP).

Promoting Economic Development (p. 4-5)

Expanding the availability of natural gas also is likely to have important implications for economic development and the job market within New York. The ready availability of a lower cost energy source will enhance the viability of existing businesses as well as enhance the State’s ability to attract new businesses and industries. Moreover, expansion of the natural gas system itself will likely create and/or retain in-state construction jobs.

Further, an expanded customer base will permit gas delivery utilities to spread fixed costs to a larger number of customers. This, in turn, will have a dampening effect on future rate increases for existing customers of those utilities. Expanding natural gas infrastructure could also benefit utility shareholders by increasing the equity investment from which they are entitled to earn a return.

Finally, expansion of the natural gas system complements the economic development efforts encompassed by Governor Cuomo’s recently released New York Energy Highway “Blueprint.”  The Blueprint states that “accelerating utility capital and operation and maintenance spending on the State’s … natural gas infrastructure will result in enhanced reliability and safety for utility customers while generating substantial economic development benefits for the State’s overall economy.”

Enhancing Reliability (p. 5-6)

There are areas of the state that are supplied by a single natural gas supply line. Expansion and reinforcement of the system in these areas could provide reliability benefits by creating gas flows from more than one source or direction. Increased reliability would benefit existing customers as well as new customers. For example, increased reliability may permit existing interruptible natural gas customers that desire firm service to convert to it, reducing the need of dual fueled customers to burn oil as a back-up fuel. Similarly, a reliable source of uninterruptible natural gas would likely increase a locality’s ability to attract new businesses and other employers.

The order is not a long document by any means–only 11 pages if you don’t count the 5-page Appendix of questions–and it’s well worth the time to read it for anyone who currently uses or would consider converting to natural gas in their home or business in New York. I had to read it several times, and pinch myself, seeing this much talk of the benefits of natural gas utilization in a document produced by a New York government agency.

This order is good news for New Yorkers facing economic uncertainty, as it appears the PSC will be reviewing their policies to ensure they are written to benefit both the utility companies looking to expand their services and the consumers that would will benefit as a result. Perhaps, as this week comes to a conclusion, we’ll start seeing even more good news from the Empire State.  Could this be harbinger of good news?  Maybe, just maybe!

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