By Heather Douglas
There are always lessons to be learned from the disagreements between propane and fuel oil dealers and the local governments who want to choose the victors and penalize other fuel sources. Pennsylvania is the latest jurisdictional case in point.
Historically, Pennsylvania offered a competitive fuel marketplace and welcomed the sellers and distributors of all fuels – natural gas, propane, fuel oils – to the table. That stance changed after the prolific Marcellus shale gas and liquids field was discovered and exploited. The local natural gas public utilities (and their investors) mounted a campaign to allow the utilities to petition the Public Utility Commission (PUC) to recover the costs for the extension of natural gas lines to unserved and underserved areas, including recovery of the costs of converting customers’ internal piping and appliances. The costs would be financed through charges spread across the entire existing customer base of the utility through a 2.5 per cent levy.
The state propane and fuel oil dealers launched a government relations lobbying effort to defeat this motion. Their argument was based on the fact the government’s bill “socialized the cost of new natural gas extensions at a time when existing natural gas infrastructure is in significant need of upgrading and is already being funded by a distribution system improvement charge (DSIC) of 7.5 per cent to improve safety and reliability.”
The coalition questioned the government’s decision to hurt some state industries. It claimed this action would have an enormously detrimental influence on the state’s billion-dollar propane industry by unfairly subsidizing uneconomic natural gas extension. The Marcellus shale also produces significant new amounts of propane, which currently outstrips natural gas production by a margin of four to one.
“The General Assembly should not be in the business of picking winners and losers in the residential fuels market,” the coalition said in its submission. “By so clearly tipping the balance toward natural gas, the state is making a choice and intruding into this very competitive marketplace. Picking winners now is especially risky because of the significant reduction in the price of heating oil in today’s market. While natural gas is at historic lows, that market is expected to tighten as liquefied natural gas (LNG) exports increase and more interstate pipelines are built. New customers locked into gas service now, and the existing customers who keep paying for service extensions, may not be very happy with paying these costs in the future.”
The PUC held a hearing on April 26, 2017. The propane coalition argued the motion was unfair saying a mile of new gas service pipeline had a price-tag as high as $1 million to install and that just a handful of these extensions could easily run into the tens of millions of dollars that would have to be shared amongst all ratepayers. “Propane can be used for any purpose natural gas is used for, and propane has the advantage of being portable, a quality that does not apply to natural gas,” the coalition reported.
The coalition’s next argument was that regulated utilities should not have an advantage over the private sector, and thus making the playing field uncompetitive. “Gas utilities should not be given this advantage over oil heat and propane companies. The cost for this should not be borne by the ratepayers of the utilities. It should be charged to the utilities’ shareholders – the ultimate beneficiary of the increased use of natural gas.”
This motion subsidizes the costs of in-house piping and appliances, the coalition argued, “a stark and troublesome departure from longstanding legislative and PUC policy of permitting socialization of costs only for safety and reliability improvements to existing utility customers.”
Pennsylvania’s propane industry is valued at $2 billion annually and provides more than 1,000 good paying jobs, the coalition concluded. “Propane provides fuel in emergency settings because of its portability, and will remain as the only type of gas for heating in some rural areas because of topography and cost considerations.”
The lobbying efforts from both the public utilities and the propane and fuel oils industries is expected to continue throughout the summer.
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