By John Finnerty
CNHI Harrisburg Bureau
HARRISBURG - More than 18,000 customers have switched to natural gas in the past two years to capitalize on historically low prices, but almost half of Pennsylvanians live in areas not served by gas utilities.
State Sen. Gene Yaw, chairman of the Senate Energy committee, said he hopes to soon unveil legislation that will encourage gas utilities to expand service so that more Pennsylvanians can switch to use natural gas as a heating source.
The expansion of drilling in the Marcellus shale region has driven down the price of natural gas — nearly 67 percent in the past five years, Yaw said.
“It’s cheaper than heating oil,” said Yaw, of Loyalsock Township. “We think Pennsylvania should be able to take advantage of that.”
Gas industry officials said they are certainly interested in expanding to meet increases 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, said that gas companies are being pulled in two directions — with some arguing that they ought to be spending more money on expansion, while there is also public interest in utilities stepping up their efforts to safely maintain infrastructure.
On Thursday, the Pennsylvania Public Utility Commission voted to fine 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 expand and enhance its testing and monitoring programs.
If the push to expand access to natural gas creates a conflict in which existing customers are subsidizing the costs of adding new customers, it would create problems, Fitzpatrick said.
“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 that their Natural Gas Expansion and Development Initiative would include encouraging governments to switch to natural gas to heat their office buildings; offer incentives to school districts, colleges and hospitals to switch to natural gas; and create funding alternatives to help bring natural gas into under-served areas.
Extending a gas main can cost between $500,000 and $1 million a mile, Fitzpatrick said.
When a gas company considers whether to extend service, it will perform a calculation to determine whether there are enough customers to make the effort worth the cost. Incentives for government and other large nonprofit 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. Otherwise, there typically is not enough revenue generated by residential customers to offset the construction costs.
Joseph Swope, a spokesman for UGI, which with 585,000 gas customers is the largest natural gas utility in Pennsylvania, said the gas company was able to add gas service to Parkland High School near Allentown because UGI was extending gas service to a chemical factory nearby. There is now discussion about building residential developments in the area, which could have access to natural gas.
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,” Swope said.
In 2011, UGI has a record year when 7,300 customers converted to gas from other heating sources. In about 80 percent of those cases, customers were switching from heating oil, Swope said.
Last year, the record was shattered as 11,000 customers converted to natural gas. That was despite the issue raised by Yaw that many Pennsylvanians do not even have the option of switching to gas.
“There are 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 the capital cost associated with installing the main. Fitzpatrick said that one utility has filed an application with the PUC to begin developing a program that would make all customers to repay their share of capital costs associated with extending main lines over a period of time, amortizing the costs.