The Fight Against Subsidized Expansion of Natural Gas

Jeff Petrash joined the National Propane Gas Association (NPGA) in 2013 as vice president and general counsel following many years with the American Gas Association. At that time, NPGA had been looking for someone with a strong background in natural gas policy as the industry sought favorable parity with natural gas in public policy. Natural gas and propane are closely related and complementary in many ways; about 63% of U.S. propane comes from the natural gas stream. Propane is an ideal fuel for areas beyond the reach of natural gas lines because it is a portable fuel in its liquid form. But, there is also fierce competition between propane and natural gas in many areas as natural gas providers are always seeking to expand their natural gas pipelines to as many customers as possible.

“Where utilities compete fair and square, we can’t argue,” Petrash said. “If we want to be taken seriously, we have to have a sound argument.” He has found his sound argument in areas where natural gas utilities employ subsidized expansion. The term “subsidized expansion” refers to charging existing customers extra to cover the cost of funding construction of new gas lines to new customers, a strategy that is not economical. “We are challenging what we consider a secret tax on natural gas consumers,” Petrash explained. “Natural gas utilities should not be subsidized to take propane customers from us.” He compared subsidized expansion of natural gas to a car dealer discounting $20,000 from the cost of a Cadillac by adding extra dollars to the cost charged customers who bought Chevy’s. “It is a misallocation of public funds,” he said. “It is the use of public funds to provide more natural gas than the free market would economically provide.”

Petrash did not have to travel far from Washington, D.C. for one of his challenges with subsidized expansion. In Maryland, Washington Gas Light and Baltimore Gas & Electric were pursuing bills in the House of Delegates and Senate to allow subsidized expansion. With help from testimony by NPGA, as well as Randy Thompson, Kim Tucker, and Nash McMahon representing their respective retail propane companies, the bills did not go forward. This year, yet again, Washington Gas Light was back appealing to the Public Service Commission. This time, like last, the propane industry had allies, including apartment owners, fueloil dealers, the Office of People’s Counsel, and the staff of the Public Service Commission. “It is great when a coalition comes together. With other groups with other motives, it helps to have many challenging the subsidized expansion from different angles,” Petrash commented.

Not all the battles against subsidized expansion have been successful. “Never get between a politician and concrete,” he said, analogizing road-building battles to subsidized gas line expansions that have been approved under the guise of expanding jobs for constituents. He pointed to examples in North Carolina, Ohio, and Mississippi, where current customers were surcharged to fund the expansion of natural gas to industrial parks and similar facilities.

The NPGA Executive Committee has agreed that the fight against subsidized expansion of natural gas is a top priority. With the National Association of Regulatory Utility Commissioners (NARUC) having appointed a Natural Gas Access and Expansion Task Force with approximately a dozen commissioners from around the country, Petrash has met individually with five of the 12 commissioners, and is trying to meet with all 12. The task force is charged with creating best practices and issuing recommendations regarding natural gas service for so called underserved and unserved areas. He is sharing with each member what the propane industry finds objectionable regarding subsidized expansion. “My message is not the first thing they would think about.” Since his efforts began, he has found that two of the commissioners are propane customers. Petrash points out to each task force member some of the factors that make subsidized expansion unfair:

1. It represents a utility surcharge to existing customers that covers costs for new customers.

2. It is unfair to competition that does not benefit from public funding.

3. It is unfair to existing customers.

4. It underprices service to new customers.

Petrash does not expect every commissioner to embrace his concerns but he feels that he may sway enough to make a difference. “My point to them is that the propane industry is not just crying because it loses market share. We are going to keep making the case that it is not right for the natural gas utilities to shove costs down the throats of current customers to subsidize uneconomical expansion.” —Pat Thornton