Utilities want your residential customers at someone else’s expense

July 1, 2014 By and    

I recently did an impact study for a client who wanted to know what would happen to the propane industry in the state if a subsidized natural gas expansion plan were put into place by legislation or public policy change.

This was an eye-opening and sobering experience for my client and me. Here are a few things that came out of the study.

Most natural gas public utilities have an abundance of natural gas available to sell due to the shale gas revolution and increased natural gas (methane) production across many parts of North America. Natural gas utilities are looking over their shoulders at increased natural gas liquid exports, producer direct sales to power plants and other direct-to-market sales that leave them out of the profit picture.

Just like the propane industry, natural gas utility sales have been on a steady decline due to customer conservation, increased efficiency of appliances, warm winters, competition from electricity utilities and other challenges.

Utilities are scrambling to find new ways to sell more natural gas in the retail marketplace and use some of that new methane production before it goes to other sources. Natural gas utilities need new customers to stop the sales decline and keep their profits at respectable levels for their shareholders, and your residential and commercial propane customers are high on their target list. Like most propane retailers, natural gas utilities generally depend on residential and commercial gas customers for the majority of their profits.

Here are a few tactics that natural gas utilities use to aim at your propane customers:

Lobbying –Natural gas utilities and their trade association, the American Gas Association, have a heavy lobbying presence in your state capital. They seek out energy committees and sympathetic legislators to listen to their stories, and they have plenty of political action committee (PAC) money to gain their attention. They already have the ear of the public service commission or other agencies in your state that regulate their activities. Your state or regional propane association needs to have some level of lobbying presence in your state capital relating to the potential impact of natural gas expansion in your state, and you need propane PAC money to open doors for them.

Consumer savings claims – The linchpin of the argument for typical natural gas utilities is the claim of significant consumer savings by switching from propane to natural gas. While there is little doubt of some consumer savings, I have found the savings claims of fuel-switching advocates to be greatly exaggerated. Unchallenged savings claims that are two or three times actual have a way of swaying even the most propane-friendly legislator, especially after the publicity surrounding alleged propane price gouging and supply shortages. It’s important you work with your state association and your lobbyists to set the savings record straight.

Subsidy requests – The new frontier for natural gas utilities to raise capital for expansion is the subsidization of costs through a fee on their current customers, a state tax increase or both. This subsidy strategy protects their balance sheets and their shareholders from costly infrastructure investments that could never be justified in the traditional corporate business model. Natural gas utilities have already hooked up to the easy-to-reach customers in the more densely populated parts of the country. Reaching new customers now usually means main gas line extensions at the cost of $1 million per mile or more and, in some cases, increasing the size and capacity of the main line further upstream at an even higher cost per mile. In most cases, your propane customers cost more money to reach than the utilities can justify, and that is why utilities want someone else to pay for that expansion activity. Creating unfair competition is not smart or good public policy. Don’t let it happen in your state.

Look to the National Propane Gas Association, your state or regional propane association, and websites for ideas in the development of your strategy to deal with the subsidized expansion of natural gas in your state. Your livelihood could depend on it.

Tom Jaenicke is the founder and the principal adviser at ATomiK Creative Solutions LLC. He can be reached at tom@atomikenergysolutions.com or 810-252-7855.

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