Key Points for Opposition of HB 107

Both the PA industry retail fuel Associations, Pennsylvania Petroleum Association (PPA) and Pennsylvania Propane Gas Association (PAPGA), have supplied key points and an outreach strategy to express opposition to House Bill 107 (Godshall-R-Montgomery) which would authorize a new Distribution System Extension Surcharge on all existing natural gas ratepayers to pay for service line extensions to new customers.

It is clear in both our team and these Associations’ legal teams review that this legislation would have a devastating impact on the heating oil and propane markets of Pennsylvania. We encourage PA retail fuel companies, their employees and other stakeholders to express opposition by submitting comments to their local and state legislators (just copy and paste the comments below to email or call them) so we have a unified approach. Open comment period is through mid-June.

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Among the key concerns identified with HB 107 are:

  1. Picks Winners (natural gas public utilities and their investors) and Losers (propane dealers & fuel oil dealers) in a competitive fuel marketplace, yet the apparent economic justification for the bill (cheaper Marcellus Shale natural gas to unserved and underserved areas) is undermined by:
    • Marcellus Shale also producing abundant propane for PA and export
    • Jobs created by propane production in PA
    • Harm to propane industry in PA that is essential for existing and future needs

The General Assembly should not be in the business of picking winners and losers in the residential heating fuels market. 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 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.

  1. Fairness & Charges – Existing customers of natural gas service providers must pay to extend new service to benefit just few new customers, subsidize uneconomic main extensions when such customers receive little or no benefit and are already paying natural gas companies an accelerated return on much more needed infrastructure investments (DSIC–Distribution System Improvement Charge). A mile of new gas service pipeline can cost as much as $1 million to install. Although there are certain limits in the House Bill 107, just a handful of these extension projects could easily run up tens of millions of dollars in costs annually that existing ratepayers would have to pay. Why should a relatively few customers be permitted to skew distribution main extension priorities and capital expenditures when, by definition, the extensions are UNECONOMIC (i.e., the utility cannot obtain a return of or on the investment within a reasonable time, and therefore it should not be made because–to make up for the deficiency created–all other customers will be required to pay increased rates to ensure the utility receives a fair and adequate return on its investment, but only after a rate case where all revenues and expenses are exposed for examination for possibly offsetting adjustments, A PROCESS THAT DOES NOT OCCUR WHEN CUSTOMERS ARE DIRECTLY SURCHARGED FOR DISCRETE INVESTMENTS).
  2. Regulated Utilities Should Not Have Advantage Over Private Sector – It makes the playing field even less even. Natural gas public utilities already enjoy an enormous competitive advantage by receiving virtually guaranteed returns on their investments through PUC regulation AND enjoy an exclusive service territory for the distribution of natural gas (propane dealers enjoy neither advantage). Gas utilities should not be given a competitive advantage over private sector oil heat and propane companies by enacting this surcharge for service expansion. The cost for this should not be borne by the ratepayers of the utility. The cost should be charged to its shareholders– the ultimate beneficiary of increased use of natural gas.
  1. Gives a windfall to natural gas public utility investors by having customers contribute the funds necessary to pay for distribution facilities to new customers.
    • Such contributed plant is not included in the utility’s rate base for return purposes, but the new plant enables more throughput and therefore increased sales revenues.
    • Regulated natural gas companies principally receive revenue from distribution, not from the sale of the commodity which must be procured on a least-cost basis and sold without markup.
    • The burden on ratepayers will only increase because such a windfall, once granted to natural gas utilities, will quickly be requested by other regulated utilities.
  1. Subsidizes the costs of in-house piping and appliances, 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. Such funding raises novel problems. g., do in-house improvements and equipment belong to the utility since its ratepayers helped pay for them (are they “contributed plant”)?  Do ratepayers or homeowners have the responsibility to maintain, repair, and replace such in-house improvements and equipment?  Does the PUC, as it does with all other utility plant and equipment, have the right to enter upon the premises to examine and audit the piping and appliances?
  2. Paying For In-Home Equipment Is Clearly Of No Benefit To Existing Ratepayers – House Bill 107 would authorize rebates or buy downs for in-house piping or new furnaces on the customer side of the gas meter further lowering the barrier to switching residential heating fuels. As Gladys Brown, Chairman of the Public Utility Commission, told the House Consumer Affairs Committee, this kind of cost recovery provides “no discernable benefit” to existing customers and imposes an unreasonable cost on those customers. This completely upends current rate recovery law where there must a reasonable relationship between the rates charged and benefits to customers.
  1. Passage Would Negatively Impact Pennsylvania Refining Industry – Pennsylvania is fortunate to have a large refining presence. The Philadelphia facilities account for thousands of direct or ancillary employees and generate significant tax revenue. Lower demand for refined fuels will impact these operations. The Marcellus gas industry has enormous economic presence in the state, but state government should not choose one job base over another.
  2. Important Jobs & Heating Sources – Overlooks the fact that Pennsylvania’s $2 billion propane industry provides good paying jobs for over 1,000 citizens, provides fuel in emergency settings because of its portability, and will remain as the only type of gas for heating is some rural areas because of topography and cost considerations.

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