The Current State of Natural Gas Utility Line Extension Policies

Line extension allowances (LEAs) are programs designed to offset some or all of the costs of connecting customers for natural gas service. These programs have been critical to ensuring equitable access to the system while minimizing subsidies across different customers or customer classes. Recently, some stakeholders have called for a change to these policies to eliminate perceived incentives for gas service to new customers. For example, some groups have begun to call for the end of “subsidized gas line extensions.” This framing represents a fundamental misinterpretation of the purpose of line extension allowances. It is inconsistent with the legal and regulatory frameworks developed over centuries with the purpose of ensuring safe, reliable, resilient, and nondiscriminatory utility service at a reasonable cost.

Utilities are charged with an obligation to serve as many citizens as possible technically and economically.

The principles of the public service obligation, including the provision of fair service extension, underpin how LEAs have been developed. Those principles have ultimately resulted in LEAs that 1) treat new customers on a nondiscriminatory basis, 2) treat the utility and its existing customers fairly by eliminating long-run subsidization by existing customers, and 3) provide incentives for the rational and economic expansion of the gas system.

The report shows that removing or limiting natural gas line extension allowances may result in additional upfront costs for new customers, which shifts some of the economic benefits that new customers are paying for to the existing customer base.

Despite differences in design and implementation, all LEAs are created to ensure that adding new customers benefits existing customers by spreading fixed costs across a larger customer base. Therefore, the curtailment or elimination of LEAs may lead to government-imposed inequitable service, discriminatory access to energy, and stagnant economic growth.

This report is the basis for a rational discussion of the purpose of LEAs and the benefits they bring to society and consumers through a review of the regulatory frameworks that have resulted in modern LEA design. It provides vital insights for stakeholders involved in examining these policies and offers a comprehensive analysis that supports informed decision-making and strategic planning in the utility sector.

Read the full report below.