Officials at New England energy conglomerate Northeast Utilities want Connecticut’s policymakers to approve a $2.5 billion build-out of the natural gas distribution system as part of the state’s first long-term energy policy.
NU and its Berlin distribution subsidiary Yankee Gas want to convert an additional 200,000 businesses and homes to natural gas heating over the next 10 years.
“We want to be able to give the customers an option,” said Rodney Powell, president and chief operating officer for Yankee Gas. “It lowers emissions. It lowers costs. It is domestic.”
To meet this goal, the company headquartered in Boston and Hartford wants to extend main distribution lines to underserved areas. This replaces the current model of waiting until customer demand justifies the cost of constructing such lines, a method problematic to large-scale customer conversion.
In NU’s plan to build-out the system, current natural gas customers will shoulder an extra cost in their bills of constructing and maintaining an infrastructure that will be underutilized while heating oil and electric-heat customers slowly make the switch to natural gas. The company also wants the state government to cover some of the cost for customers to make the conversion to natural gas.
In exchange, NU touts the cost benefits of switching customers to natural gas, saving a homeowner $1,200 in annual fuel costs; the environment benefits as burning natural gas for heating will reduce greenhouse gas emissions 49 percent; and the 54,000 job-years that will be created during and after the construction.
“We have a once-in-a-lifetime opportunity to do something that will have a legacy impact on the region,” said James Robb, senior vice president for NU.
NU’s push comes as the state Department of Energy & Environmental Protection is developing Connecticut’s first ever comprehensive energy strategy, a long-term outlook on all fuels in all energy sectors.
“One of the things we are tasked at looking at is the fuel mix,” said Tracy Babbidge, DEEP bureau chief for energy policy.
DEEP will put out a draft of its comprehensive energy strategy draft on July 2 and is staging scoping meetings to determine the best fuel mix for sectors such as electricity generation, heating and transportation.
The Connecticut General Assembly then will review the DEEP strategy. Legislators will consider any provisions necessary to meet the goals, including funding customer conversions to natural gas and changing the regulatory policy to help build out infrastructure.
“I’m supportive of natural gas expansion,” said State Sen. John Fonfara (D-Hartford), co-chair of the Energy & Technology Committee. “This is where we need to do our homework and figure out the best approach.”
The legislature needs to weigh how much of the build-out needs to be borne by ratepayers versus the utilities, and authorize the method of expansion, Fonfara said. The Energy & Technology Committee considered putting a bill out in the 2012 legislative session calling for a pilot program on natural gas expansion, but the measure didn’t gain enough momentum in the three-month session.
Fonfara hopes to develop and pass a program in the 2013 legislative session, particularly after DEEP finalizes the strategy document.
NU is joined in the expansion effort by New Haven energy parent UIL Holdings Corp., which owns the state’s two other large natural gas utilities: Connecticut Natural Gas and Southern Connecticut Gas.
“We see it as a true slam dunk to partner together on something that creates jobs, helps the environment and benefits customers,” said UIL spokesman Michael West.
The utilities are bullish on natural gas because of the new large domestic supply, causing a dramatic price drop. New technology has made the fracking method of extracting natural gas affordable and opened up large reserves of the fuel, particularly in the Marcellus Shale formation in New York, Pennsylvania, West Virginia and Ohio.
“This has caused the price of gas to not only separate from oil but stay separated for the foreseeable future,” Powell said.
New England and Connecticut offer a great opportunity for utilities to convert customers to natural gas as 52 percent of the state still uses fuel oil for heat while 29 percent uses natural gas.
After a $2.5 billion expansion of the statewide system, Yankee Gas hopes to have 50 percent of residential customers and 75 percent of commercial and industrial customers using natural gas.
Following an expansion, the cost of doing business in Connecticut will eventually lower, Robb said. By using natural gas for heat instead of more expensive fuel, Connecticut’s commercial and industrial businesses will save $215 million in production costs annually.
“Connecticut is becoming more and more uncompetitive because we don’t have a gas option for many of the businesses in this state,” Robb said. “It perpetuates the idea that Connecticut is a high-cost state.”
Natural gas expansion isn’t possible under the current method of construction as the utilities must wait until there is large customer demand in an area before building a gas main to serve it.
Demand doesn’t hit until a single homeowner or businesses needs to replace a fuel oil boiler or other heating infrastructure, Robb said. Unless an entire street of homeowners or businesses need to replace all their individual boilers at once, the demand isn’t high enough to justify constructing new gas mains.
The cost of natural gas conversion is estimated at $7,500; and, while that is paid off in fuel savings in seven years, a homeowner isn’t likely to make the conversion in the years following the purchase of a new fuel oil boiler, Robb said.
Yankee Gas, Connecticut Natural Gas and Southern Connecticut Gas all believe the demand is already there. If customer could tap into gas mains more easily through a natural gas build-out, that demand would be realized.
Yankee Gas converted 1,000 customers in 2010, another 2,000 in 2011, and expects another 4,000 in 2012. All those are customers near existing gas mains.
“Price alone has driven customer decisions,” Powell said.
Most of the energy discussion in Connecticut has centered on electricity generation, calling for solar and other renewables to power the state, comprising 27 percent of the generation fuel mix by 2020.
Connecticut’s electricity is already some of the cleanest in the nation because the bulk of the state’s power comes from natural gas and nuclear, Robb said. However, the state’s heating fuel mix is among the dirtiest in the nation, as the majority of homes and businesses still use heating oil — compared to 9 percent for the nation.
Large-scale natural gas conversion for heating will largest impact on greenhouse gas emissions for the least amount of money, Robb said.
“This is the only clean energy investment that actually lowers costs,” Robb said.
