Northeast Gas Association 2014 Sales and Marketing Conference Government Initiatives on Natural Gas Expansion - March 14, 2014

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Northeast Gas Association 2014 Sales and Marketing Conference Government Initiatives on Natural Gas Expansion - March 14, 2014
Northeast Gas Association
2014 Sales and Marketing Conference

       Government Initiatives
     on Natural Gas Expansion

            March 14, 2014
Northeast Gas Association 2014 Sales and Marketing Conference Government Initiatives on Natural Gas Expansion - March 14, 2014
State Agencies Involved throughout Gas Expansion Process

 Market,               Challenges,            Policies and
                                                               Implementation
 Potential Benefits    Costs                  Programs

 • Market studies     • Customer            • Financing      • Planning
                        conversion costs
 • Economic                                 • Incentives     • Reporting
   benefits           • Regulatory                             requirements
                        policies            • Rate design
 • Environmental
   benefits           • Investment

 • Economic           • Gas supply and
   development          pipeline capacity

                                                                                2
Northeast Gas Association 2014 Sales and Marketing Conference Government Initiatives on Natural Gas Expansion - March 14, 2014
Example – Massachusetts Department of Energy Resources

 Gas distribution
  expansion study
   Opportunities
   Challenges & barriers
   Strategies, policy
    options,
    rate/regulatory
    models
   Economic and
    environmental
    analysis
   Collaborative
    stakeholder process

                                                         3
1. Define Market Potential

 By regions
       Communities
 By access
       On-main
       Off-main
       New communities
 By end user
       Residential
       Commercial
       Industrial

 http://www.rural.palegislature.us/documents/reports/Natural-Gas-Infrastructure-SR29.pdf
                                                                                           4
1. Identify Customer Interest

     DOER study, 2nd stakeholder meeting
                                           5
1. Quantify Potential Benefits

 Fuel savings
     Pennsylvania
         •   Fuel savings of approximately $1,500/year for converting customers;
         •   $15.2 million/year of additional GDP; and
         •   $7.1 million/year of disposable personal income injected into the state economy.

 Environmental benefits
     Reduce carbon emissions
 Economic development
     Pennsylvania
         •   3,100 additional job-years from 2014 through 2040.

 Energy efficiency

                                                                                                6
2. Identify Challenges to Achieve Benefits

 Customer challenges
     Upfront cost
          •   New heating system
          •   Contributions (CIAC)
     Conversion process
          •   Can be cumbersome

 LDC challenges
     Policies that prohibit cross-subsidies
     Gas supply and capacity constraints

 Other challenges
     Permits

                                               7
2. Upfront Cost is a Challenge for Off-Main Projects

     DOER study, 2nd stakeholder meeting
                                                       8
3. Develop Policies and Programs – Setting a Framework

          High

Upfront
Cost

          Low                                        High
                     Access to Natural Gas

                                                            9
3. Develop Policies and Programs – Estimating Impacts

     DOER study, 2nd stakeholder meeting
                                                        10
3. Policies and Programs: Financing

 Lower upfront cost through financing
     No- or low-interest financing options

     Financing of equipment costs and/or the CIAC

     Repayment through the utility (on-bill repayment), or a third-party bank (loans)

 Market
     Primarily On-Main

 Example
     Southwest Gas offers a Residential Amortization Program, which allows customers to
      pay their CIAC interest-free through an on-bill surcharge. This type of financing is
      similar to zone rates.

     Many utilities partner with third-party banks to provide low-interest loans for
      equipment purchases, such as the HEAT Loan Program in Massachusetts, which
      focuses on high energy efficiency boilers and heaters.

                                                                                         11
3. Policies and Programs (cont.): Financial Incentives

 Lower upfront cost through incentives
     Rebates, grants, and tax credits

     Funding sources from utilities and government agencies

 Market
     Primarily On-Main

 Example
     Puget Sound Energy offers up to $3,550 in incentives for customers switching from
      the utility’s electric service to the natural gas heating service, along with additional
      rebates (up to $800) for installing higher energy efficient equipment.

     The conversion incentive amount can be applied to the equipment and installation,
      but is limited to 75% of the total cost.

                                                                                           12
3. Policies and Programs (cont.): Free Service Lines

 Lower upfront cost through free service lines
 Market
      Primarily On-Main

      Promotes the connection of Low-Use customers, which increases the likelihood of
       that customer’s future conversion to natural gas.

 Example
      Many; according to AGA study, at least 49 utilities

                                                                                   13
3. Policies and Programs (cont.): Low-Cost Bonds and Grants

 Lower cost of expansion through financial support
     in areas where capital is limited or unwilling to invest

 Market
     Off-Main

 Example - North Carolina
     LDCs in North Carolina have used $200 million in natural gas bond funds (in addition
      to $115 million in expansion funds paid for by all gas customer in the state) to expand
      access to the natural gas system in rural parts of the state.

     These funds were used to expand service to 31 counties, increasing the total number
      of counties in the state with access to 96 (out of 100).

 Other States where Implemented or Proposed
     ME, NC, PA

                                                                                          14
3. Policies and Programs (cont.): Zone Rates

 Lower upfront cost by spreading expansion costs over a pool of new
  customers, and recovering costs over a longer period of time through a rate
  surcharge on new customers
 Market
      Primarily Off-Main

 Illustrative Example
      Florida Public Utilities Company (“FPUC”) has increased its customer base by nearly
       20% since implementing zone rates in 1995.

      FPUC’s Area Expansion Program allows new customers that are part of an expansion
       project to pay a $5.00 per dekatherm surcharge for 10 years.

 Other States where Implemented or Proposed
      CT, DE, FL, MN, NY, PA, UT

                                                                                         15
3. Policies and Programs (cont.): Blended Rate

 Lower upfront cost by spreading expansion costs over all customers, and
  recovering costs over a longer period of time through a rate surcharge on all
  customers
      Recognizes the importance of having access to natural gas

 Market
      Primarily Off-Main

 Example
      AGL Resources’ Strategic Infrastructure Development and Enhancement (STRIDE)
       program in Georgia allows the utility to invest $400 million over ten years in
       infrastructure improvements, including expansion to meet forecasted growth.

      This program was merged with the company’s existing Pipeline Replacement
       Program (which was initiated in 1998) to ease implementation.

 Other States where Implemented or Proposed
      CT, GA, MN, MS, NC, NE, TX, VT

                                                                                  16
3. Policies and Programs (cont.): Illustrative Summary

                                                         17
4. Monitor and Track Implementation

                           Market
                          Potential

                        Planning
                            &
                        Reporting

    Policies and                      Results
     Programs

                                                18
Thank You!

Tim Lyons
Partner
Sussex Economic Advisors
802-497-0761
802-598-1651
tlyons@Sussex-advisors.com

                             19
About Sussex

Sussex Economic Advisors, LLC is a management and economic
advisory firm providing consulting services to regulated industries such
as natural gas, electricity, water, and thermal energy distribution.
 The firm’s Partners have held senior positions in utility companies, competitive
  energy suppliers, management consulting firms, and business-focused
  academic institutions.
 Our Consulting Staff, Executive Advisors, and Affiliated Experts have
  substantial experience and training in matters relating to regulatory strategy
  and policy development, gas supply planning and capacity portfolio optimizing,
  energy market analysis and assessments, financial and economic analysis,
  rate proceedings and regulatory compliance, due diligence and valuation, and
  management reviews and audits.
 Sussex has a long list of clients including natural gas distribution companies,
  electric utilities, combination utilities, electric transmission providers, natural
  gas pipeline companies, state agencies, and non-regulated energy market
  participants.

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