The Oregon Public Utility Commission (OPUC) partially rejected attempts by NW Natural to pass on the costs of lobbying and promotional advertising to ratepayers in what climate advocates are calling a major victory against the gas utility. The regulatory body also forged new ground by ordering a phasedown of subsidies that promote the growth of the gas system, citing the growing likelihood that customers may shift away from gas over the long-term.
Late last year, NW Natural, a gas utility that serves roughly 2.5 million customers in Oregon and southwest Washington, filed a request with state regulators that sought to hike rates for residential customers by 12 percent to cover the cost of infrastructure upgrades, as well as the costs for advertising, executive bonuses, anti-climate lobbying, and even for gas-friendly activity books for elementary school children. DeSmog covered this rate request in May when a coalition of community and environmental groups formally opposed many of NW Natural’s justifications for passing on higher costs to customers.
The Oregon Public Utility Commission (OPUC), which oversees and regulates utilities, published its order on October 24, in which it rejected several of the gas utility’s rate requests.
The decisions made by OPUC, and the reasoning behind them, were notable. First, regulators rejected NW Natural’s attempts to bill customers for the costs of its lobbying activities. Utilities can recover costs of routine communications with government officials, but not lobbying or political activities.
But NW Natural sought rate hikes to cover the costs of its lobbying to block or slow building electrification policies at the local level. Several Oregon cities and counties, such as Eugene, Milwaukie, and Multnomah County, are considering all-electric building codes or bans on new gas connections. NW Natural described these communications with local officials as routine business and wanted these costs to be baked into customer bills, but the OPUC rejected this characterization.
“[M]any of the communications underlying the company’s budget include efforts to influence city or county officials, such as the communications with Multnomah County officials and the communications with Milwaukie city councilors,” the PUC order stated. “Under this Commission’s precedent, utilities are not permitted to recover expenses associated with political lobbying.” The OPUC cut $356,106 from the total amount of money recoverable, deciding that salary costs and other expenses related to political activities amounted to lobbying, and thus, was not allowed to be passed on to ratepayers.
A second noteworthy decision in the OPUC order was that it called out NW Natural’s attempts to recover costs for promotional advertising. Utilities can pass costs on if advertising relates to safety or informing the public about other core utility information. But they can’t recover costs for corporate image promotion. NW Natural and the coalition of groups had previously reached a settlement that reduced some of the recoverable advertising costs; the coalition wanted more cuts. The OPUC declined to go further, but warned NW Natural on seeking reimbursement for costs associated with promotional advertising.
The OPUC paid special attention to NW Natural’s campaign, detailed in previous reporting by DeSmog, that sent gas-friendly activity booklets to schools, spreading a pro-gas message to children. NW Natural said the booklets related to safety, but the utility commission was not convinced.
“Some of the booklet pages involve activities for children to identify which activity book character and which fuel source, natural gas or diesel, were considered ‘dirty’ or ‘clean,’ which has nothing to do with the purported safety messaging goal,” the order stated. “The purpose and scope of these booklets well exceeds the stated purpose of providing safety information to children.”
In August, more than two dozen advocacy groups and state lawmakers sent a letter to Oregon’s attorney general. It asked the state’s Department of Justice to investigate NW Natural over its misleading advertising and to “protect residents from the increasingly harmful actions of a desperate company using unconscionable tactics in an attempt to prevent regulation of its poisonous product.”
NW Natural did not respond to a request for comment from DeSmog.
Utility Commission Sees Uncertain Future for Gas Utility Business
One of the most important results from the rate case was the OPUC’s decision to begin a process of phasing out a crucial but largely overlooked subsidy that has long been deeply embedded in the gas utility model.
Dubbed a “line extension allowance,” gas utilities receive a subsidy of $2,875 for every new residential customer it adds to its system. The logic is to spread the cost of new gas connections across the entire customer base. In practice, it amounts to a subsidy to grow the gas system in perpetuity. With the climate crisis worsening, environmental advocates have demanded that the line extension allowance be phased out.
In August, California announced that it would eliminate its line extension allowance in an effort to halt the growth of the gas system.
The Oregon PUC took initial steps to follow in California’s footsteps. The OPUC order said that “continued use” of the line extension allowance “would be problematic.” The subsidy fails to take into account the costs of adding new customers at a time when gas utilities must cut greenhouse gas emissions to comply with state climate targets. Gas utilities in Oregon are required to cut their emissions in half by 2035. The cost of decarbonizing while adding new customers could be “significant,” the commission said.
“In fact, the record demonstrates that those costs, when accurately accounted for, could result in no or negligible economic benefit being brought to the existing system from the addition of new customers,” the OPUC said.
In addition, the methodology used to calculate the line extension allowance assumes that customers stay on the gas system for 30 years. But notably, the regulators said that assumption is “likely too optimistic.”
NW Natural’s contention that new customers will remain on the gas system for several decades despite increasingly stringent climate policies is “not persuasive,” the regulators said. In fact, Oregon’s climate targets and the proliferation of bans on new gas hookups at the local level “point to a reasonable possibility that the company will encounter a trend of decreasing gas usage, potentially driven by economic signals toward fuel switching.”
In other words, it would be counterproductive to continue to subsidize the growth of the gas system when all signs point to a quickening transition towards electrification.
A June study found that Oregon ratepayers could save $1.7 billion through 2050 in a scenario in which the state moved swiftly away from gas and towards all-electric appliances.
The OPUC said the line extension allowance will be reduced over the next three years, but much of the specifics remain to be determined.
Reducing the line extension allowance is a “big deal,” Greer Ryan, clean buildings policy manager at Climate Solutions, told DeSmog in an email. “That might be the biggest deal when it comes to preventing gas system growth, as it’ll likely change the economics of installing gas vs. electric appliances for new building developers,” Ryan said. She added that it was also important that the PUC is now on record calling out lobbying and promotional advertising.
Nevertheless, Ryan said, “it’s hard to celebrate too much” given the multiple rate increases that are going forward. NW Natural has filed a total of three rate increases since October 2021, which could result in residential rates going up by a combined 42 percent (an OPUC ruling on some of those increases is expected imminently).
The bulk of the increases stem from the broader spike in the cost of gas, a phenomenon that is affecting gas customers around the world. The OPUC already approved a previous rate hike due to rising gas costs, and more increases are expected. The “overall impact to Oregon ratepayers is still really significant,” Ryan emphasized.
Still, the decision was praised by the coalition of environmental groups that intervened in the case.
“The escalating climate crisis demands smarter energy choices. The Commission’s Order – limiting charges for new gas lines, misleading advertising, and pro-gas lobbying – reflects serious concern about NW Natural’s spending,” said Kristen Boyles, attorney at Earthjustice representing the community groups. “It’s clear that NW Natural’s ratepayers should not bear the costs of a dying industry during a climate emergency.”