Massachusetts signals new gas customers may soon have to pay full hookup costs
Gas utilities may need to make changes in an effort to wean the state off of natural gas and meet climate goals.
THE DEPARTMENT OF Public Utilities has indicated that gas utilities may no longer be able to charge existing gas customers for the cost of adding new ones – one step among many that the agency is taking to wean the state off of natural gas to meet climate goals.
The agency is currently reviewing the climate compliance plans submitted by gas companies in April, to ensure their operations and future projects align with the state’s legally mandated climate goals. As part of this process, the DPU issued an order last week that new gas customers will be responsible for the entire upfront cost of connecting to the existing system unless the new customer has no alternative to natural gas.
The order addresses the “line extension allowance”– a much-debated policy that lets gas companies subsidize new customer connections by spreading infrastructure costs to existing ratepayers. Utilities companies say this policy ensures equitable access, treats customers fairly, and lowers rates by sharing costs more widely. Environmentalists counter that it incentivizes natural gas infrastructure expansion, raises costs for current customers, and undermines climate goals.
“The DPU’s order establishes an intention to move away from line extension allowances for new gas hookups … to promote more affordable options for ratepayers,” a DPU spokesperson said in an emailed statement. “Line extension policies, along with other elements of the plans submitted by the gas companies, will be reviewed by the DPU over the next several months.”
The new policy, if enacted, would start after the DPU issues final decisions on the gas companies’ climate compliance plans, the timeline of which is not clear as the agency doesn’t have a statutory deadline. DPU proposed an earlier version of this change in February that included more circumstances in which a utility could claim an “exception” to continue offering line extension allowances. The updated proposal narrows those circumstances, permitting allowances only when no “technically feasible” alternative exists.
Across the US, states are reassessing gas utility line extension policies amid climate and energy affordability concerns. California and Colorado have started to eliminate the practice. New York passed a bill this summer aiming to phase out line extension allowances. Overall, 12 states plus Washington, D.C. have either removed these policies or are actively reviewing them for reform, according to the Building Decarbonization Coalition, a national group that works on promoting fossil-fuel free buildings.
The DPU made this decision after stakeholders like the Department of Energy Resources, the attorney general, the Sierra Club Environmental Law Program, and Conservation Law Foundation shared public comment letters and testimony to the agency that eliminating line extension allowances would change the equation for developers when considering whether to add gas or electrification and decarbonized energy in new buildings.
DPU also considered a 2022 study by Rocky Mountain Institute (RMI), a nonprofit advancing clean energy solutions, which concluded that electrification of new buildings is the cheaper option for customers and developers. According to RMI, the line extension allowances distort the true costs of the system by making it easier for developers to hook up to the gas system.
Eversource and National Grid, the two biggest gas utility companies in the state, said that they are both “reviewing” the new DPU order on line extension allowances.
“There is no legal authority for the DPU to prevent customers from taking gas service, where it is economic for the gas utilities to serve those customers, and as a result, we need to closely evaluate the issues that this could raise,” said William Hinkle, a spokesperson for Eversource, in an emailed statement. “Access to safe, reliable energy service is imperative to the health, well-being, and economic success of people and businesses alike, and customer choice is paramount to realizing an affordable energy transition.”
In the past, the two companies have argued that line extension allowances do not burden existing rate payers because there is an assumption that the new customer will eventually pay off the allowance and that having more customers in the system will lower the average service cost for all customers. Gas utilities only serve a new customer if the cost of adding that customer will be less than or equal to the revenue that the new customer will produce for the system. If a new gas hookup doesn’t pass this “economic test,” new customers must pay the difference between the cost and the revenue in order to join the gas system.
In a public comment letter submitted to DPU in April, the company urged DPU to not remove the line extension allowance policy.
“The singular result from the Department’s decision to eliminate the economic test and to require a new customer to pay for any and all infrastructure upgrades needed on the system on an upfront basis, without any consideration that the customer’s future revenues will pay for that infrastructure in any event, will be to defeat any use of natural gas and to push customers and developers to fuel sources with more harmful environmental impact,” wrote Danielle Winter, representing Eversource in the comment document.
Mark Dyen, a former program manager for the Massachusetts’s energy efficiency program and a volunteer with Gas Transition Allies, a coalition of climate groups, said that the current line extension allowance policy makes sense if the state is planning on staying on the gas system in the coming 50 to 90 years.
“Why should we, the existing rate payers, invest in expanding a capital structure to this new customer who doesn't have to burden the system?” said Dyan. “If the gas system is going to be there forever serving everybody, then it makes sense to spread these costs out. If people are going to be moving off the gas system as a state policy, then what you're doing is burdening the existing rate payers with an expense that really doesn't benefit them.”
According to a report by environmental consulting firm Groundwork Data, more than $160 million was spent in 2023 to connect new residential and commercial customers across the state to the gas system. In 2021, that number was over $120 million. Much of the upfront cost was borne by existing ratepayers because about 80 percent of all connections reported by National Grid, Eversource, and Berkshire Gas since 2018 have been free to new customers.
The NAIOP Commercial Real Estate Development Association of Massachusetts and the Greater Boston Real Estate Board submitted comments to DPU in opposition of the change in March. They argued that this change will increase already ballooning costs for building housing that is desperately needed in the state – especially lower- and moderate-income housing.
“Requiring project proponents to shoulder the entire upfront cost of new gas connections will simply halt new housing and economic development projects,” wrote Tamara Small, the head of NAIOP. “The uncertainty surrounding federal tariffs; existing state and local regulatory costs; and the cost of capital have already put projects across the Commonwealth at risk due to financing considerations. To then require a project proponent to incorporate potentially millions of dollars more in connection costs will mean that housing and commercial projects cannot be financed.”
Caitlin Peale Sloan, vice president for Massachusetts at the Conservation Law Foundation, an environmental advocacy organization, said that given the state’s climate goals, expansions to the gas system risk becoming obsolete in the future. As more and more transition away from gas, the ratepayers who are left on the system will end up paying for the entire cost. This can potentially lead to a scenario where lower-income residents or renters – who are less able to transition to clean energy – are stuck on an increasingly more expensive gas system.
“The companies are constantly adding new customers, and some of them have said that their business model is based on expansion,” said Peale Sloan. “That's really the question being posed in the climate compliance plan process: Are utilities really planning for a future where they’re not growing anymore? What does that cost customers? How do we transition this fairly for their workforce and for their customers?”
DPU has also taken aim at a program that allows gas utilities to recover costs from ratepayers to replace leak-prone pipes. Gas utilities have spent about $5.6 billion dollars through the program – called the Gas System Enhancement Plan (GSEP) – in the last decade, according to the DPU. In April, state officials reduced the cap on GSEP spending from 3 percent of the companies’ revenues to 2.5 percent. They also ordered gas companies to prioritize fixing current pipelines instead of replacing them, and to investigate the feasibility of non-pipeline alternatives like network geothermal, solar, or air-source heat pumps when deciding whether to replace a pipe.
“The orders are an indication that we are moving,” said Dyen. “We in the Commonwealth are moving systematically towards compliance with the broad policy goals and the specifics of the [climate] legislation. There's no backing off that you can see in this.”
This article first appeared on CommonWealth Beacon and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
